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Priorities to think about when investing in a crisis


Faida Research - May 9, 2020 - 0 comments

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Creating a financial plan is really allocating your assets and apportioning your income in a way that ensures that in all circumstances, there are financial resources to meet financial obligations.

This will require you to begin by establishing where you are at with our finances – what are your net assets? Of those assets, how much is liquid and can be sold easily should you need money to meet an urgent financial obligation? How much will your family need per month to maintain its current living standards should you be sent on leave without pay? Where does your family stand if you lost your income?

The future is unknown and none of us know how long this situation will last, or what will happen next week, or in the next couple of months. We have to make the best decisions we can with the information available.

Below are some of the things we think individual investors should prioritize:

 Savings- if you are fortunate to have some kind of income at the moment, cut your expenses and build an emergency fund to cover your living expenses for the next six to eight months. Cash is king, invest in T-Bills, and Money Market Funds so that you can be in a position to meet any emergency you may have.

 If you are able to cover your living expenses for at least six months, and you have extra money to spend, we recommend investing in fundamentally strong counters with a long-term investment horizon.

 Fundamentally strong counters are stocks of companies that are:

o Financially strong: in terms of net assets, brand value, client base or market share;

o Liquid: have positive cash flows or substantial cash reserves and can pay their debts (if they have any);

o Profitable: able to generate profits consistently;

o Have good management and good corporate governance; and

o Are in an industry that has good growth prospects

Fundamentally strong counters are generally more likely to ride through a crisis and continue to thrive once the pandemic is over.

 It is difficult to time the market. Even seasoned investors find it difficult to know when to buy at the lowest price and sell at the highest price.

 For investors who are risk averse, we recommend investment in Treasury Bills and Treasury Bonds.

 Keep in mind that life, as we know it has shifted. We are going to have a new normal. There may be companies that had shown strong promise for growth, such as airlines, retail, and tourism, but these have been affected significantly. We must therefore consistently look out for companies that will show resilience post Covid-19.

 

Our team is available to consult with you and assist you in making investments that are suited to your circumstances and needs; whatever your budget. Contact us for a free consultation.

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