11 Financial resolutions for 2021

The beginning of the New Year is always the best time to give another chance to the have not’s or have a ‘Fresh Start’. This year has been one train wreck, especially when it comes to finances. Everyone’s finances have gone for a toss and many a financial trains might have completely derailed.

The bells of New Year are not far and time to make a list of the 10 most important financial resolutions plus one for good luck before entering 2021 to get our train back on track.

1 – Paying off the debt – Global debt reached a record high of 258 trillion dollars in the first quarter of 2020. Indian household debt stood at nearly Rs 43 trillion just by end of March up from Rs 19 trillion in just 5 years ago. The increase in household salary is 4.3 percent versus increase in debt is 17.7 percent as compared to 2015. This year with slow or no business, job cuts and pay cuts, debts have increased for almost everybody.  With the benefit of moratorium, all that individuals have managed, is to postpone the inevitable, with the extra burden of having to shell out extra money as interest. Non-payment of debt not only invites loan collectors to your house but also harms your CIBIL or credit score lowering your chances for access to finances and other financial services as required by you in the future.  Make sure to the make payment of debt as your number one priority of the New Year to not only improve your credit score but also reduce your financial burden.

2 – Be informed before taking loan – there is rarely any individual who does not have a debt. I am sure half of you after paying off your debt will go back to the same bank to get another one. Make sure to do your research about the rate of interest and make sure this time around your Annual debt payment do not increase more than 40 percent of your gross income.

3 – Be prepared for financial destruction – 2020 has probably bought the whole world to a standstill whose financial ramifications will be felt for next few years.  This year is a lesson ‘Anything can happen anytime’. Be prepared at all times for financial emergencies. No harm in mentioning it AGAIN to have emergency funds of at least three month of mandatory expenses in liquid or absolute cash form. (I know you are tired of reading this but despite that I come across people who have not done it.) Get your finances in order along with emergency funds and inculcate the habit of regular savings and investing.

4 – Insurances -time and again the topic has been delved upon. But just recently, I was talking with a client who got redundant due to Covid and whose only medical insurance was from the company despite advising him to take an independent Medi- claim. Due to Pandemic the medical inflation has reached to 19.5 percent from 18 percent in 2019. Medical treatments are expensive and due to Covid-19 and new guidelines in place the cost of treatments in hospitals have increased. Not only medical I think this year has proven life has no guarantee. Make a list of insurances – Medical, Life, Car and Home and get them in order. This is known as Risk management and the foundation of a good financial plan.

5 – Involvement of family – family plays an important role in financial planning. Initially only the men of the house would handle the finances. Although now things have changed for the better but traditions die hard. In fact forget men now the number of women entering business has increased more than men. Just recently a family friend who had a roaring food business died of sudden heart attack. The lady was extremely successful. But she use to never discuss financials with her husband. The husband was clueless about the money which he had to receive from her clients. A very important part of financial planning is involvement of spouses. Have a file which lists down all your accounts with amount outstanding, in one place along with all the details be it insurances, mutual funds or shares, outstanding debts or debt to be received.

6 – Financial Planning with regards to education to your kids– a VERY important part of your kids overall education and development. I mean, why give other examples I will give my husband example who loves taking my kids to toy shop every alternate Sunday. Thankfully due to constant drilling in their heads since their childhood my kids will first check with me and only then will pick up something or might just pick up a book (which is totally fine). I have always given them a target as to if they want a toy they need to save for it. Let me list down 3 points on Why financial literacy is important at a young age – 1) – Financial illiteracy breeds irresponsible adults, 2)- Easy to pick up bad financial habits, 3) – Better prepared for emergencies. So at a young age, inculcate financial education to raise savvy investors and avoid debt traps.

7 – Sort out your Estate – Estate planning always a last priority. Do not avoid it. Bear in mind settling your affairs after you have gone is a costly affair one which can have adverse impact on family equation. Remember – Estate Plan protects the beneficiaries, protects your young children, eliminates family feuds, and can save from shelling our big tax money. Remember – Estate Plan is NOT only for rich family. Sort out your estate, insert nominations and make sure to settle any disputes or dues you have so as to not leave your debt as legacy.

