As some part of normal life restarts in Malaysia, we should take a minute to recognise the lessons from the COVID-19 pandemic, especially considering that the world hasn’t seen this much disruption since World War 2.
I discussed this, and thoughts on investing during a recession, with Aaron Tang, a.k.a financial blogger Mr. Stingy, which you can find linked at the bottom. However if you don’t have 20 minutes to spare right now, below are 4 highlights from the conversation.
- Surprises Happen. The long bull market and global economic growth put many of us in a false sense of security, especially since Malaysia’s last major crisis was about 21 years ago. It’s essential to remember that surprises are bound to come up and we should be realistically prepared. As author and economist Daniel Kahneman once put it, “the correct lesson to learn from surprises is that the world is surprising”.
- Survival. You have to build cash reserves, ideally 6-12 months of expenses. Now you won’t build it overnight, but you need to start now, doing so will provide you a buffer should you lose your job. This will also provide a sense of security to invest for the long run as it’ll minimise the risk of having to sell some of your investments in a cash crunch, which can be painful if your portfolio happens to be in the red due to market volatility.
- Job security is not guaranteed. When the economy is hit and businesses are impacted, jobs are likely to be cut. We need to keep that in mind and prepare, especially if the potential disruption from COVID-19 could recur.
- Consumerism is overrated. When life is turned upside down, we start reevaluating what’s important to us and our needs. While it’s nice to have nice things, this shouldn’t supersede your financial security. There’s nothing wrong with a little retail therapy as long, as it’s within your means, after taking into consideration your financial goals and progress on your cash buffer.