The pandemic has been as much a stress test on personal financial plans as it was on the global economy. Even though most investors say they’ve not been directly affected by the financial squeeze that many have felt during the pandemic, those surveyed say there are clear take-aways from Covid.
Key financial lessons
When asked what they’ve learned, most point to fundamental personal finance issues that would help them be better prepared for a future crisis. More than four in ten (43%) say they learned the importance of keeping their spending in check. This lesson was felt most strongly by individuals in Latin America including those in Colombia/Peru (64%), Argentina/Uruguay (62%), Chile (58%) and Mexico (58%).
Along with managing their spending, three in ten say they also learned the importance of having emergency savings. This planning point, which goes hand in hand with the fear of facing a large unexpected expense, was felt most directly by investors in Thailand (55%), Colombia/Peru (53%) and Mexico (50%) – all countries where the number of individuals who reported losing household income during the pandemic was significantly higher than average.
But this lesson sticks with more than those who lost income. In fact, four out of ten surveyed in both Singapore and the US said they were more aware of the need for emergency savings. The number who lost income was lower than average in both countries [US (14%), Singapore (21%)].
Key investment lessons
Along with these essential planning issues, individuals also learned important investment lessons. Most frequently, investors cited the need to avoid emotional investment decisions (29%) as a key learning from the past year.
Given that the pandemic produced both the swiftest market downturn and the swiftest recovery on record, investors could have learned the lesson one of two ways: Those who panicked early and pulled assets may have paid the price by missing out on the double-digit returns, while those who stayed put may have been rewarded for their patience. With investors reporting average returns of 12.5% above inflation for 2020, it appears that many learned from positive reinforcement.
Investors also report the pandemic demonstrated the need to better understand risk in their portfolios (25%). Given their desire for safety and distaste for market turbulence, the sudden spikes in volatility seen in March of 2020 may have delivered a hands-on learning experience. These lessons resonated most strongly with investors in Singapore (41%), Taiwan (40%), China (36%), Thailand (35%) and Hong Kong (34%).
Hindsight is 20/20:
Lessons learned from the pandemic
Keeping my spending in check
Having an emergency savings account
Having an estate plan
(e.g., life insurance, will, long-term care, etc.)
Understanding the role I play in my household's entire financial picture
Avoiding emotional investment decisions
Understanding risk in my portfolio
Rebalancing my portfolio
Weighing the tax consequences of my investment decisions
One of the more somber reminders of the real cost of the pandemic is the 51% of investors in Mexico and 44% of investors in Colombia and Peru who said the experience demonstrated the importance of having an estate plan.
Adapting investment habits
Given their success in 2020, it’s no surprise that 40% say they’ve made no changes in their investment accounts as a result of Covid. But that also means a majority (60%) made some changes.
Millennials were the most likely group to adjust. In fact, 74% of this group reported making some change. As a group, they were more likely to increase their investments as a result of the pandemic (23% vs. 19% overall), step up their online trading activities (32% vs. 23% overall), and increase trading activities through their advisor (24% vs. 18% overall). Even as they increased trading, less than 10% (9% vs. 5% globally) said they opened up margin accounts that might fund these efforts.
The one big exception to this data is Millennials in the US, where the combination of easier access to trading with services like Robinhood and the wild rides of meme stocks like GameStop appears to have had an effect. More than four in ten (43%) Millennials in the US say they stepped up online trading; 31% said they traded more with their advisor. This group was nearly twice as likely as other US investors to open up a margin account (13% vs. 7%).
But not everything was rosy for this generation. Even though they were most likely to increase investments and trading activity, Millennials were also more likely to make withdrawals from savings and investment accounts (24% vs. 19%), a number that aligns with the 28% who said they lost household income and 12% who lost their job or business for at least part of the year as a result of Covid.
Millennials made the most adjustments to their investment habits
Increased trading activity (direct / through online platform)
Increased trading activity (through my advisor)
Increased retirement plan contributions
Decreased retirement plan contributions
Made withdrawals from savings and investment accounts
Opened a margin account