8 – Pyramid Planning – recently I had written an article due to which I got calls and mails from many young investors which was impressive but at the same time when you ask them the usual Financial Planning questions about when they need the money, how long they want the investment for, are their insurances in order that’s when they are clueless. Remember – 1) – Emergency planning – 2) Risk Management – 3) Investment Planning – 4) Tax Planning – 5) Retirement Planning – 6) Estate Planning.  Follow this hierarchy to build a strong and methodical planning which has a strong foundation which no pandemic or catastrophe can shake.

9 – Tax Planning –‘Tax’ word gives the jibbers to everyone and people try to postpone it to the last minute. Invest smartly from the beginning and take advantages of the investment options that offers maximum tax advantages. Resolve not to invest in ‘Benami’ assets to save tax as if caught there is heavy penalty. Plan for taxes in advance to avoid last minute investments to save taxes which might not only yield much but also your money will be stuck due to lock in period. Tax planning is equally important.

10 – Develop a set of new skills – Future holds lot of uncertainty. Just like emergency funds if possible develop new set of skills or an alternate way for earning so as not to face financial hardship in future.

11 – Resolve to follow your resolutions – last but no way the least as wisely said by Suze Orman, American financial advisor and Author, “Ever achieved financial fitness with a January resolution that’s abandoned by February.” Make sure to follow all your financial resolution to avoid being in a bad financial place!!

GOLD – THE FUTURE

With Diwali just around the corner, we as Indians have always bought gold. On the auspicious day of Dhanteras, I remember my mother buying gold be at a small amount of 1 gm. The Shine of gold has always attracted Indians.

Gold as an Asset Class 

Everyone is familiar with the fact that any calamity – be it man-made, or natural one asset class you can always count on – Gold. Due to which the gold prices have soared. The gold price in March was between Rs 41,500 to Rs 42,500 per 10 grams. With Covid- 19 pandemic in just six months, gold prices have touched Rs 54,000 per 10 grams.

So the obvious question is, should we buy at this rate?

There are various factors which impact the gold prices –

  • Investment demand for gold – This year, the interest in gold has been high and is likely to stay high as it is a hedge against an overvalued market, and it also acts like insurance during a recession. Hence, the demand for physical gold has increased.
  • U.S. Dollar – gold is inversely related to the dollar. But the recent trend has shown despite the increase in dollar gold prices have also increased.
  • Supply – the new supply of gold from the gold producer is on a decline. I had interviewed the Managing Director of the World Gold Council in the year 2003, and he was worried at that time that gold mining has started seeing a decline. And the supply is on a downhill.
  • Economic and Monetary factors – everyone wants to erase 2020 from their life. The real reflection of the pandemic on economic and monetary factors will be seen in the coming months. People are cautious, and gold is always a safe bet.
  • Trading volumes on COMEX – COMEX world’s largest futures market for commodity trading has never seen such high demand for gold mainly due to the prevailing pandemic.

The above factors are driving up the prices of gold. Keeping them in mind the price of gold is likely to touch anywhere between Rs 65000 to Rs 70000 by mid-2021. If God forbid Covid 19 vaccine fails then, the price can touch Rs 75000 or higher to Rs 80000.

I have always advised my clients to have 5 percent exposure towards gold be it in physical form or bonds or Gold Exchange Traded Fund. Even at the current rate, my advice is -invest in gold be it a small amount.

Happy Dhanteras and a Happy Diwali to one and all.. Stay Safe and Invest Safe everyone!!!

