The coronavirus pandemic was an absolute unknown. Some people call it the black swan event whereas some refer to it as the unknown unknowns. When we got to know about it in the initial days of early 2020, many of us thought that it won't reach our doorsteps or it won’t affect us.

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This perspective was right to a certain extent because earlier we have had diseases such as H1N1, dengue fever and others that did not impact us to this extent. Therefore, it was for all the right reasons that many people did not take the advisory on the pandemic very seriously. When you translate this into personal finance decisions that could have been done better, there are surely some lessons for every investor.

Be patient

When the markets started correcting, there was a lot of fear among investors about losing their hard-earned money. There was speculation and fear due to which markets corrected in a very very brief period extremely vertically and almost collapsed like a pack of cards. If someone were a new investor, it shook them up. For a seasoned investor who had seen previous cycles, they simply delayed reacting to it. 12 to 14 months in hindsight, those investors who reacted to the news out of fear or out of lack of knowledge seemed to have paid a very heavy price. This is because the market fell for about 30 to 40 days, but in the past 12 months, there has only been a one-way rally in terms of the way the market has been.

Diversify - Don’t put all your money into one basket

You cannot put all your money into one asset class where risk becomes completely disproportional. It need not necessarily be just the markets, it can also be over-exposure to something like real estate. Everyone who has had an overexposure to real estate or rental yielding has massively been impacted. One of the biggest impacts of the coronavirus has been on real estate. Therefore, it’s extremely crucial that you are well diversified and have proper asset allocation. Set aside the bare minimum amount in case of an emergency such as job loss. In case of such emergencies, you should always have some money to spare to fend for yourself and your family for 3-6 months.

Living is not expensive, lifestyle is

Lockdowns have taught us all a very important lesson. You don't necessarily have to spend to have a good quality of life. Many people are able to live at a portion of what they would typically spend monthly because many entertainment and other costs have gone down. Impulse buying, entertainment, shopping are all controllable and discretionary expenses. The pandemic taught us that we could be disciplined to save more than just spend more. From the time the pandemic started, many people have realized that they now have extra savings at their disposal at the end of each month. Most of our impulsive spending has come down drastically. This can actually be channelized into savings and long-term wealth creation strategy.

The need of insurance

Whether it’s life insurance or health insurance, everybody knows the value of adding a personal life cover. It’s great if your employer gives you the cover but also remember that there are many limitations and strings attached to it. They may not give you enough benefits for the cover. It is always better to have you and your family covered in a robust plan where you are the owner of the insurance cover. Many families have been devastated because of an economic, emotional and financial loss. Make sure that insurance is taken care of at the earliest in your personal finance journey.

Trend is your friend

Furthermore, for people who missed out on investing all these years, there was a great opportunity for them to invest in the markets during March and April last year.

Markets always give you intermittent opportunities. If you missed the previous rally you can buy later or if you missed the opportunity to sell, then you can sell at another time when the markets are bouncing up. This tells you that the markets are always going to give you an opportunity to buy or sell. However, don’t focus on buying or selling. It’s important to focus on your financial goals and become a long-time investor. Remember that “Trend is your friend”. If the trend is bad, continue with your SIPs, continue averaging out so that you get more units and investments in place. If the markets are going high, consult with your financial advisor and realign your portfolio. If you feel that you have made more money than you intended to make, take some money off the table and continue to keep the money for your financial goal so that you have some extra bonus coming in from your investments.

Lastly, always prepare for the unknown. Nobody knew that the markets were going to bounce back so sharply. Know that if it can crash sharply it can also bounce back sharply. If the market can make you a lot of money it can also make you lose money.

An investor needs to understand that the market is a great opportunity but it’s not the only reason you make or lose money. It’s your strategy, your discipline and the approach you take that will help you make the most of market opportunities. There are many investors who never invest because they don’t understand the market opportunities. The number one rule in personal finance is that it’s not what the market does, it’s what you make out of the market and the products that are out there.

For instance, there’s life/health insurance, mutual funds, shares and many other products. It’s how you use these available products to ensure that your financial goals are met. This is probably the biggest financial lesson that COVID-19 has brought to the fore.

The author, Santosh Joseph, is Founder and Managing Partner at Germinate Investor Services LLP. The views expressed are personal

(Edited by : Anshul)