Covid stress test: how easily can you liquidate your financial assets in case of need?


By Uma Shashikant

Do we really need these things? Moments of self-awareness are triggered by social isolation and living on the inside with our things around us. Grocery stocks on the shelves remind us that we had better stock these things. But the objects lying around in vain pretending to be decoration, we think we have exaggerated. Assets are just that – accumulated for continued enjoyment of use, or for a distant and unknown tomorrow. Except that many turn out to be so unnecessary.

We do not live a nomadic life that focuses only on the present. This kind of existence is both romantic and difficult. There is always an uncertain future to deal with. If the hunter-gatherer wakes up to a raging storm, he needs food in reserve, so he doesn’t have to go out. We specialize in food preservation techniques, agriculture for the seasons, silver storage to last over time and a well-developed system of asset conservation and valuation.

Assets can generate income for us, when we let others use them for remuneration; the assets can allow repeated use, saving on expense over a long period of time; assets can generate money in the short term, which can be liquidated in the short term; and assets can help accumulate wealth and pass it on from generation to generation. The accumulated assets give us a social status, as a marker of wealth, high earning capacity and prosperity that can last over time. But sometimes we do too much. Without a specific purpose and use in our lives, accumulated assets can be wasted. They may not pass a stress test to be useful when we need them most.

Make a list of what you have around you. Binge drinking markers are very likely to stare at you. Those opulent dinner sets, those overflowing shoe cabinets and racks, countless toys and gadgets, boxes of linens, curtains, trinkets and artwork all are a testament to your well-earned money spent on things you thought necessary. As markers of status, style, or imaginary life class, there are items around you that have eaten up your income over the years. They are not assets, nor objects of everyday consumption. In them, you’ve passed up the opportunity cost of having useful assets instead.

Now list the physical and financial assets that are worth a considerable amount of money and represent your determination to plan for the future. List them all and find out what they’re worth now. From that land on the outskirts of your hometown that has not seen the development you envision, to the house you bought as an investment and that you can no longer sell without loss, to the various stocks you have bought on IPOs and through various miscellaneous recommendations, to mutual funds that you bought based on persuasive interviews offered by relationship managers, to insurance policies that you bought to save money. tax, list them all. Don’t forget the contingency fund, bonds, deposits, postal and PPF savings and the gold and silver that are in the lockers.

All of these are meant to come in handy when you need them. Start by asking when you last used them and when do you plan to use them. Many of us think that the act of accumulating assets itself is a virtue and we have nothing to do beyond that. The assets must work for us. Put your strengths to the test. If you were to convert them to cash now, what would that imply?

If you find that the sale of the jewelry is likely to lead to serious marital discord, this asset is a loss for your needs. You may not be able to realize its cash value in your lifetime. You find that you cannot sell the stocks, funds or property at the current market price as this will result in a loss. Stock and fund prices have corrected so much during the crisis that the gains made in recent years have been wiped out. Some of the investments made earlier are still in the money, which is a consolation. The property you have bought can be put up for sale, but the demand is so low that you don’t know when you might close a deal. There is interest that arises from deposits and bonds. PF and PPF accumulate at a slower but positive rate.

If you’ve had a 12-month period with no income – no wages to earn, no business or professional income, but a household that still has to function and expenses that still need to be covered – how your assets will help you – they ? Which one are you going to sell? If you can’t pay the EMI for the house you currently live in, where will you get the funds? You can only bear the risks of a sharp drop in the equity markets if you have other assets that you can access when needed. If your assets are all stranded in your business and that business is not generating any income right now, how would you handle the coming recession?

Stores of value are only worthwhile if they can scale up and be useful when we need them. Not if they also lose value, get stuck, or get stuck when you need to access them. Do your assets pass this stress test? Do you have enough easily accessible assets like a bank FD, liquid fund or short-term bond fund that will finance your household in a crisis? Can you get through this time without having to sell struggling other assets at discounted prices?

Make an emergency plan for your household. On the one hand, list the expense items that you must incur. Everything from rents, fees, utilities, groceries, medications, and routine items that keep your body and soul together, should be there. Estimate these essential expenses for 12 months. On the other side, indicate the current value of your assets and indicate which ones you will have access to to meet these expenses. Suppose there is no current income for the household. How are you ? Without denying that crises only happen to others, take stock of your assets, as if you had to liquidate them. Know how they stand up to this stress test.

(The author is president, Center for Investment Education and Learning)


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