Mental health and financial distress

Coming from a family of doctors, recently I was chatting with a very close family friend who is a very senior and experienced psychiatric doctor. Of course the topic of discussion like in most households these days revolved around the recent pandemic.  He was telling me that he has become twice as busy than before due to the deluge of patients who have succumbed to extreme stress and anxiety in the wake of this pandemic. Fear and anxiety of contracting this virus, the fear of unwittingly infecting their loved ones, economic loss and most importantly the fear of death, has pushed people to the edge.  The most hard-hit are the people who were already suffering from some form of mental illness, because this is like their worst nightmare coming true. The lockdown has made this human race which thrived on social contact feel lonely, alone and scared of the unknown.

But this psychiatrist friend ours, pointed out that many of these stress and anxiety related patients had one thing in common and that was- Financial insecurity and instability.

Mental health issues and financial problems are interlinked intricately.  And it would be wrong to think that only the underprivileged sections are affected by financial stress, in fact many well-to-do people who have money and can withstand such setbacks are equally affected.  Although one man’s trash can be another man’s treasure so we are comparing apples and oranges here. Millions have lost their jobs and their livelihood, thousands have had to leave the cities where they were working and return to an uncertain future with no means of feeding their families who relied on their income.  The middle class too has had to bear the brunt of this curse.  There have been large scale layoffs in most companies, almost all have had to face pay-cuts and are not finding any new jobs.

All this while their expenses have remained more or less the same.  They have had to pay their bills, their groceries, their medical expenses and most dangerous of it all EMIs, be it home loan, vehicle loan or personal loan.  Finally, the so called upper class, we might feel that what have they to worry about, but higher one goes, the harder one falls.  Many have had to pay their employee salaries out of their own pockets in the wake of zero income, many sectors have completely shut down with no signs of revival in the near future such as tourism, wedding and celebration related allied industries such as catering, decorators, etc; the list is endless..  Many of these so called big names have had to close their outlets, reduce staff, run from pillar to post to recover money from their debtors, and many have filed for bankruptcy.

The fact remains, that this once in a lifetime crisis has affected us all and affected our mental health knowingly or unknowingly.

All these stressors lead to a gamut of psychiatric illnesses such as

  • Anxiety,
  • Depression,
  • Post-Traumatic stress disorder,
  • Obsessive Compulsive Disorders (OCD) to name a few.

The boarder terms fall under the heading of ‘Psychosomatic Disorder’ that is effects of emotions causing problems like asthma, depression, stomach ulcers, anxiety, heart problems and others.

The recent pandemic has increased the number of cases of psychosomatic disorders two fold. And its high time we talk about it.

Let us understand the vicious cycle of financial problems and mental problems.

Financial problems due to mental problems

  • Mental health problems makes it harder for people to be motivated and go out and earn money and this further pushes people into financial despair. As people with anxiety or depression have a hard time being focused on the job at hand.  This decreases their productivity and efficiency in their jobs.  Thus they are generally not given any important jobs, which limits their growth in the company, they are not promoted or given salary hikes in comparison to their colleagues which develops a feeling of despair, anger, frustration, self-loathing and even animosity towards their colleagues and bosses.
  • Many a times individuals with depression or loneliness go out and spend on things that give instant but short lived gratification and many enter into vices such as alcohol, drugs, etc spending spree just to cheer them up.  They spend every penny to fulfil these vices even resorting to crime to earn money for this vices. All these empties their life savings and even put them under debt.
  • People suffering from mental problems suffer from memory problem and rational thinking and they end up marking wrong financial decisions or rely on others to make decisions for them, ultimately leading to financial loss or a fraud.

Maintaining an expense sheet is a difficult task even in normal circumstances, but for individuals suffering with a mental illness, it is almost inconceivable as they have lost interest in everything.

  • Individual suffering from mental health often go into a shell where they stop communicating and paying attention to daily details often leading to nonpayment of basic bills resulting in compounding of bills and penalty charges.

The above financial problems act as a fuel to the already burning fire of a patient’s internal anguish and pushes the person to the edge where the mental problem aggravates to the point of suicidal tendencies or antisocial tendencies like causing harm to others.

