The ongoing pandemic—Covid-19 has had a shocking impact not only on the global economies but also on the finances of the individuals. In the last six months we have seen job losses in many sectors and large amounts of salary cut to sail through the current crises. While none of us has been insulated from the economic impact of the virus, but at the same time this calamity has impacted the retirement planning of the individuals the most.
In the past few months, we would have seen fall in new business premiums for the life insurance policies and even there was de-growth for the general insurance in the initial month. Even equity mutual funds have seen fall in inflows in the current financial year. This largely indicates that investors are wary to commit money to the insurance and mutual funds at this point of time as the outlook looks unstable.
However, retirement plays an important role in today’s financial planning and current pandemic should be optimally used to chart out planning for the retirement. The impact of novel Coronavirus on the equity markets is posing a question mark to many people who are planning for their retirement—what’s the right investment approach at this point of time.
There would have many investors who might have stopped investments in equities or even have delayed their insurance premiums or pulled back some unnecessary expenses. However, the pandemic underscores two important aspects of asset allocation, first being the risk tolerance and second being the portfolio rebalancing.
In the past many of the investors might have made the investments which were not in tune with the risk profile of the investors. For example, having higher exposure in equity when the person wants safety or buying only traditional insurance policies for long term investments.
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This is the chance for the investors to re-jig their portfolio. Firstly, the investors not having a term plan is the biggest risk—if they do not have a term plan they should go and have an adequate cover. Secondly, they should look at product mix of guaranteed plans and unit linked insurance plans (Ulips) for the long-term investments. Here the risk tolerance assessment is important to ensure that investors are not taking on more risk than they can handle in the event of a stock market downturn.
While equity markets have rallied by more than 40% since the March this year and most investors are happy with the equity investments—but there are chances that markets can correct from the current levels due the international factors like US elections. The point here is that if you have invested in ULIPs and can take risk and have long term investment horizon they should continue with their investments. But if investors are coming near their retirement age—they should shift some money into the debt portfolio.
If someone who is in their early phase of their career, they can swiftly get back from the Covid-19 setback. All they need to do is just save more and hope that even their income grows faster in coming years. However, a someone if late 40s or early 50s or senior professional may however require a review of retirement goals itself.
Finally, despite having and income stream to satisfy the day to day needs, one should always have ‘cash in hand’. It is always important to have an emergency fund and at any given point of time it should have at least six months of expenses. I would say that one should have enough cash without compromising their retirement plans.
Views expressed in this article are the personal opinion of Rakesh Goyal , Director, Probus Insurance, Insurtech Broking.