INSURANCE . RETIREMENT . INVESTMENTS
COVID-19 has caused unprecedented economic downturns, not only in the Caribbean but in the World at large. This is a time of great concern for some, particularly where investments and financial strength are concerned, as the damages caused by this pandemic have resulted in little returns on investments, and complete losses in some instances.
Today we have brought you some tips on how you can manage investments and improve your financial health during economic downturns to better mitigate your risks and maximise your returns.
1. Reduce your debt – Economic downturns can happen unpredictably and during this time you should attempt to reduce your debt and keep more cash in hand instead. Some ways you can reduce debt during an economic downturn are:
- Stop creating new forms of debt
- Create a savings fund for a rainy day
- Request lower interest rates on existing loan payments
- Consolidate all existing debt into one loan payment
By reducing your debt, you are now in a stronger financial position to weather fallout on your investments that may be brought on by an economic downturn.
2. Stash your cash – One of the most important things you need during an economic downturn is liquidity. The term liquidity refers to the ability to convert assets to cash, and during an economic downturn, this ability may be the difference with keeping afloat or going bankrupt.
If you have liquid assets, or assets that can be easily sold or exchanged for cash in a short frame of time, consider doing this as cash can be used to easily manage your monthly costs, survive periods of unemployment or low revenue earnings and continue your investments during an economic downturn.
3. Explore new markets to invest in – Economic downturns can result in the total closure of some markets, but ironically, this also leads to the creation of new markets that are borne out of innovation and new needs. For example, the COVID-19 pandemic has led to innovation in areas of technology, medicine and healthcare, leading to the creation of new markets for products and services.
Be on the lookout for new and emerging markets that arise during an economic downturn and invest in them through the purchasing of shares or stock.
4. Identify levels of risk – Identifying your new level of risk during an economic downturn is a crucial step in helping to manage your investments. During a period of economic stability, your risk levels may be relatively low, and this allows you to enjoy a degree of freedom with your investments and your spending. However, during an economic downturn, your risk levels may increase, and this requires you to adjust your lifestyle, your spending, and your investments.
For example, if you are accustomed to investing 15% of your monthly income in airline stocks, you may now be forced to reduce this to 7% as the returns on these stocks have diminished and large investments would result in a loss for you.
5. Increase your savings – Economic downturns can lead to reduced income earning as a result of wage cuts or business shutdowns, but despite this, you should have a savings fund. If you already have a savings fund, continue to save a portion of your earnings even throughout a downturn. Although this would put additional burdens on you, it is a sacrifice that would pay off in the long-term.
This savings fund can be your lifeline to help cover costs and pay debts if the downturn continues for an unprecedented period. Additionally, you can even use this savings fund to diversify your current investments, allowing you capitalise on new opportunities should they arise.
We hope that these tips are beneficial in helping you to manage your investments and improve your financial strength. Thank you for joining us for this week’s article and please join us next week for more!