The biggest financial problem as cited by the doctor was the inability to pay the ‘ EMIs’ every month, thanks to the cheap bank loans provided without any collaterals. Also, plastic money has been cited as an additional problem as a person spends haphazardly since he does not need to open his wallet. During the time of this pandemic with a complete lack of income and using up of all savings, the end result is nonpayment of instalments of loans and credit card debt. The constant harassment by loan recovery agents and their threats adds to this stress, fear and anxiety problem.

A few pointers to avoid this scenario in the future.

How to control debt?

Debt if not controlled can spiral out of control easily which in turn becomes a fuel for mental health burnout. The best way to control debt is to maintain a constant check on the Debt servicing ratio. This ratio states how much EMI is going from your total gross income. The ideal ratio is 40 percent. Which means, if more than 40 percent of your income goes towards paying EMIs the alarm bells should start ringing and one should try to pay off the existing loans and refrain from taking any further loans.

Savings– do not forget to keep aside the emergency fund of at least 4 months of mandatory expenses and make sure at least 15 percent or more is going towards savings.

Taking care of your mental health as much as your physical health: start by believing that “This too shall pass”. Keeping yourself busy in some work. Pursuing a hobby like music or painting. Socializing with people even if its 6 feet away. Exercising, practicing yoga, doing breathing exercises, always keeping a positive attitude. And if you feel you need help do not shy away asking help from your family and friends. Sometimes knowing that you have someone who understands you is therapy enough.

Seek medical help if required: In a survey in 2017 it was seen that nearly 150 million people in India suffered from mental health problems but less than 30 million are seeking care.

Unlike in many other developed countries, India does not have any dedicated support system for mental health patients. The problem with majority of our Indian population is that we still equate mental health problems with insanity.  And going to a psychiatrist is considered a ‘Stigma’ or ‘Mortal sin’.

Everybody needs help at some time and there is no shame in asking for it.  Any mental distress or problem, when detected early either by oneself or by their loved ones can be fully treated by a trained doctor and can prevent the problem from reaching a stage of no return. As wisely said by Michelle Obama, wife of ex American president Barack Obama, an author and American attorney, “It is time to tell everyone who is dealing with a mental health issue that they are not alone, and that getting support isn’t a sign of weakness, it’s a sign of strength.”

Family should look out for signs of anxiety, depression, change in financial habits be it excessive spending or ignoring bills or an ability to not hold jobs for long or signs of avoiding people. All these are red flags and should not be ignored. Seek professional help and prevent a destruction of a beautiful mind!!!

Tips to save money during retirement

We work hard throughout our life so that we can enjoy the retirement years without worrying about where the next meal will come or from where money will come for medicines. Recent Statics show that people are retiring at a younger age and life expectancy is growing. The Average life expectancy of an Indian has increased from 60 years to 75 years. So more number of years to provide post retirement. Even if we have saved adequately a few bad years can bring down your investments. In the recent pandemic many senior citizens income have taken a hit. Cost of living is going up. There is no harm in cutting down a few expenses to maintain a comfortable lifestyle. Here are few expenses you can cut down to save that much extra post retirement :

  • Downsize – your kids have grown up and moved out. If you are staying in a big house there is no harm in downsizing. As cost of maintain a big house is more as that many more hands you need for upkeep of the house. Downsizing helps in huge savings as far as maintenance of the house goes.
  • Selling the extra car – downsizing also means in cars. If kids have moved out no point in keeping that extra car. Right time to sell that extra car saving on fuel as well as maintenance of the car and insurance.
  • Expense Sheet – no harm in maintaining an expense sheet even after retirement. You might be surprised the number of expenses where you can cut down and where the amount has gone up. So accordingly you can readjust your monthly budget.
  • Avoid debt – even if you are planning a second career please do not think of taking debt. In fact try to finish off all your debt before retirement so you can have burden free and peaceful retirement without constantly worrying about paying your EMIs.
  • Make sure medical insurance premium is paid on time – Do not Do not forget to pay your medical premium amount. Even if you don’t wish a big chunk of expense post retirement forms is for your medicines or health related. So make sure your medical insurance premium amount is always paid on time.
  • Deals – everyone is offering deals when it comes to Senior Citizens. Do not shy away to say your real age as that can save you money on Airlines, railways, hotels, many restaurants and other places. Whoever I have spoken with have one goal post retirement to travel. Look out for deals for senior citizens and you will realize your travel will cost will almost come down by almost 25 percent.
  • Reevaluate your insurances – besides medical insurances you can reevaluate your life, home and auto insurances. If you are not sure about your investments then one spouse can continue having life insurance. Home and auto insurance can be downsized along downsizing the house and car.

