Below is a question recently sent to me by a Brother and Friend. I briefly provided to him my opinion. Since I feel the same question could be agitating the minds of many other people, including my readers, I decided to post my response here with more details than I gave my friend. I thought my answer below can be useful for you.
Question:
“Advise me please considering the times we are in globally, many jobs lost and pay cuts… Knowing it will also take a while for some businesses to pick up…..Is this a good time to save or invest my money? “
Answer:
This is a very personal economic question. There are many sides to the question, in my opinion.
First, you need all the cash you can get both during and immediately after the crisis. Cash may be the most important asset in this regard. It will be very difficult to turn other assets to cash during and shortly after the COVID 19. It will be very easy to turn cash to any other assets you desire. Because there will be many distress sales. Cash will become king. That means there will be a lot of investment opportunities without enough liquidity to pursue them. Guard your liquidity jealously. Don’t put your money in any form that will be difficult to convert to cash. For now, ensure you keep as much as possible in cash and cash equivalent forms.
Secondly, any asset acquired now might be overpriced. Because the ultimate impact of the crisis on financial flow cannot be determined until a while after the pandemic is gone. Or at least a while after the current ‘abnormality’ has become ‘the normal’. Of course, it is possible a world without COVID 19 may never be again. That is a situation where the only solution to this pandemic is for the world to learn to live with it. You agree with me there are many unpleasant things the world had come to live with before COVID 19. Some are diseases while others have to do with non health issues. If the solution to corona virus comes by the world learning to live with it, only after then can anyone rightly estimate the impact of the pandemic on the world economy, flow of cash and global demand and supply chains? And it is only then one can really know the value of anything called assets now. The stock markets are really down, both in Nigeria and around the world. An investment expert has recently advised that this is the right time to buy and position. In his opinion, if you enter now that the prices are down, you will sell at good profit when prices bounce back. I said no. Many of the companies in the stock markets now may no longer going to be there if this crisis lasts for another 6months. Even if the pandemic is over today, a number of companies will still die from the impact of what has happened so far. A family friend called me about 3 weeks ago to come and buy a plot of land at a giveaway price. It is a giveaway price in his own opinion? To me, it is neither here nor there. The so-called giveaway price may turn out to be an overvalued price by the time you look back 3 months down the line.In my opinion, it will take at least 6 months after the end of the current pandemic before you can determine the correct value of most assets. The end of the pandemic could come by way of adequate testing and treatment capacity and change in lifestyle. That will mean that the world has learnt to live with the corona virus. It could also come by way of vaccine. Whichever way it comes, it is only then that correct value of assets and investments can be determined. For now, we are all busy trying to figure it out. Tangible assets and many types of investments are still on their way downwards.
Thirdly, to be truly rich, you must be armed with enough courage to take some risk and speculate. For example, I may envisage the pandemic will last for another 6months whereas it lasted for only two months. If 6months were factored into the land transaction I just mentioned above at the point of consummating it, then I would have made some gains by buying the land right now. It only means the value would appreciate faster than anticipated. If that turns out to be the case, I would have taken the right risk or speculated rightly. What if the crises lasted for more than another 6months? Then, the opposite would be the case. The reality is that a time like this reduces the capacity of individuals and corporate organizations to take risks and speculate. The advice is, keep your money. You can never know the real value of an asset or investment until well after the pandemic. Every investor needs some clarity as to where and what he wants to invest in. He needs some measure of certainty and predictability as to the likely outcome of his investment decisions. That clarity is not there now. Even the world authorities don’t know the real behavior of corona virus yet, talk less of predicting the outcome and impacts of it. Taking risk is important on the way to wealth. Just be sure you are not taking blind risks.
Fourthly, if things get really critical, the only thing that will be important is food and or health. Other assets will not likely buy you food or health at such a critical time. Only cash will be the answer. You will not even be able to convert those assets to cash so easily.
Fifthly however, calculated investing is necessary all the time, including at this time. There are some investments that are best made now. Or at least you seal the deal now. Such investments should be made, particularly if you have the means without jeopardizing your liquidity now and after the crisis. The proper thing is that you should always have your assets in liquid, semi liquid and real or tangible forms. You should decide the proportions using the best available information you can get. For me to advise you better, I will need more information about you, your person, your finances, your life goals and your general circumstances. It depends on individuals and their different realities.
On investment and right timing, there is no wrong time to invest. It is more of a question of which investment and how to invest. In reality, there are many types of investments. Each type of investment has its own right time and the right way to go about it. Rather than asking whether one should invest, the question should be whether the person has identified the right investment for the moment. Even as we speak, people are still investing, some rightly and others wrongly. By the way, saving is also one kind of investment. Our secondary economics taught us that. Your income may be broken into: consumption + saving + investment. It can also be broken into only consumption + investment or consumption + saving. From these formulas, saving is also one form of investment. But saving is not an active form of investment. One of those elements that make investment active is risk taking. The peculiarity of this time is that investing is highly risky now. There is so much uncertainty out there. Parts of what determine your capacity to take risk is the amount of resources available to you and your level of knowledge. The size of available resources indirectly determines the kind of backup you would have after taking that risk. So, if you have a lot of money, there is nothing bad in staking part of it particularly after you have set aside what is necessary to meet your transactionary and precautionary needs and that of your immediate family. The right word priority. Food and health come first at this time. Other things can follow based on your own reality. The conclusion is that to save or invest at this time is a critical personal question which must only be answered from a very informed and sincere position. Thank you and stay safe.