Financial lessons from COVID-19

The future is unpredictable, that’s why it is said that the secret to life as an investor is to not predict the future, rather, be prepared for its ups and downs. The following are some key financial lessons that are helping people get through the COVID crisis.

1. Keep a long-term perspective when investing

Share markets get disrupted all the time, from the 1987 Stock Market Crash, the bursting of the Tech Bubble in 2000, to the GFC in 2007 and COVID-19 today. Each trigger is different and the recovery time varies too.

Investing with a long-term approach puts time on your side. For example, when investing in shares, your chance of a negative return is lower the longer you invest. One of the reasons why share market returns are relatively high over the long term is due to compounding returns – where you earn interest on the interest (or growth on the growth) that you’ve accumulated over time. Hence, if you can afford to put away your money for an extended period, you can maximise your chances of good returns.

2. Diversify your investments

One of the golden rules of investing is to spread your investments across as many asset classes, countries and industries as possible. The advantage of diversification is that when one area of your portfolio is falling, another may be rising, and in turn, the changes in these values may balance each other out.

Although this doesn’t prevent your from negative returns altogether, it does help reduce the impact that a fall in one asset class has on your total portfolio.

3. Set aside a savings fund for emergencies

A savings fund for emergencies provides a financial safety net to draw on in desperate times. This does not necessarily require a lot of cash up front. You can either transfer some money on a fortnightly or monthly basis to a high interest savings account, or alternatively, have money sitting in a mortgage offset account that provides the ability to draw back on your loan if you get into trouble.

A good rule of thumb is to have at least three to six months’ worth of savings in your emergency fund.

4. Review your insurance policies

Insurance helps to transfer your financial risk, especially during unforeseen events such as the loss of income. It is important to ensure you have enough cover, the right types of cover and that your insurance is up to date. Now might be a good time to decide if your insurance is something you want to hold onto or adjust to suit your needs.

5. Seek professional help from a financial adviser

Obtaining advice from a financial adviser can help you design a strategy to achieve your goals. They can also help you with discipline and putting the lessons of COVID-19 into place. If you wish to have a free 20 minute phone call with one of our senior advisers, please contact our office on 02 8067 0590.

Source: MLC Insights August 2020 

Important information and disclaimer

This document has been published by Mark Welch & Lachlan Carmody, EPG Wealth, Pty. Ltd. Authorised Representative(s) of Apogee Financial Planning Limited (ABN 28 056 426 932) (“Licensee”), an Australian Financial Services Licensee, registered office at 105 –153 Miller St North Sydney NSW 2060 and a member of  the  National Australia Bank Limited group of companies (“NAB Group”) .

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

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