A person should not reach a stage where he has to think for every penny spent post retirement. Next article will be on what expenses should be taken into account while calculating amount required to stay comfortably post retirement. Stay tuned…..

Avoiding these Money Mistakes in ‘2020’

‘2020’ can be one year which everyone would like to wipe out from their calendar. Everyone were hopeful that this pandemic will end within two or three months. But as time went by everyone realised that’s not going to happen. That’s when the financial ramifications of this pandemic started hitting everyone. Read More

Importance of Liquidity

The recent pandemic has left the whole world on brinks of Global recession. These are the crisis about which Financial Planners keep on warning about. Although something on this scale where the whole world is on stand still has happened after World War II. For almost 45 days everyone was sitting home with ‘No business or any income’. There are still many businesses which have not opened. Businesses which have opened are doing slow or no business. At this time unless you are in essential services businesses are slow. It is an unexpected crisis which can unfortunately last for a year.

During times like this everyone to whom I have talked to can’t stress enough the importance of liquidity.

Individuals who are sitting with liquidity are better off. The key word here which needs to be pointed out is ‘Liquidity’. The coming two years are going to be difficult for everyone and liquidity is what one needs to have a focus on. There is an ideal Liquidity ratio which in normal times is recommended – ’15 per cent’, that Is at any given time at least 15 per cent of your portfolio has to be liquid funds. Liquid assets are ‘The assets from which within three to four working days you can liquidate your money’. List of liquid assets –

  • Mutual Funds
  • Fixed Deposits
  • Company deposits
  • Gold
  • Silver
  • Stock Market
  • Savings account and
  • Cash in hand

These liquid assets are over and above the emergency fund which you have kept aside to meet emergency needs like in the recent months.

The coming year is going to be difficult for every one of us. It is best to have liquidity in hand during these tough times. For the coming year, recommend to keep at least 25 per cent of your portfolio in liquid funds.

Remember investing in Mutual Fund equity funds or in stock market your horizon has to be of more than 5 years. So the extra exposure of 10 per cent has to be in non-volatile assets like Fixed Deposits or a Short Term Liquid Fund.

Reviewing the portfolio every three months is important. Once the world sails through the current crisis make sure to revaluate your plan, your goals, and your portfolio and take a wise decision!!

Life post Coronavirus or Rightly saying Finances after coronavirus

Emergency !!!!!  there is only one thing going around in News, Social media or in any conversation, we have with anyone now a days.  – Coronavirus or infamously known as COVID – 19 has wreaked havoc in everyone’s life.  In fact now people are scared even to sneeze or randomly cough in public in fear of being ostracized.  Along with the health concerns, the financial ramification of this virus is also worrying everyone. Moody’s predict that we might never come out the economic ramification of this virus. And top leaders of our country passing statements that we will be going back by 21 years in this 21 days lockdown, definitely dampens everyone’s spirits. With countries being in lockdown and markets and businesses being shut down everywhere, there is an almost certain global recession looming large in the future. These are exactly those emergency times for which Financial Planners warn people to be prepared for.

