While big businesses always have an option of faux Keynesian economics and the government to bail them out when they make mistakes, individuals and mom&pop shops do not. We need to plan ahead for volatility and enforce risk mitigation wherever we can. And, in the 2020 financial climate, the rules are slightly different than what they have been.
Primarily, we have realized that without covering the basics and investing in individual financial stability and relative independence, we can’t have good options once something unexpected happens. We need to take in all the help and advantages we can get and push our business and personal life in a very similar way.
Since the financial crisis, Warren Buffett's Berkshire Hathaway has had significant exposure to financial stocks in its portfolio. Q1 2021 hedge fund letters, conferences and more At the end of March this year, Bank of America accounted for nearly 15% of the conglomerate's vast equity portfolio. Until very recently, Wells Fargo was also a prominent Read More
Additionally, we can’t observe and emulate larger players and take their advice without substantial mounds of salt. Investors like Warren Buffett have, for a long time, stood as an example of smart investments.
But, unlike the billionaire, most business people don’t have the luxury to subsidize their failed investments with taxpayer money.
What Has Changed?
As is so often the case, there needed to be a huge impact on the market, such as a global pandemic and subsequent lockdown, for individual investors and those taking care of their personal finance to change their perspective.
The new investor needs to adapt to the new consumer. On the one side, those without disposable income can’t participate as much in the market, and they can’t be the focus of anyone’s business. On the other, people will always need some basics, and investing in companies and retailers that offer these basics will be even more profitable in the future.
A good example is a contrast between two blue-chip companies, Disney and Walmart. While the former’s stocks and tendencies plummeted, the latter grew just as much. Nothing has changed in the behavior of these corporations, except the perspective of the consumer.
Additionally, there is a visible breach of trust between many corporations and manufacturers and their clientele. This feeling will seep through to companies that haven’t done anything wrong to create a new sort of buyer, investor, and supporter that has zero company loyalty.
Finally, while individual frugality shouldn’t be brought to clinical levels, moderation in consumption is the new way of thinking. People will not spend any more on things that they don’t need, or at least want really badly.
Emphasis on Personal Finance
The internet is to blame for a lot of people finding out how personal finances work. With digestible information given by YouTubers and social media influencers, more people have learned not only that some options exist, but how to use them to their fullest.
Also, there are reviews for everything now. Even entertainment and online gambling have independent reviews, let alone serious investment options and financial instruments.
How to Mitigate Risk in Changing Climates?
There are two major ways that have proven to be useful for people that have practiced them even before the change happened. Those who have built their portfolios and personal investments carefully and refrained from taking on too much debt have prospered.
The first step is always balancing your budget and planning your future finance. While this sounds easy, the rational conclusion is that you will need to abstain from some of the practices you see online and focus on what truly matters to you.
Spending money beyond your means to impress your friends or people you don’t know online is a certain way towards poverty and financial ruin. As this is an expenditure that never ends, it will affect you regardless of your income.
Gauging your lifestyle to spend half of what you make will leave you with enough funds to withstand any disturbance in the market or your personal life. Investing this money even in the low-yield sector will reap both financial and psychological benefits.
The second aspect is investing in insurance. This doesn’t just mean ensuring your house, car, and health, but also having savings, personal investments, and financial stable peers.
The last point might be the most important for long-term success. Because; the higher the number of rational participants the lower the impact of any disturbances.
Reinforcing the Gig Economy
Especially now when a lot of people understood that they can work from home and lower their spending by simply cutting out the transit costs, the gig economy is bound to explode. And, with this rise, some changes to our lifestyle should be made, not only because of safety, but happiness as well.
The new community, often spanning the globe, is forcing the formations of ‘neo-Oikos’ clusters. Because of this, your investment in your friends, family, and emotional partner might be your best bet for the future, even from a purely economic standpoint. The better everyone does, the easier your life will be and less risk you will need to take on if you want to prosper.
Ironically, the more things change, the more they stay the same… plus ça change, plus c'est la même chose.