This has been a challenging year, to say the least, but it has highlighted some sound financial lessons that we should learn to help prepare for future crises.

Key among these is to put savings first and to stay invested in the market, despite the temptations to cut and run.

It’s also painfully clear that the Covid-19 crisis will not vanish overnight once the new year rolls around so sticking to fundamentals like having an emergency fund and a clear understanding of your finances remain vital safeguards for 2021.

Savings come first

The World Bank forecast in June that the global economy would shrink by over 5 per cent this year, marking the deepest recession since World War II.

Jobs in Singapore were also lost as retrenchments rose and the total employment shrank.

Experts stress that it is paramount amid such gloom and uncertainty to have the security of enough cash in the bank to cover personal expenses for six months.

OCBC wealth advisory head Kelvin Goh notes: “Life needs to go on. What the Covid-19 situation has shown is how one needs to plan for the worst-case scenario.

“Companies can close overnight, and if one were to depend entirely on their monthly income to get by, it would make for a tough situation should that income stream dry up suddenly.”

He adds that necessities include mortgage and insurance payments and expenses like children’s school fees.

Mr Ian Yim, HSBC’s head of wealth and international here, advocates the 50-30-20 rule: half the monthly salary goes towards essential expenses; 30 per cent to savings and investing; and 20 per cent for discretionary spending.

Pay yourself first, suggests DBS head of financial planning and personal investing Evy Wee: “This means automatically saving a portion of your pay cheque the moment it is received.

“With digital banking, this is easy to execute. Simply automate the monthly transfer of this fixed amount from your salary crediting account to another account when your pay comes in.”

This strategy beats just spending the pay cheque and then saving the balance, she adds.

Any financial plan should also include using the Central Provident Fund (CPF) to maximise savings

Ms Wee notes: “For example, you can top up your nest egg or that of your loved ones via the CPF Retirement Sum Topping-Up Scheme to leverage attractive interest rates and compounding.”

Stay invested as with market decline comes opportunity

Adopting a long-term and diversified approach can help investors weather storms.

The best investment opportunities often present themselves during an economic crisis, so be prepared to seek them out, adds Ms Wee.

There have been five economic recessions since Singapore’s independence, including this one. A DBS research paper noted that the average post-recession bull market recovery was a solid 141 per cent return over a 381-day period.

“The stock market behaviour in the past four recessions is on the side of investors who stay invested, assuming one has the holding power to ride out any remaining near-term price uncertainty and sit through a potential recovery over the next 12 months or beyond,” Ms Wee says.

Ms Chung Shaw Bee, UOB’s head of wealth management for Singapore and the region, adds: “It can be daunting to hold on to your investments when it seems that everyone else is selling. The key is to stay focused on your long-term investment goals and not be distracted by market noise such as price corrections.

“To be more confident during market sell-offs, we recommend that investors consider a ‘time in the market’ approach and to invest a fixed amount on a regular basis.”

For instance, dollar-cost averaging means investing a fixed amount at fixed intervals so an investor automatically buys more units when the price is low. Over time, the approach will lower the average investment cost, translating to potentially higher returns.

Mr Wilson Loy, Standard Chartered Singapore’s head of investment advisory and strategy, says investors also have to consider their risk appetite, financial situation and tolerance for potential losses.

“For those who are interested in equities trading, we would advise you to start small and get acquainted with the various aspects of the stock market first. Don’t jump in with both feet or put all your eggs into one basket hoping to make a quick buck, as you could end up losing everything.”

Staying diversified is important, OCBC’s Mr Goh agrees, adding that an asset allocation strategy with a good mix of exposure to various asset classes is necessary to hedge against volatility.

Take an investor who had been backing the S&P 500 index on Wall Street. While the portfolio was hit badly by more than 30 per cent from the highs in February to the depths of March, the index then recovered strongly.

At the same time, if an investor’s overall portfolio had bonds and even precious metals like gold and silver, their holdings would have been resilient to the swings in the equity market back in March.

HSBC’s Mr Yim concludes that one key lesson is that with market declines also comes opportunity: “This matters to long-term investors because cheaper entry points to global markets now exist.

“This means long-term prospective returns on investments are higher than before, making them more attractive for investors with a longer-term time horizon.”

Be prepared for the next crisis

The challenges that arose in 2020 will not magically disappear, experts note.

OCBC’s Mr Goh says: “With the world changing rapidly, it’s even more important to be well-prepared financially.”

He notes that an OCBC survey this year found that just half of Singaporeans have enough funds to sustain themselves for six months if they were to lose their job, while 75 per cent are not on track to retire at their ideal age or with their ideal lifestyle.

Ms Wee points out that purchasing power with the same dollar will shrink over time due to inflation, so people should have a resilient financial plan to preserve their wealth.

Ms Chung suggests that investors should also be prepared to keep at it for the long haul, as bouts of market volatility are expected to persist next year as the pandemic continues to impact economies and supply chains.

They can also look at growing sectors like global healthcare, including medical technology.

Mr Yim adds that sustainable investments such as electric vehicles and de-carbonisation initiatives will become the “new normal”.

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