By Geoffrey Muns
For many managing their finances during covid has been challenging to say the least. A large number forced pay cuts, furloughs and unemployment with stress mounting as time is passing by. Let alone small businesses, even large corporates’ balance sheets have been rattled if it wasn’t already precariously perched before the crisis.
Marginal lucky ones whose income have been unchanged may have found that spending has dropped and as a result savings may have built up and small debts paid off. Whichever category you fall into, take some steps to safeguard your financial future.
With banks slashing their deposit rates globally, returns on savings accounts are virtually negligible. But banks generally need your money to build on cash reserves even if their CRR are high, hence banks typically offer higher interest rates on fixed deposits with longer maturities.
FDs can be laddered in varying periods and amounts in case there’s an emergency to access a certain amount. This will help protect other tranche FDs from being abruptly closed and losing out on that respective return. It would pay doing some homework before you approach your bank to see what the best deposit rates are to compare them with competing banks.
Saving whether big or small, still makes prudent sense to allocate for against inflation to some extent at least. Investments may be considered for long term goals such as retirement but only seeking advice from qualified financial advisors with a track record or accountability to a certain extent.
Always remember, capital protection is omni-important versus forecasted notional returns not yet received. Capital loss far outweighs losing potential returns. There are many savings providers to choose from with international and local asset or fund managers.
For higher returns than what banks offer, investments can be considered but they come with their own share of associated risk in all asset classes, whether systemic or systematic risk and one should be prepared for bearing loss absorption for risk taken on.
Capital markets fell sharply at the start of the pandemic last year and is largely treading muddy waters currently with anticipated policy changes and announcements of future outbreaks. Some see this as a buying opportunity into the stock market which is a high-risk activity relatively speaking especially in these times with unqualified advice and leverage offered.
The market has a mind of its own and can move sharply at very short notice wiping out capital and evoking margin calls. Profound market uncertainty about practically everything can make diversifying your investments across a range of different assets more important than ever but also risky at the same time. GameStop, AMC and Silver being short squeezed and Tesla stocks skyrocketing are testimony to what happened a few weeks ago.
Cryptos are another asset class in the form of digital assets that evoke much interest from my clients, especially with a market cap of USD 1.72 trillion and growing by the day. But it also has its own share of risks faced in the form of every country’s own regulatory framework and crypto policies, which can be changed at short notice.
Dubai rightly recognizing this, has begun accepting select cryptos as payment at a few government establishments. Blockchain technology is here to stay and is soon getting adopted by governments globally. And cryptos advertently form an important offshoot of this domain.
The current environment is a perfect storm for retirement funds, pension schemes and suffering low interest rates with widespread dividend cuts making long term retirement planning doubtful but essential at the same time. Luckily indices were buoyed in the last few weeks on news of major governments announcing very large stimulus packages being injected to sustain liquidity in markets and spending.
If your budget is currently squeezed, you may feel tempted to opt out of your workplace pension scheme. However you can lose your employer contributions and tax relief in your home country being an expatriate, which in effect doubles your money from the start, regardless of investment returns. So, try to keep paying in whilst you can.
Borrowing currently at existing rates are tempting and if used correctly can help tide over a situation or also enhance one’s portfolio. But the critical factor here is to comprehend its repayment and how it impacts our income or in many cases loss of it. Borrow only if it can be repaid even if there’s no income, backed by an asset.
Loan repayment reliefs and restructuring mortgages, personal loans and credit cards are a temporary respite for borrowers, however, interest upon interest still builds up during the so called relief period and instalments could be higher than before with added interest when repayment commences.
Personal credit rating may be affected due to this and may also impact your future eligibility to borrow. Utilize loan postponement as a last resort and only when needed direly. All said, banks are going through a harrowing time on their receivable books due to the pandemic consequences which is going to eat away into their revenues over a period of time through write downs and write offs.
Tactically start spending less to allocate for the future. Having said that, owing to consumers spending less, the economy contracts resulting in potential job losses, diminishing household incomes aggravating further spending cuts into a damaging downward spiral. Which is why governments announce various incentives in its budget to stem deflation and minimize recession effects. So if a household can afford it, spending will help to support and revive the economy in a matter of speaking.
All in all, focus on income retention or acquisition, spend within limits and protect capital. Greed isn’t always good as Gordon Gekko once said in 1987 for this is 2021 and hopefully history won’t be repeating itself, at least for now.
About the Author: –
Geoffrey Muns –
Geoffrey is an Independent Financial Advisor and Financial Planner certified from the UK, US and UAE based out of Dubai for the past 25 years. He has worked with international banks and investment firms and advises U/V/HNWI and professional clients.
You may contact him at alphawealthmngt@gmail.com
Disclaimer: – Copyright © 2021 by International Business Magazine and Geoffrey Muns
