Firstly a Happy New Year to all readers of this column!
When I expressed the same wish at the start of 2020 I never imagined how the year would become a nightmare for billions of people across the globe. In December 2019 the coronavirus was just a breaking story in the unheard of city of Wuhan somewhere in China. In March 2020 the virus became a reality in Indonesia. By April most of us were in lockdown.
The problem has not gone away. In fact it is expected to get worse as we go into lockdown yet again. But this year should be different. With the advent of proven vaccines the world is now starting to fight back against the virus and by the end of the year the virus should be in full retreat, if not defeated.
So, bearing in mind that the fight is only just starting what should be our New Year financial resolutions to help preserve or rebuild assets that may have suffered during the pandemic?
Resolution no. 1 – Stay safe and healthy!
It goes without saying that your financial wellbeing depends very much on your physical wellbeing. So follow all the recognised protocols to keep Covid-free and build up your immunity by healthy eating and plenty of exercise. This can be quite a challenge during lockdowns but we are fortunate in that in Indonesia, including Bali, we have never been forced to be confined to our homes. In Spain for example and for a while, only people with dogs to walk were permitted to leave their homes.
Resolution no. 2 – Review your protection cover
The huge death toll in many countries has reminded us of our mortality. While the actual risk of death from Covid is quite small in percentage terms, countries are noticing an increase in deaths from other causes. It’s not surprising really as the stress of living with Covid, lockdowns, delayed medical treatment, unemployment, failed businesses etc. has invariably shortened the lives of many. While many of these deaths can be attributed to Covid they will not appear in the statistics.
A gloomy subject, but if you have dependants it is a reminder to review what protection you have in place for them. Covid is still covered by life insurance policies but if you are applying for a new policy you may find there are delays in approval or special conditions if you fall into a higher-risk group.
Having health insurance is a must, but choose your cover carefully. Costs may differ widely but the cheapest isn’t necessarily the best.
The cost of quality international expat insurance becomes unfortunately very high when you reach a certain age. What that age is depends on your financial ability to pay! At some point it becomes so costly for an expat that a hard decision must be made on whether to continue or stop paying and save the premiums instead as a ‘war chest’ to meet future medical bills. If you qualify for membership, the Indonesian BPJS scheme offers some protection, but bear in mind the scheme is struggling financially.
Note that all insurance companies are happy to receive premiums, but the crunch comes when a claim is made. Be aware that they have a right to refuse a claim where they discover you had an undeclared pre-existing condition, even if you were unaware you had it!
Resolution no. 3 – Rebuild cash reserves
While investing for the long term has been the main thrust of financial planning I have always advised clients to keep ample cash reserves for contingencies, even though the cash produces no real return. By contingencies we usually think of serious illness, accident, family bereavement, loss of job, business failure etc. Few were prepared for a contingency as severe as the global pandemic. The tourist industry in Bali has been hit many times in the past, but as a result of domestic events. The pandemic, however, has hit the whole world and even if Bali could be free of Covid it could not open its doors to a flood of international visitors. This will hopefully change before the end of the year, but not all will come out of the crisis intact.
Whatever the personal outcome of the pandemic, the first thing to do once all bills have been paid and obligations have been met, is to rebuild cash reserves. Expats who may possibly move to other countries in the future would be wise to build up reserves in hard currencies outside Indonesia in addition to local reserves. It is no longer easy to move large amounts of money out of the country, other than in stages. I know of several cases of expats who have sold properties and have been unable to immediately transfer the proceeds overseas as may have been possible a few years ago.
Resolution no. 4 – Review existing investments and pensions
One surprisingly positive feature last year was the strong performance of most (but not all) global stock markets. The strongest of all was the US market. This is quite surprising when you consider the chaotic state of politics in the US and the fact that it has by far the world’s worst record in combating Covid. But it was strong due to low interest rates, tax breaks for companies and perhaps above all the fact that the US hosts key companies that have thrived in the pandemic. Companies such as Apple, Amazon, Google, Facebook and Netflix. If your investments have included these companies, either through direct shareholdings or via mutual funds you will have done very well indeed.
Many people are ‘passive’ investors in that they do not actively get to understand or monitor what is under the ‘hood’ or ‘bonnet’ of their investment plans or pension schemes. There is often an assumption that the plan or scheme will manage itself and all will be well. That’s a mistake. It is important to know precisely what your plan or scheme is invested in and to adjust it as necessary to the rapid changes that affect the markets.
To give one example of how important it is to understand what is going on in the markets let’s look at the performance in USD in 2020 of two closely related funds in the same fund house.
One of the funds, Guinness Global Energy, lost 35%.
Another fund however, Guinness Sustainable Energy, made a profit of 82%!
The first fund reflected the impact of the pandemic on the oil industry while the second fund reflected the growing trend towards clean energy and sustainability.
Hence the importance of knowing what you are investing in.
Resolution no. 5 – Refocus on the long term
For many, getting through the present crisis is the top priority. But once the pandemic starts to wane as the vaccinations take effect it will be important to review long term plans once again. The shock of the pandemic will have taught us how easily our best plans can be shot down in flames. With governments also with their finances stretched we cannot rely on them to take care of us in later years. So the sooner we rebuild our provision for those years the better. For most it will mean spending less and saving more. But at least we now have real light at the end of the tunnel.
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 or would like to receive a free monthly newsletter on financial matters you can contact him at firstname.lastname@example.org
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Copyright © 2021 Colin Bloodworth