How to save your money during the crisis? Take note of 4 simple rules.
How the pandemic affects the world markets
It wasn’t COVID-19 itself that brought down world markets, but investors’ reaction to news about the spread of the coronavirus. Investors are selling securities because they expect negative consequences of the pandemic. Businesses suffer losses: employees leave in droves for quarantine, production is suspended, consumer demand drops, and company revenues fall as a result. It is only logical that stock prices fall as well.
The most important advice is to stay calm. Make informed decisions, and don’t get caught up in your emotions.
Invest for the long term
- Invest in stocks that are falling in price.
Microsoft stocks are down 25%, Lukoil 28%, Yandex 10% and Boeing 70%. This is a good opportunity to start investing and buying stocks at a low price.
How to choose a stock? Pay attention to the shares of large and promising companies, which invariably grow in a favorable economic environment. Choose securities with high dividend yield, such as Lukoil, Gazprom and MTS. Dividend yield is calculated as the ratio of annual dividends per share to the share price and shows the income per ruble invested.
When making transactions, do not forget to take into account risks and the possible realization of a negative scenario.
Invest in stocks gradually
Lifehack for long-term investors. Determine for yourself the amount you can invest each month and buy assets strictly with that money. This will allow you to buy more financial instruments at a low price and less at a high price.
Remember: In times of uncertainty and volatility, it is best not to speculate or trade in securities you already own – unless you are a trader with years of experience. There is a great risk of losing money.
Increase your reserve fund and save
Make sure you have a financial safety cushion of 3-6 salaries. The emergency fund should be locked up for long-term goals: you can’t even buy a car or an apartment with that money. In times of crisis the chance that you use the fund increases: you can lose your job, so it is better to increase the size of the fund. At the same time, try not to take out new loans.
To save effectively, start keeping a personal budget. Make a list of your regular monthly expenditures: food, utility bills and loan payments, clothing, subscriptions to services – prioritize your expenditures and cross off the last items for the coming crisis months. If you stick to this list and stop making impulse purchases, you will be able to save money.
Some of the money can be invested in classic protective assets, including gold. There is a temporary liquidity crisis in March 2020, and even gold quotes have dipped below $1,500. However, it is difficult to find a replacement for gold as a reserve asset. Since investing in gold does not involve receiving coupons or dividends, it may be more interesting to invest in gold stocks.
Right now, it is better to invest in OFZs (bonds issued by the Ministry of Finance) rather than deposits, because the rates on deposits have not yet been revised. Yield to maturity for OFZs is higher than the average rate for deposits at the 10 largest banks. For example, on March 16, the yield to maturity of two-year government bonds is about 7.4% per annum. Banks offer a rate below 6% for the same term.
If you’re not willing to take a risk, invest in structured products with full capital protection or structured products that offer higher yields than a bank and limited maximum possible loss.
Do not buy currency with all your money
The dollar has gone up from 62 to 80 rubles, and the euro from 69 to 86, so now is not the best time to invest in currency. Wait for stability in the currency markets.
The plunge in the ruble triggered a decline in oil prices. Today the price of oil is almost equal to the cost of many oil projects in the world: companies sell oil at the same price as they produce it. Prices are unlikely to stay below $30 per barrel for a long time, as this would lead to a reduction in production. Most likely the pressure of oil on the ruble will be short-term, and the process of ruble depreciation has already partly taken place.
Foreign exchange rates depend on the spreading of the coronavirus. Following the example of China, the situation in the country takes several months to stabilize: by the end of April the virus will start to subside, investors will start to return their money to emerging market securities and the ruble will strengthen. Therefore, buying currency for the long term will not be profitable for the investor.
If you need currency right now, open a brokerage account and buy it directly from the exchange. The exchange rate of world currencies is set on the Moscow Exchange. That’s where banks buy currency, and then sell it at their markup. It is more profitable for banks to set the purchase price of foreign currency below the Central Bank rate, and the sale price – above. So banks make a profit.
1. When global exchange indices are falling, the main thing is to remain calm and make informed decisions.
2. When stocks get cheaper in a crisis, it’s a good opportunity to buy stocks with a high dividend yield.
3. When the market is highly volatile, invest a fixed amount each month.
4. Increase the size of your reserve fund and save.
5. Diversify your money. Invest part of it in protective assets and fixed-rate instruments: gold, bank deposits, bonds. Put the other part in cheaper stocks or ETFs.
6. Don’t buy currency until the exchange rate stabilizes a bit.