2020 has taught various important lessons. From the personal finance perspective, it reminded individuals of many things that not all cared about.
Here are 6 important money lessons 2020 taught:
Emergencies can come anytime, so maintain an ‘emergency fund’
According to Pranjal Kamra, CEO, Finology, it’s always recommended to keep aside funds that can help an investor bear 6 months of overall expenses. People who followed this diligently might have faced lesser issues during the pandemic.
"The economic disruptions caused by the COVID-induced lockdown led to widespread income and job losses for a large section of people, disrupting their cash flows and capacities to service their debt. Those who had adequate emergency funds during 2020 were better equipped to repay their EMIs and credit card bills despite income disruptions than those who did not," opines Nveen Kukreja, CEO and co-founder, Paisabazaar.
Hence, it is always better to factor in EMIs and other loan repayment commitments while calculating the optimum size of the emergency fund.
Diversifying investment is important
As per Kamra, 2020 also taught the importance of diversification. When the stock market crashed, gold gained record heights. Investors with properly diversified allocation may have gained out of the situation.
Significance of health insurance
2020 surely has also taught the significance of health insurance. Adequately insured individuals would have spent reasonably less on hospitalization etc. during the pandemic, opines Kamra.
Avoiding high-interest loans
Another very important money lesson learned is avoiding high-interest loans and paying off the debt as soon as possible. Inability in doing so may have burdened the individuals a lot more as compared to those who were disciplined in this case, as per Kamra.
Continuing with SIPs during market crashes
According to Kukreja, steep correction in equity markets caused by the pandemic during the months of March and April this year led most of the SIPs started within the last 3-4 years to turn deep red.
"Such steep fall in return caused many investors to panic and stop their equity SIPs fearing further losses. However, such losses are only notional in nature and they become real only when the investor redeems his/her investments at loss. Instead, equity markets started to steadily recover since April as the government started unlocking the economy and it started making new highs from November onwards. Those who continued with their SIPs throughout this year purchased units at a much lower cost, averaged their investment cost, and would be registering much higher returns than those who stopped their SIPs," he explains.
Investing lumpsum during bearish market phases to top-up equity investments
Periods of steep market corrections like the one witnessed during the months of March and April this year provided an excellent opportunity for buying quality equities at very attractive valuations. Hence, mutual fund investors with an investible surplus, as Kukreja suggests, should exploit such bearish market phases by investing lump sum to top up their existing equity fund investments. Doing so would allow them to average their investment cost at much lower levels and can even help them to reach their financial goals sooner.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
(Edited by : Jomy)
First Published: IST