4 Financial Planning learnings from a global pandemic.
Even though financial market crashes or bear markets occur every 5 to 10 years, the COVID19 Global pandemic will be a once in a lifetime experience for most of us representing a global health crisis that found its way to every country, every household, and every financial plan. Even tough people were touched or impacted in different ways, there is no doubt that each South African was touched in some way, from the tragic loss of lives of a loved one to the financial impact experienced directly or indirectly. The COVID-19 Global Pandemic represented a perfect storm, testing sound financial- and retirement plans.
4 Lesson from the COVID-19 pandemic worth taking note of.
Plan for your family when you are not there.
During the crisis and as the global death toll started to rise many people started taking stock of their own financial plan and areas often neglected including having an estate plan, a will and sufficient insurance. I have no doubt that a record number of wills where reviewed or redrafted during COVID- 19 as many came to the rude awakening that there wills are either outdated or they do not have a will in place. A will should go hand in hand with an estate plan, specifically if you have a sizeable estate.
An estate plan involves a “stock” take of your assets and liabilities and your intention in how you would like to leave this to your loved ones. The estate plan also quantifies the various costs at death including, estate duty, capital gains tax, executors’ fees etc. If these costs are not provided for, it could leave your loved ones destitute.
Protect your biggest asset, you.
Live insurance plays a critical role in securing you and your families future. Even though this is often seen as a grudge purchase, this should be a priority even before finalising an investment and retirement plan. Insurance should provide peace of mind that if life happens you and your family will be provided for appropriately, not only during your lifetime but also when you die. Income protection played a critical role during the pandemic, providing many professionals and entrepreneurs with an income when they could not work.This was especially relevant to the medical profession. In addition to protecting your earning power, life insurance should also provide for loved ones when you are no longer there. The days of buying life insurance from the door-to-door salesman is long gone. Determining the appropriate insurance needs is a complex exercise and needs to take account of your personal circumstances and objectives, your existing balance sheet (including existing insurance) and costs at death as determined through your estate plan. Doing this correctly should provide peace of mind to you and your loved ones.
Plan for emergencies, they happen.
Life does happen, and it is important to plan for this. Every financial plan should have an emergency fund, the go to place in case of a crisis. This should provide for life’s emergencies in the short term. An area often neglected in post-retirement planning is appropriate diversification of income to plan for life emergencies. This is broader than the traditional answer that “your living annuity is diversified” and includes the consideration of other sources of income ranging from, guaranteed annuities to rental income and other alternatives.
Stay Calm, Markets Recover.
Over the long-term markets do recover and reward the patient investor. Investing in shares and being a part owner in a listed business is one of the cornerstones in generating long term wealth and delivering inflation beating returns. If you are prone to “react” to uncertainty and do the wrong thing i.e., sell your investments, be sure to implement a coping mechanism i.e., talk to your financial advisor before reacting, write a letter to yourself to read in time of crisis or leave yourself 3 months before reacting to the “noise”.
COVID-19 did present the perfect financial planning storm. What we do not know is when the next crisis will be and how severe this will be, what is important is to have an enduring financial plan in place that does consider your life and the uncertainty presented by the external environment.
Wynand Gouws, CFP®
Gradidge Mahura Investments