Can Financial Plans Survive The Pandemic?

The number of cases and deaths worldwide from Covid-19 has increased exponentially since my last article four weeks ago. Ironically the richest countries in the world have fared the worst, despite their advanced technologies and medical services. Indonesia is not out of the woods yet and is depending heavily on the government’s efforts to restrict mobility and persuade people to stay at home. Bali appears relatively unaffected in terms of cases and mortality rates but has taken a huge knock financially due to its heavy reliance on tourism.

Where we go from here depends on how quickly the world can get back to normal as tourists will not return if travel is restricted or potentially dangerous, even though Bali may be declared completely safe. Recovery does not depend like before on regaining foreigners’ confidence after a bombing or volcanic eruption; it depends on what happens elsewhere. Considering that experts are warning that self-distancing might be with us for many months it would be wise to plan your finances accordingly, especially if you are running a tourist-related business. When the recovery comes it is likely to be gradual; the good times are not going to return overnight at the flick of a switch.

Why financial planning is so important

One of the amazing aspects of the crisis is how it has affected Americans. The US is seen as the most prosperous country in the world and everybody (well, almost everybody) would like to live there. Yet as millions have lost their jobs in the past few weeks it has become clear that a large percentage of Americans live from one paycheck to another. This runs contrary to sound financial planning which dictates that you always keep ample cash or near-cash reserves to take care of unforeseen contingencies. One of the problems of the American culture is that people are expected to borrow heavily and spend frugally. On the plus side that means that people can enjoy a standard of living beyond their means and at the same time, the high level of spending ensures a vibrant economy. Unfortunately, that model breaks down rapidly when catastrophe hits and before you know what has happened the house and car get repossessed. Hopefully, readers of this column who have followed my advice over the years will have made some provision for the unexpected, although in fairness, no-one could have predicted a calamity on this scale.

What can be done if the money has run out?

On a personal level, if the problem is finding the cash to pay the mortgage or car loan the first thing to do is to engage with the lender. Banks are under pressure from the government to help borrowers so some relief may be found there.

If you hold shares on a major stock market they can be sold fairly quickly but after the crash in March the timing is not good. If you hold investment accounts or savings plans you can usually make partial withdrawals without penalty. You may also hold savings plans that you abandoned years ago or have lost track of them due to moving country or loss of your original adviser, You may be able to release some funds from these.
If you lost money in failed funds you may be able to claim compensation depending on the jurisdiction or there may be class actions that you can join to recover losses. I will be happy to advise if you need assistance in any of these areas.

Do make sure you have maintained premiums for medical insurance and life cover. Insurance companies are starting to balk at the potential for huge claims related to Covid-19 but existing policies should not be affected.

Now let’s look on the bright side!

At the time of writing, several countries and a number of states in the US have declared their intention to gradually reduce lockdown restrictions. Provided the decisions do not prove premature and lead to a resurgence of cases it does appear that for many the worst is over and there will be a gradual return to normality.

Although predictions have indicated it could take a year or longer to produce a vaccine some very promising news is coming from laboratories in Oxford, England and the US and tests on volunteers have already begun.

This, coupled with measures taken by western governments to reduce the social impact of job losses, has already led to a strong partial recovery in stock markets from the +/- 30% crash in March. One of the reasons for the recovery is the quick reaction of central banks that bought a large amount of assets in order to provide liquidity and enable governments to inject funds into their respective economies.

Due to the flight to the safety of government bonds yields have fallen to record lows and well below inflation. This means that in return for the security of bonds you can expect your money to lose at least 1% per annum in real terms. Some banks in Europe are paying negative rates of interest on deposits. The upside of all this is that if you are prepared to accept the volatility of stock markets the latter are going to be more attractive and likely to rise in value. But use only cash that you are unlikely to need for several years.

Now is certainly going to be a good time for investing for the long term but certain sectors such as aviation, hotels, tourism, real estate, emerging markets, oil, automobiles will be best avoided for a short while. On the other hand there is likely to be continued strength in healthcare and technology, including companies that are actually benefiting from stay-at-home policies such as Amazon, Zoom, Netflix etc. All these can be accessed via mutual funds where it is better to let the experts select the best companies. Passive or index funds have a place too but there are dangers of concentration as they are obliged to invest in big companies that may consequently become over-priced.

The other good news is that if you want to invest but are locked down it is now possible to open an investment account without the traditional hassle of providing hard copy documents etc by mail or courier service. Another win for technology!

A final thought; it is close to 100 years since the Spanish Flu that killed millions of people, but a long period of misery was followed by the prosperity of the roaring twenties. If the world recovered from that pandemic it can do so again!

Colin Bloodworth, Chartered Member of the Chartered Institute for Securities and Investment (UK), has spent over 20 years in Indonesia. He is based in Jakarta but visits Bali regularly in normal times! If you have any questions on this article or related topics you can contact him at