Dodging Financial Uncertainties: An NRI’s Guide

Dodging Financial Uncertainties: An NRI's Guide

Note: As this information was written in 2020, you may find some of it outdated. However, it can still serve as a general financial guide.

As of the end of 2020, everything is in a state of flux. This is especially true for financial planning. The coronavirus pandemic impacted almost every major industry, from auto to travel. Apart from giant online retailers such as Amazon and logistics companies such as FedEx, very few posted an upward trend in revenue by the end of the calendar year.

The situation’s financial stress will restructure the global economy and impact us for several years to come. When the pandemic hit, the global economy was already in a downturn after a decade-long bullish outlook. The change will be brutal for many.

How do you navigate this uncertain situation? We share a brief guide.

De-Risking Your Financial Profile

  1. Keep invested in equity

  2. As of November 2020, the Dow is trading at approximately 28,500, about the same as a year previously when it was at 27,500. The equity market has largely survived intact, and there is no depreciation if you have invested in mutual funds.

    Of course, some sectors have fared poorly, such as airlines, and you would have suffered heavy losses unless you divested back in early March.

    If you are invested in the new economy—social media, tech giants, and the like—keep going. Some entities belonging to the pharmaceutical sector also look promising. Going forward, disinvest in heavy manufacturing and civil engineering because, for a few years, no large projects might come to fruition. Governments and municipal bodies are not ready for large capital expenditures such as building new roads, railways, upgrading the rolling stock, or similar endeavors.
  1. Pay off costly loans

  2. Since generally everyone has adopted a lower-profile lifestyle, this is easier to do. Most people have stopped spending on luxuries like eating out or taking vacations.

    Take this opportunity to pay off card debts and student loans. Of course, if you suffered a pay cut during the pandemic, that might be hard to do. Nevertheless, do not let any good crisis go to waste.
  1. Do not invest in assets

  2. That goes for both small and big purchases. It might be tempting to buy another house since the real estate market is depressed, but only do so if you can afford to buy it in cash. Do not take on new loans and mortgages. The fallout of the pandemic on the global economy will likely be felt until 2023, at least.

    However, if you find good bargains on cars, laptops, and the like, this is a good time to trade in your older model.
  1. Give your budget another look

  2. The family budget takes on a certain shape and form over the years. This is a wonderful time to cut back on expenses that you always thought were extraneous but allowed.

    It is extremely necessary to find new ways to save going forward. No one and no business is insulated. Remember that the subprime crisis of 2007 took a year to unfold. You are unaware of the more complex developments of the economy, save for skimming headlines with figures about how, for example, unemployment claims rose by 100,000 last week.
  1. Cash or invest

  2. If you have extra funds, is it better to hold it near cash (such as bonds and deposits) or invest in an asset such as land and buildings? This is a tough call.

    If your excess is quite high, invest for the long-term. If it is enough for two years’ worth of living expenses (approximately $300,000 in U.S. terms and ₹24 lakhs in India), then keep it in liquid assets. There is no perfect answer to this dilemma.

Remain cautiously optimistic…

Be mindful. Be flexible. Be positive. But most importantly, be realistic. Do not think that everything will immediately go back to normal as soon as the vaccine is found. The recovery may be V-, U-, or W-shaped, but a lot of things that are of interest to macroeconomists do not reflect in real life.

Therefore, remember that caution is your best friend during these times.

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