By Chee Jo-Ey
THE Movement Control Order (MCO) to contain the Covid-19 pandemic was announced on March 18 and all of a sudden, our lives seem to be at a halt as only essential goods and services providers are allowed to operate.
We’ve witnessed historic drops in the stock market lately, prompting concerns for our investments and retirement plans. The impact of the coronavirus outbreak has reached beyond the markets to affect other parts of our finances as well.
Manulife Investment Management (M) Bhd licensed financial planner Rajen Devadason told FocusM: “Keep calm and retain (or gain) a sense of historical perspective. Both bad times and good times never last, but in general stock market bull runs that indicate good times, in general, last three to four times longer than bear markets that indicate bad times.
“So, do not panic! This crisis will pass in due course. A great way to increase emotional equilibrium at times like these is to raise our cash levels – cash in the bank, cash in portfolios, cash at home and cash in our wallets and e-wallets.
“This could be very difficult for those who are facing severe income and business contraction, but seasoned investors might be able to sell some shares and switch out from some equity and bond funds into money market funds. There is no reason to go overboard.”
There is also great value in staying invested in risk-on assets like equities, real estate investment trusts (REITs) and commodities to some extent, but raising your cash levels within a diversified portfolio will raise your overall portfolio value stability during severe stock market plunges, according to Devadason.
“As there is large cash weighting in most of my clients’ current savings and investment portfolios, which I manage directly, I have been able to calm down many of them. I explain to them that as they have sufficient cash reserves within their portfolios, quite apart from their own cash in the bank, then even if these bad times drag on longer than anticipated, they just need to authorise me to release monthly sums from their cash-heavy portfolios.
“Those deep pools of liquidity are parked in safe money market funds; therefore staggered amounts of money can be redirected into their bank accounts. These monthly injections will allow them to rebalance their budgets and to make their scheduled repayments with no disruption. This will allow them to get out of debt with no added delay,” Devadason said.
Streamline your budget to increase available cash flow surpluses, if you are among those who are able to retain your full salary during this tough period, so as to raise cash reserves and to very carefully invest on dips during the next three or four months.
Sarawak Bank Employees Union CEO Andrew Lo said: “There will probably be more than usual job losses but what we need to do is not panic. We need to tighten our belts as much as we can.
“With the imposition of the MCO, our expenses have dropped. Take advantage of government incentives to tide things over. Both employers and employees need to work together. As I’ve observed, many people here are keeping positive and responsibly working out challenges.”
If you have an adequate amount of emergency funds, you will be in good shape to deal with this crisis but many have not built up a sufficient emergency fund.
Devadason said: “What I have discovered talking to various people is that many have not built up adequate emergency funds. If so, then if their present income inflow still allows them to shore up their EBFs or Emergency Buffer Funds, it is imperative they do so.
“My usual, unchanged, guidelines are setting aside in a bank savings account, fixed deposits and a money market fund sufficient cash to take care of three to six months’ expenses for those who are conventionally employed and six to 12 months’ household expenses for business owners and those who are self-employed.
“In addition to these basic guidelines, business owners should ask themselves if they have sufficient cash in the business or company coffers to sustain them for a year or two if the next crisis, after this one, comes along in five or 10 years.”
For every week the MCO is extended in a bid to save lives by flattening the Covid-19 infection curve, hundreds, maybe thousands, of businesses will fail, never to reopen. At some stage, the government will have to make the difficult decision to gradually lift movement restrictions so Malaysia can get back to work. To wait too long will crater the Malaysian economy and bring about widespread economic suffering.
Devadason believes that people should not take up the loan moratorium if they can afford not to but to take it up if they have no choice.
“If you have large cash buffers in your bank accounts and continue to retain your job at full salary, the deferred payment schedule of the loan repayment moratorium will actually lead you to stay in debt longer after this crisis passes. Staying in debt longer means that you accept creditor-risk for a longer period,” he cautioned.
The level of financial stability that comes from not owing any money to anyone or any institution is high. However, it is a very difficult way for most people to live.
“Having said all that, for those who are cash-strapped, I do recommend they take the car payment moratorium first because their cars will depreciate faster than their real estate. If that car payment moratorium is not enough to bring their reduced cash inflows and (hopefully downward adjusted) cash outflows back into equilibrium, then their next step, if necessary, is to take the mortgage moratorium.
“There should be NO third step! I do not want them to delay their credit card payments at all. I encourage them to always pay off their credit card bills in full and to move to the point of never carrying a balance,” said Devadason. — April 2, 2020
