At the end of every calendar year, we look forward to a new beginning and a part of that is getting our financial life in order. However, when the year has been as unpredictable as 2020 has been, future outcomes become uncertain too. 

So many things could have gone wrong with your plans this year, in turn altering the best-laid plans for the next few years. You may have been pushed out of your comfort zone only to realise that you are able to generate positive financial outcomes without support from others. Alternatively, you may have lost your job and regular income, finding out that capital preservation is the only way to survive. 

At the end of such a year, how can you plan for the next?

1. Be nimble 

If your income situation has been dramatically altered in this year, you must go back to the drawing board and alter your financial goals, both long and short term. Don’t live in denial thinking that it will all fall back in place. Its more than likely that if there is a change that’s happened in your professional life, things will not go back to where they were even after the pandemic has ceased.

Moreover, when will ‘normal’ return remains unanswered. Going into next year, you should rework your financial situation on two fronts; firstly, calculate whether you will be able to achieve your long-term goals with lower income and secondly, you have to seriously consider a lifestyle change if your income will take time to move back up to the earlier level. In other words, save more and be nimble with your long-term goals. 

2. Capital preservation

If you are a long-term equity investor, there is reason to celebrate as the domestic equity market indices continue to scale lifetime highs, defying the panic we saw at the start of the pandemic. The Nifty 50 index is up 70% from the lows seen in March 2020.

Moreover, when will ‘normal’ return remains unanswered. Going into next year, you should rework your financial situation on two fronts; firstly, calculate whether you will be able to achieve your long-term goals with lower income and secondly, you have to seriously consider a lifestyle change if your income will take time to move back up to the earlier level. In other words, save more and be nimble with your long-term goals. 

If you are sitting on unexpected gains this year and at the same time struggling for regular income from your profession, rethink how you are going to allocate incremental investments. Altering asset allocation to reflect the reality of today is one way to approach your financial state. Some of your capital gains can be invested in stable return investment options. Lowering risk may be a reality where earnings from your profession have slowed down. 

If your regular income is intact, then make sure you continue your monthly investments towards long-term wealth creation. 

3. Market value-led asset allocation 

For those who have not experienced any income shocks in 2020, you may think that your financial plan can go along as it is. However, the huge unexpected equity rally itself would have made your asset allocation tilted. Equity would have become heavier given the rally. Rebalance to the extent that your long-term strategic asset allocation comes back where you began your plan with. This will help you align your portfolio risks with your financial goals. 

Reviewing and rebalancing portfolio allocations are a part of the overall financial planning journey, this year, however, the review may need to be a lot more extensive considering the significant financial changes that one may have gone through in an extraordinary environment driven by an uncertainly long pandemic.