Everyone has a plan until they get punched in the mouth.
Mike Tyson
The most recent happenings have people doubting their financial preparedness in times of crisis. Somehow, we always live believing that everything will be as is today, tomorrow – or even better.
A whole generation of investors is facing the uncertainty of the moment with a lot of us living each month hand to mouth, with barely any savings; and those who are investment savvy debating on whether to sell or purchase more given the market trends.
Allow us to answer some questions sent to our inbox as well as we understand them.
As much the time calls for cash or cash equivalent investments, the worst thing is to act in panic. You have to fight all of your human instincts and build a wide view that is separate from the herd. Do not let emotions win over reason.
What should I do with my shares? Can I get into the Stock Market now?
In the wake of the ongoing pandemic, the stock market has significantly lost value due to the exit of investors most in panic mood. The market will slowly correct itself and we shall see some over-valued business normalize. However, when it comes to stocks, the best thing you have going for you right now is time. Don’t try to time the market.
As Warren Buffet said recently, remember you bought into ongoing businesses and companies, not just stock. You must, therefore, stay in the market to enjoy returns to come. If you are to buy, purchase only with money that you can afford to take a risk with. Consider the fundamentals of the business rather than just the price when it comes to purchasing.
Should I liquidate my savings?
Regardless of the situation at the moment, do not liquidate your savings and investments. Let the funds continue earning you a decent return especially if invested in money market funds as it helps beat the inflation rate. The current inflation rate is at 6.4% and we can only anticipate it to slightly rise as a result of the pandemic. However, if all conditions are held constant at the moment, it should fairly remain the same or lower. The invested money is still earning you about 2-3% above the inflation rate.
Is it the time to diversify your investments or hold all eggs in one basket?
In my opinion, it is time to evaluate your investment strategy. How long have you been investing? What returns have you accumulated over time across your investment portfolio, be it fixed deposits, real estate and the like. Was it worth the effort? Would you have done much more with less effort in another investment? Do you think you should rebalance given the situation?
Should I hedge my KES on the dollar?
Hedging reduces the risk of adverse price movements in an asset. We have seen the KES weaken recently against the US dollar owing to market turmoil following the Covid-19 pandemic. For investors, businesses and corporations that are exposed to large dollar obligations, hedging can be a viable option against further KES depreciation, on the condition that the hedge can be obtained relatively cheaply, as the pandemic will keep the local currency under pressure.
Should I Invest in Forex investments?
When investing in forex investments, always know that past performance does not reflect the future. There are many counters of exposure, high risk, and high returns as well. However, as in the earlier context, we do not know how long the current situation is going to continue in the world and it would be good to be cautious and if convinced it is the investment you want, do your risk analysis.
For any risk-taking and long term investor, this is the time to take advantage of the market. To quote Warren Buffet again, invest while others are afraid. However, be sure to be buying into the company’s fundamentals rather than just the price. Remember, “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”
This is just the beginning of a long economical downhill curve that we can recover from in the near future if we start correcting it right now. As we continue to protect our health, we need to safeguard our finances by building a hedge of an emergency fund. We will live beyond this.
This article has been written by Rose Ellah Ngari, Chief Executive Officer at Vasili Africa. The views expressed herein are those of the writer and are meant for general information only.
To discuss available investment options with Rose Ellah, send an email to info@vasiliafrica.com or fill in your details below.
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