Navigating Financial Uncertainty
A Guide to Building Resilience
Plan, Plan, Plan is what all advisors will tell you when it comes to personal finances.
What do you do when things change despite all the planning?
All the planning can get punctured by sudden developments in the external environment.
These are times when even the word 'uncertainty' is bandied around for things once considered as regular as sunshine.
Nicholas Taleb said, "The best way to mitigate risk is to think in terms of 'layers of redundancy' rather than relying on a single protective mechanism."
He should know better, after all he is known for his essays on randomness, uncertainty and randomness.
Why talk about uncertainty now?
Well, one of the key figures in India's economy - the Reserve Bank of India, left interest rates unchanged in April. Also, in the same breath, it said we live in volatile times even as it raised economic growth forecasts.
That's an enigma wrapped in a mystery.
This led many to scratch their heads, trying to decipher what would happen next.
The best way to manage uncertainty is to consider ways to mitigate risk. The first way to mitigate risk is by protecting capital.
Capital Protection
There are various means available for protecting your capital ranging from bank deposits, government saving schemes, annuities and select bonds. (Read our piece on "Laddering up" to learn about managing interest rate risk.)
Insurance Coverage:
In uncertain times, the health of all individuals tends to turn more vulnerable because of worries about our jobs and income levels.
Review your existing insurance policies and consider purchasing or upgrading your health, life, and disability insurance policies.
Keep Emotions In Check
Remember that all economic activity is cyclical in nature. One has to stay calm and ride out the rough times.
Anyone who claims to have a set of cards to read the future is bluffing. Despite the learnings of the Global Financial Crisis of 2008, nobody knew about the trouble that Silicon Valley Bank and Credit Suisse faced.
It always helps to take counsel. When one is overwhelmed and struggling to decide, consider seeking the guidance of a trusted financial advisor who can provide objective advice and help you stay on track.
Build An Emergency Fund
A liquid emergency fund is crucial during uncertain times, providing financial security and helping you cover unexpected expenses without liquidating your investments.
Aim to set aside at least a year's worth of household expenses in a readily accessible savings account, fixed deposit, or liquid mutual fund.
Why have funds for 12 months?
For two reasons.
First, knowing that you have a financial safety net can reduce stress and anxiety related to unforeseen expenses.
Second, it will offer increased confidence in decision-making. Individuals may feel more confident in making financial decisions with a sufficient cash reserve
Be Ready to Seize Opportunities
Market downturns can offer unique investment opportunities for Indian investors who are prepared.
Regularly review your investment watchlist, and be prepared to act when attractive opportunities present themselves.
Stay Informed: Knowledge is Power
Staying abreast of economic and market developments can help you make better investment decisions during uncertain times.
While it is always advisable to have a financial advisor, you can get more out of the financial advisor by asking relevant questions.
Keep SIP’ing
Stay the course with your Systematic Investment Plan.
Investing a fixed amount at regular intervals helps you avoid the pitfalls of market timing and impulsive decision-making.
SIPs are not only for mutual funds. It can be for any financial instrument.
Diversification: The Key to Risk Management
Diversification is an effective tool to manage risk during uncertain times.
Investing in a mix of asset classes like equities, bonds, gold, and real estate can minimize the impact of a poor-performing sector on your overall returns.
Maintain a Long-term Perspective
Successful investing requires patience, and a long-term perspective, especially during uncertain times.
Stay focused on your long-term financial goals, and resist the temptation to make knee-jerk reactions based on short-term market movements.
Regularly review your investment portfolio and rebalance it to align with your risk tolerance and objectives.
Anything that is not measured cannot be managed effectively. Reviewing your portfolio is akin to weeding your garden or potted plant.
Removing the dud ones is as important as planting good seeds.
Liked what you read? Share this article with your followers.
Sign up and follow us on and to get the best stories on Investments, Strategies, Tools, Ideas & Insights to help you Grow and Conserve your wealth.