Author: ARM

One of the devastating effects of the COVID-19 pandemic on individuals has been the sudden reduced income, pay cut or layoffs by organizations seeking to lower costs and stay afloat.

If you suddenly find yourself taking home less than you’re used to, these tips will help you find a balance. Likewise, if you’re among the lucky few who won’t have a reduced income, using these tips to stay cautious with your spending will help you easily navigate the potential high cost of living brought about by the pandemic.

Create a monthly expense list

The first step is to create a new expense list based on your new salary. When building your new expense list, ensure to list the needs and wants in separate columns. This helps you to identify areas that you can cut back on more easily.

Slash spending

Try cutting your clothing, entertainment, and food spending by 10% across board. Making these types of cuts enables you to find the money that you need without heavily cutting back in any one area. One way to categorize where you can cut back is to try less expensive alternatives to some of your traditional spending habits.

It helps to work with a budget number in mind. Let’s say you have an income shortfall of N50,000 per month. Knowing this number gives you an idea of the exact amount you need to trim from your budget and also helps you prioritize your expenses.

Identify ways to save on necessities

You may want to consider scaling back on your cable TV bouquet to a cheaper option, reducing your internet cost and petrol usage for your generator. Although the savings may not be huge by cutting back on only one area, the combination may be enough to help you save money. Look into finding more affordable car insurance and find less expensive alternative shopping centers for your groceries.

Don’t cut your savings

Take a look at your financial goals and find a way to continue to save money. If you make a direct debit when you’re paid, it will be easier to keep saving because now when you’re dealing with an emergency is when you need to have savings to rely on.

Develop yourself

While you utilize the above-mentioned suggestions, consider:

• Keeping up with certifications so that you can easily find another job

• Exploring alternative income streams

• Learning a skill that will position you for the future

Final words: It takes discipline to handle a pay cut because you may have gotten accustomed to certain lifestyle expectations. It is, however, important to know that this is a phase that will eventually pass, and your ability to effectively manage your finances now will help you manage it better when things stabilize and your earning power improves again.

The events of the past quarter compounded by the global CoronaVirus (COVID-19) crisis and its massive impact on financial markets in the short to medium term brings a feeling of déjà vu. To reduce the spread of the virus, nations have restricted trade, travel, and in extreme cases closed their borders. Amidst all this, an oil price war between Saudi Arabia and Russia has pushed the price of crude oil below $35 per barrel.

These two factors have had an adverse impact on global economies; with governments around the world including the Nigerian government, responding with the introduction of stimulus packages to keep their economies from slipping into recession.

Despite any negative sentiments attached to current events, it is worthy of note that markets have a good record of overcoming global economic shocks as seen below:

• In early 2003, a similar pandemic called “the Severe Acute Respiratory Syndrome” or (SARS) broke out in China and was not fully contained until eight months after the initial outbreak. However, the Chinese economy recovered and recorded a GDP growth of 10% in Q3 2003.
• In 2015, Nigeria, like other global economies faced an economic crisis. The equity market declined 17% as global oil prices plunged to below $40 per barrel. However, investors who took a longer-term view during the crisis have fared better as markets have recovered from their lows.

The key takeaways:

• The markets have a very good record of recovering from economic shocks.
• We cannot time the market by consistently calling the bottom or the top, but we benefit most when we systematically invest over the long term. Market downturns provoke extreme reactions – sell late in a bear market or too early when the market turns – and this is not any different.

Way Forward for investors

From our experience, our conclusion is that it remains profitable to invest in financial markets with a long-term view.

The graph below shows the performance of the Nigerian Stock Exchange (NSE) All Share Index from 2010 to date. Whilst the asset class has under-performed over short periods, we caution investors not to write off this asset class as the volatility creates opportunities for strong positive performance over the long-term. Investors have also profited by applying rigorous research in stock selection and by maintaining a disciplined investment process. Similarly, investing in fixed income securities over the medium term has provided a good hedge against inflation as the Federal Government securities over the last 5 years delivered average annual returns of 19%, well in excess of inflation.

For investors with an above average risk appetite, there are opportunities in specific sectors of the economy such as Telecoms, where companies earning capacity will not be significantly impacted by current events, and Consumer Goods where there are companies that have the ability to withstand market shocks. Furthermore, asset prices have declined significantly to record low levels, creating compelling entry prices as new year lows are redefined. Dividend yields remain attractive across a number of companies that have maintained strong fundamentals. (e.g. Tier-1 banking names such Zenith Bank and Guaranty Trust Bank).

For investors with lower risk appetite, we would advise on a re-allocation from risky assets to money market- based investments (such ARM Money Market Fund) because of their potential for steady and competitive returns in the short term.

Final words

Although we should expect substantial market volatility in the short term, investors who are able to maintain discipline and take a longer-term horizon to investing would make it through the down cycle to enjoy the benefits of an inevitable rebound.

Our customer experience team is available to guide you through appropriate investment decisions suitable to your need. We remain focused on navigating the market environment, with the aim to keep your investment on track toward reaching your long-term investment goals.

Please maintain all the rules of safety in this period, we wish you good health.