Sunday, Nov 28

Financial Insecurity Face-off: 24 TVM Overcoming the Fear of Investing in Uncertain Times

Financial Insecurity Face-off: 24 TVM Overcoming the Fear of Investing in Uncertain Times

Money talk is great talk. It is the kind of conversation which sets pulses racing and for good reasons too, especially when it adds extra weight to one’s account balance. Readily admitted, the feeling is just music to the soul. But the COVID-19 pandemic, like other devastating crisis such as the global financial crisis which occurred between 2007 and 2008, left not just the corporate world but the ordinary person on tenterhooks and quite insecure when the topic of investments come in an uncertain time as we find ourselves in currently.

Although, others may generally be financially positioned to spare some few currencies to invest in some areas with expected future returns, the current health pandemic has put them in an averse position to the conversation on the relevance of investment particularly in an ironic situation, where panic over how to save and survive superseded the hitherto natural tendency to invest.

Unforgivingly, the pandemic has totally shaken the world at its very core making financial investment an insufferable prospect. One invariably becomes prey to the other and most often than not, money always gets swallowed up by the impact of pandemics on not just lives but its dissipating effect on the financial pillar of economies whose citizens largely depends on a healthy, bustling and thriving institutions and organizations. The frequency of personal financial concerns and financial stress that interfere with work very much quantifies the woes of a financially insecure person. The unexpected event of the virus may very well result in such concerns.

The Covid-19 crisis was the ultimate affirmation of the golden rule of investing. The economic upheaval caused by the coronavirus pandemic has dramatically reshaped global markets and commerce. Companies have adapted to remote work or reduced their workforce and governments have played a major role in temporarily stabilizing economic downturn. Undoubtedly, if you’re engaged in financial planning, you may find that the prospect of investing in such an environment can be entirely frightening and confusing.

But there are no problems on earth which do not have the corresponding solution locked up in the vault of a researched and extensive work conducted by experts. For all intents and purposes, relieving yourself from such insecure posture is certainly a no-brainer. 

ASKING QUESTIONS TO HELP WITH PROPER DECISION-MAKING

Astute investor Warren Buffett once remarked in his famous 1996 letter to Berkshire Hathaway shareholders that, “if you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”. What this means is that one way of overcoming your financial fear when it comes to investments is to ask questions on any prospect you desire to venture off into. The extreme volatility in the markets and the uncertainty over economies have left individual investors worrying about how to manage their portfolios.

For one, you have to ask yourself what kinds of risk you can afford. “Where are you in your life cycle in terms of how much risk you can take? What is your personal risk tolerance? And that should dictate how much you want in equities, how much you want in fixed income and other assets. Always remember that there is no free lunch in investments, and there has never been. The biggest financial mistakes are made in bull markets. One of the best ways to avoid making money mistakes is to ask the right questions.

The more you ask before investing, the more at peace you will be after you put in money. Another thing to bear in mind is that investments need to be monitored. What you need to understand is the disclosures and information you need to monitor after investing. Request for it if such information will be available. On the other hand, if there is no transparency, it is a red flag for you to back out before bawling over lost investments. Even more so now, money is hard earned, and should always be invested sensibly safely and wisely. Caution must remain a go-to word and at an all-time high because, no question is a bad question. 

ROADMAP FOR FINANCIAL SUCCESS

It is safe to know that even before you make any investing decision, it’s imperative you sit down and take a critical look at your entire financial situation. Also, it is particularly prudent to be reminded of this in uncertain times if you’ve never made a financial plan prior to this. Currently, a major step to successful investing is figuring out your goals and risk tolerance, either on your own or with the help of a financial professional.

There is no guarantee that you’ll make money from your investments. But if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money.

APPRAISE YOUR COMFORT ZONE IN TAKING ON RISK 

Risks, when it comes to money, is a phobia people develop except for the gutsy, who drink deep from the well of investment opportunities. Truth is, all investments involve some degree of risk. That being said, if you decide to brace yourself for opportunities in avenues via purchasing of securities such as stocks, bonds, or mutual funds, what you must bear in mind is that, you must understand what it entails in its entirety before you invest. Similarly, you must be conscious of the fact that there is a tendency of you losing some or all of your money.

For some investments, there is the probability that you could lose your principal, which is the amount you've invested. That’s true, even if you purchase your investments through a bank. That notwithstanding, the reward for taking on risk is the potential for a greater investment return. Mind you, if you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than constraining your investments to assets with less risk, like cash equivalents.

On the other hand, investing exclusively in cash investments may be appropriate for short-term financial goals. The primary concern  for individuals investing in cash equivalents is inflation risk, which is the risk that inflation will outpace and erode returns over time. Although there’s no strategy which is truly free from risk, there are steps you can take that may minimize your exposure to systemic risk, inflation risk and market risk. Particularly, in times of a global pandemic, it’s principally important that you consider these options so you can accelerate your financial recovery afterward. 

POUNCING ON APPROPRIATE MIX FOR INVESTMENTS

Playing safe may seem a bit far-fetched when it comes to the area of investments. However, by means of embracing asset categories with investment returns that fluctuates under different market conditions within a portfolio, a prospective investor can help protect against substantial losses. Over time, experts suggest that the returns of the three major asset categories such as stocks, bonds, and cash have not inched up or declined at the same time.

Furthermore, they insist that market conditions that cause one asset category to do well often cause another asset category to have average or poor returns. In so doing, for an investor, the decision to investing in more than one asset category will mean that you tend to reduce the risk that you'll lose money and your portfolio's overall investment.

In other words, the possibility of you having returns on your investments are higher. Give or take, if one asset category's investment return falls, you'll be in a position to counteract your losses in that asset category with better investment returns in another asset category. Additionally, asset allocation is important because it has major impact on whether you will meet your financial goal.