How to Invest Your Money During the Coronavirus Pandemic: 5 Questions to Ask Yourself Before Investing
The COVID-19 pandemic has had drastic effects to the economies around the world. Lockdown orders and unemployment has caused the Philippine economy to shrink for the first time in 22 years. Coronavirus snapped the country’s year growth streak. However, London-based The Economist magazine, has ranked the Philippines’ financial strength 6th among selected emerging economies in the world and the best among those ranked from Southeast Asia. This assessment makes the country attractive to local and foreign investors.
If you are reading this right now, you may be interested to get in on the investment action too. As many are still following stay-at-home quarantine measures, a lot (including you) may be spending a little less than usual on transportation, dining out, entertainment, shopping, and more. If you are able put some extra money aside, even if it’s just a small amount, should you save it or invest it? Here are some questions to ask before you make any major money moves.
1. Do you have a solid financial foundation in place?
If you already have a solid foundation in place, it may be a great time to invest in companies that are resilient to survive this crisis and emerge stronger on the other side of it. What does a strong financial foundation mean?
a. No “ugly” debt. You don’t necessarily have to be absolutely debt-free. It just means that the debt you do have are at a low interest rate, serve a purpose for your future, and have a low payment with respect to your income. A good measure is for total debt payments to be within the 30% threshold of your total income.
b. Costs of living under control. You can only invest if you have more cash coming in than going out. This means that you have more than enough money to cover your bills as well as any unexpected expenses that come your way from time to time.
c. Fully funded emergency fund. It’s a great idea to start with your emergency fund. You should have at least 3 to 6 months’ worth of living expenses (rent, mortgage, utilities, groceries, etc.) in cash or near-cash assets before you consider investing.
In the current economic crisis, it may be a great time to reconsider how much you should save for. Think about your job security. You may need to save up a few extra months’ worth of cash rather than throwing it in investments you can’t touch over the next few years.
2. When do you need the money?
If your financial foundation is in good shape already, think about your goals and when you intend to use the money you’re saving.
For your short- to medium-term goals (3 to 5 years), it may be a better idea to save instead of investing. Keep your money in a savings account with high interest. You can also consider putting your money in time deposit, a short-term investment that provides higher interest rate than a regular savings account.
For your long-term goals (10 years or so), you can opt invest.
3. How much cash do you actually have?
If you have an emergency fund in place and you have thought about your financial goals, consider investing. You don’t really need a ton of money to start investing. You can start investing in the stock market for as low as Php1,000 through COL Easy Investment Program. Many financial companies also offer affordable investment vehicle options. The important thing is you cultivate the habit of regularly adding to your investment.
4. How much risk can you tolerate?
If you have an established emergency fund and you have your financial goals in place, start thinking about your risk tolerance. Risk tolerance is your ability to withstand the idea of losing money. This depends on many factors, including your age, your time horizon, and how much money you have to invest.
In general, investment vehicles that offer high returns carry higher risks, and low-risk investments often are low-yield or give a low return.
5. What are your investment options?
If you are ready to invest and start to make your money work for you, start checking out investment options perfect for your financial goals, risk tolerance, and amount of money you have.
If you’re a beginner, start by looking into mutual funds, index funds, and treasury bonds. They can be less risky than picking individual stocks in the stock market. There are countless resources online to help you out. Seek out experts or maybe consider hiring a financial adviser to help.
Look into investing in real estate as well. Property investments are considerably a safe choice during the current pandemic. If you don’t have enough funds yet to buy your own property, there are other ways to start investing in real estate.