COVID 19 Lockdown and Personal Finances

In this time of economic slowdown, there is a need to look at new ways of managing our finances in line with the current economic realities. Many small business owners have their revenues compromised, and the incomes of the self-employed have been particularly decimated by this lockdown.

There is therefore a need to revisit our personal spending budgets. Budgets are derived from income, so if income has changed then the budgets must change. We may not be able to reduce the expenses on essentials; in fact, these may actually increase because of the need to stockpile supplies. However, our costs of feeding may reduce because we cook all our meals at home and have eliminated expensive restaurant/ takeaway foods. Entertainment costs for movies, partying and clubbing would reduce since we cannot go out. However, these would be replaced by the cost of WIFI in order to keep the family occupied as they stay indoors. As we stay at home, let us ensure we have adequate (not too much) cash for small purchases in the local markets and neighborhood kiosks that do not have POS machines.

We would need to rework our financial goals if our incomes have reduced or our short-term priorities have changed. Our mid-to-long term goals should remain the same, but the target dates of achievement may need to be extended.

This lockdown is presenting novel ways of generating income. Let us come up with creative ideas. Some people are holding online seminars aka webinars and charging a token fee. If you are a respected guru in your field, charging the bored and idle populace a meagre N5,000 to share your wisdom would be seen as an extremely generous offer. Payments are made upfront directly into your bank account and access to the webinar is granted only after payment. Each access is unique to each payment using a unique QR Code. If 100 people register for the webinar, you and your banker would be smiling. Other service providers like interior decorators, life coaches, Maths teachers etc. are selling their services online in unique ways. Some people are doing so well that they may not go back to their regular 9-to-5 jobs after the lockdown.

A few of us have loan repayment obligations which we may no longer be able to meet due to our reduced income. Do not ignore them and assume your creditor knows “what is going on in the country”. Be proactive. Engage your creditor and negotiate favorable loan rescheduling terms. The Federal Government and the Central Bank are already championing this, so rescheduling should be easier now than at other times.

How about our personal health and medical care? This pandemic brings to the fore the need to have adequate health insurance for the whole family. We may also need to buy other types of insurance. For instance, the self-employed could consider taking life insurance policies that pay them a salary when they are unable to work and earn an income. Please speak to an insurance broker on the various types of policies and the benefits of each type, so you would know the ones that suit your peculiar situation.

As we rework our budgets, revisit our financial goals or reschedule our loans, we must do so based on empirical facts. Do not rush to making hasty decisions under pressure or out of fear. Take the time (within reason) you need to calmly review the pros and cons. But avoid analysis paralysis – which in itself, is being immobilized by fear and refusing to make any decision at all. Refuse to be pressurized by your creditor. Stand back and appraise your options. Ask for help from 3rd parties if needed.

Some of us are using Personal Finance Management (PFM) Apps to manage our finances. These would be very useful at this time when we want to redo our budgets, reschedule our financial goals or rearrange our loan payment plans. Once we input our new income figures, the app would suggest ways of achieving these. This way, we are immediately presented with several options and can choose the best ones faster.

Some of us may need financial help and cash support. Please take advantage of the numerous platforms that are providing material and financial help. Everybody falls into rough patches at different times. Rough times are temporary. If we take the help being offered by the federal /state governments or NGOs, we would be able to keep our heads above the rough waters and escape quicker. Helping hands make burdens lighter. Please ask for and receive help. Stay home. Stay Safe. Happy Investing!

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Buying Equities During Bear Markets

Global stock markets are being battered by the Coronavirus effect as we speak. Many stocks are trading are far below their market value – that is they are a bargain. Now is the time to consider new investments in the equities because, certainly the prices would rebound. The only issue is – no one can accurately predict when they would rebound. But as we have said on many occasions – individuals should invest in the stock market on medium to long term basis and leave stock trading/ gambling to the professionals.

The market has cycles. There is the “bull run” and “bear market”. The bull run is when the entire stock market and most of the stocks on it are increasing in price and value. The bear market is the opposite. Every bull run is followed by a bear market and every bear market is followed by a bull run. It is the length of each one that determines the overall performance of the stock market at the end of the year. We should always expect these cycles, they are the way in which the market corrects itself. Investment experts advise us to enter when the market is down and leave when the market is up. But the current bear market is not market induced. It is artificially created by the COVID 19 pandemic.

The four most basic considerations in choosing shares are investment objectives, risk appetite, investment tenure and ethical considerations. All these must be carefully considered before investing. Investment objectives, especially at this time, would center on capital appreciation and portfolio growth. Risk appetites define how well we can tolerate the fluctuations that accompany share prices. If we are very risk averse, it’s best to avoid the stock market all together and choose investments that assure us of principal and profit e.g. money market investments and government treasury bills. However, if we invest in during a Bear Market, we have a greater chance of capital appreciation in the medium term. Warren Buffet, the most successful and richest stock investor and third richest man in the world advises a medium to long term tenure for each investment. When looking at ethical considerations we look at the businesses of the companies we want to invest in. Some may choose not to invest in alcohol and tobacco manufacturers, others would not invest in companies that manufacture using child labor in developing countries. These four factors help us to ensure we stay true to our financial goals and plans.

In choosing stock during a Bear Market we need to look at the price history of the stock. If the stock usually traded between N20 – N25 but is now priced at N15 without any serious problems occurring in the company, it is obvious it is suffering from coronavirus effect and there is value to be obtained in the medium term if we buy the stock at that low price.  Always do your due diligence and speak to your stockbroker for more insight. Buying during bear markets may seem contrary to conventional wisdom, especially because no one can tell if the prices would drop further before they begin to climb up again. Hence the need for a medium to long term investment horizon. When the market is down, share prices are generally low, as is currently playing out in many global stock markets – many good stocks are underpriced. That is the time to buy, one would buy at a bargain. To leave when the market is up is to sell when stock prices are generally high. That way one would make a good return on the investment and fulfill the stock market motto – buy low, sell high. Also, we may choose to keep the stock in our portfolio indefinitely and enjoy good returns via hefty dividend payouts.

It is important to point out, that there is a big difference between damaged stocks and damaged companies. Damaged stocks are stocks that have low prices, but the underlying companies are doing very well. Damaged companies are stocks whose prices are low because the underlying companies are failing. In a bear market, buy damaged stocks and not damaged companies.

The stock market is a major vehicle for wealth creation and income generation for most investors. Some investors have lost money but many more have been enriched by it. Empower yourself with relevant information, work with the right partners and do your due diligence before, during and after you commit your finances to equities or any investment asset for that matter. Happy investing.

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L.A. Consult Ltd.