Covid-19 Crisis: A Reality Check For Your Financial Plans

Your monthly expenses during this period may be a good gauge of your likely spending post-retirement.

- Aarati Krishnan

When we make our financial plans, we end up relying on a host of assumptions relating to our risk appetite, saving patterns and the resilience of our incomes to external shocks. But making the right assumptions about oneself needs a lot of self-awareness.

If we go far off the mark, our financial plans will miss the targets. Unexpected events like the COVID-19 crisis give you the opportunity to put these assumptions to a real-life test.

Here are four checks you may like to run on your financial planning assumptions, now that you’re forced to live through this crisis.

Your real risk profile

Most financial planning exercises start with attempts to assess your ability to handle capital losses or volatile returns in your investment journey.

Apart from gathering facts about your age, life stage, income and liabilities, risk profiler questionnaires often try to gauge behavioural aspects too. They ask questions such as these — would you buy, sell or simply hold if you have invested 75 per cent your savings in the equity market and lost 20 per cent in six months? How often would you check your portfolio in a market fall?

When answering such questions in the abstract, most investors tend to wrongly gauge their risk appetites. But the market volatility that has hit us during the COVID-19 crisis helps us get a real-life taste of what risk can do to our investment returns.