Why Financial Plans Must Change Post Covid-19


The pandemic has already forced many individuals and businesses to make changes they had not planned as they struggle to keep afloat during the worst global health crisis for a century. The tourist industry, the lifeblood of Bali, has been decimated and the focus for many will be on survival until the tourists return. Some comfort can be drawn from the experience in Europe where travel companies in the northern countries were inundated with bookings when Spain recently announced they would accept tourists from certain countries without need for quarantine. It shows that there is a pent-up demand and that people are yearning to travel once it is safe to do so and restrictions are lifted.

 

Things will return to normal but much will be changed

On a business and personal level future financial plans will need to be better prepared for unforeseen events. Stronger liquid reserves need to be available for emergencies while long term savings for a less certain future should be accumulated at the expense of spending on the present.

Where we invest must change too. In fact a big change was already in progress before the pandemic. Remember the major topic of climate change? And the big news items last year of droughts, massive fires – right across much of Australia at one point – and disastrous floods? These things are still happening, even this month in Japan and closer to home in South Sulawesi. But they are overshadowed by the pandemic. Climate change and the environment will come back into focus once Covid-19 is behind us.

 

The big move to sustainable investing

 The concept of ‘ethical’ or ‘socially responsible investing’ goes back in history as far as the eighteenth century when the Quakers prohibited members from participating in the slave trade. Later on, ethical investing meant avoiding ‘sinful’ companies associated with guns, alcohol or tobacco. In more modern times people have been able to invest in funds labelled ‘ethical’. The problem, up to a few years ago, was that these funds tended to underperform funds which were less scrupulous so they attracted only those who were prepared to sacrifice returns in the interest of following their principles.

Today however, ethical investing has expanded to incorporate a much wider universe of principles that now comes under the heading of Environmental, Social and Governance, or ESG. And far from underperforming, the funds in this sector are now leading the rest of the pack. When markets collapsed in March this year as the impact of the pandemic struck home ESG funds, according to a Bloomberg analyst, fell by only half as much as the S&P 500. This is further evidence that companies that incorporate ESG are better custodians of investor capital, offer downside protection and can generate better long-term returns.

Investment globally in ESG funds has grown by 34% in just two years to a total of over US$30 trillion. If you have a pension plan or long term investments they should definitely incorporate some ESG funds.

 

What exactly does ESG embrace?

The scope is very wide and is constantly under review. Included are elements relating to acceptable investments, human rights, freedom of association, child labour, all forms of discrimination, impact on the environment, impact on climate change, ethics, good governance and corruption. However, standards are not crystal clear and the investor needs to be wary of funds that apply ‘greenwashing’ in order to qualify as a genuine ESG fund. This means that they may well invest in some environmentally friendly companies but conceal other investments that are less ethical or poorly governed. Until such standards and controls are in place it would be wise to stick with the larger fund houses that are keen to protect their reputations.

 

What about pensions post Covid-19? 

The financial impact of the pandemic is enormous. Governments are allocating huge amounts of money to alleviate the consequences of lockdowns and unemployment. But someone eventually has to pay the bill. In the UK the state pension could be affected in that a ‘triple lock’ that protects pensioners against inflation could be scrapped or suspended to help pay for the government plans.

With the possibility of rampant inflation when wages recover in due course this would mean further suffering for those whose pensions were frozen the moment they left the UK. There is a strong campaign fighting this injustice however and if you receive a frozen British pension you have a chance to voice your complaints to an All Party Parliamentary Group (APPG) that is conducting an inquiry. If you belong to a Bali-based group that has been campaigning for years you should have received notice of it. If you don’t belong to the group and would like to respond I can send you details. The deadline is short however; responses must be received (by email) by 3rd August.

For anyone expecting to survive the pandemic (hopefully the vast majority of us!) and looking forward to retire it would be well to review your retirement arrangements to see if they are adequate. With governments everywhere weighed down with debt and with growing retired populations it will be harder for them to maintain the pension levels of the past. Private company pensions are also under severe pressure and many could collapse. The solution is to back them up with private pensions. If you have a good number of years’ work ahead of you it would be wise to make a move in this direction once the end of the pandemic is in sight.

A hundred years have passed since the last major pandemic, the ‘Spanish flu’. Hopefully it will be another hundred years before the next one so you can enjoy a lockdown-free retirement.

Stay safe!

 

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 colin.bloodworth@ppi-advisory.com 

You can read all past articles of Money Matters at www.BaliAdvertiser.biz
Copyright © 2020 Colin Bloodworth