We can’t do much about the medical emergency of this virus, but we can definitely create a plan for the financial emergency which we are facing today and for the uncertainty looming about our near future –

Assess your current situation – with businesses shutting down, it is hard times for all of us for a foreseeable future. Assess your financial situation. How much liquidity do you have with you right now and how much will you need in the near future to tide over this crisis? With government announcing Three Months Moratorium you might say nothing to worry. But would disagree as if you have liquidity would recommend to continue your loan and not take moratorium. And even if you opt for a moratorium trust me this problem is not going to vanish overnight. It is always best to be prepared. You need to be prepared for at least the coming three months. So make a list of your mandatory expenses –

  • EMIs of loans or Rents
  • Insurance premium
  • Utility Bills – electricity, water and phone.
  • Daily essentials
  • Credit card dues

You need start accounting for these above expense heads and multiply it by times 2 or 3 and then assess whether you have enough funds to cover these basic expenses for at least the next 2-3 months.

Talk with your bankers (or Landlords)– everyone were relieved when RBI announced a three month Moratorium that is from 1st March to 31st May 2020. ( What is a Moratorium – A legal authorisation to debtors to postpone payment.) Moratorium of the loans which includes all types of loans including credit card dues. But you need to understand that your interest is getting accrued and will be payable either as EMI or your tenor will accordingly increase along with slight increase in your EMIs. Do check with your banks as to how are they planning to give the three moratorium and how are they planning to collect these dues. Same goes for credit card dues. Penalty will not be charged but interest will keep on accruing. If you have liquidity with you do not take the moratorium. Keep on paying your loans and finish it off. If you have limited liquidity would recommend to finish off credit card dues. Remember even if you opt for moratorium it will not affect your credit ratings. Same way talk with your landlord for rent payments. In a few states landlords are requested to go easy with rent. Talk with the landlord and work out a payment schedule.

Investments continue hold or sell – many an investors do not know what to do with businesses on hold and for how long no one knows. If you have Systematic Investment Plans (SIPs) going on analyse your situation and take a call as to whether you want to temporarily stop them or you can continue without any strain on your finances. But please do restart them once your finances are back on track. Same goes for all your investments. Do not let this detour from financial independence path become a permanent detour. Once your life is back on track better to do a complete financial check up to see where you stand and the way forward.

Do not panic sell – remember do not panic sell your investments. In case you are short of liquidity then it is a different scenario but please avoid PANIC selling.

Check with your insurance agent – check with your medical insurance agent regarding the diseases covered in your medical insurance. If not how much is covered and what can be done. Again, be it whatever do not let your insurance lapse. Be sure to pay the premiums on your insurances.

Involvement of family – do not bear the stress of finances alone. Sit down with your family. Discuss your finances with your family. This exercise has a dual advantage – 1 – sharing helps with your stress and you can work as a family to lessen your financial burden. 2 – In case you fall sick, your spouse or family member is updated with all the financial matters and can take it in their hands.

Emergency funds – last but not the least if you already have an emergency fund or liquidity in place then you do not need to panic. But if you do not have one, then although a little late but not everything is lost. With talks about extension of lockdown its still not late to create an emergency fund.  How much should your ideal emergency fund be? After calculating your existing finances and expenses, we would recommend to keep aside at least two months worth of sum equivalent to your EMIs of loan and insurance premium and utility bills and any unforeseen expense that can arise during this period. Even if you have taken moratorium of EMIs but still after three months the load will be there.  (Although you need to keep aside cash equivalent to all the above heads mentioned but if liquidity crunch then even keeping aside money for EMIs and utility bills and insurance premium.)  Ideal is three months but with the entire economy at halt and would recommend to start with two months. Once you are through this rough patch, always remember to keep aside an emergency fund.  A word of caution – ‘ Your emergency fund is not an investment, it is an insurance with one purpose – to protect you and your family’ as rightly said by Dave Ramsey an American, show host, businessman and author. Do bear this in mind.

Remember always be prepared for emergencies, as emergency itself means something which is not in our hands.  Be safe everyone – Physically and Financially !!!!

How to become Confident Investors

Economic crisis, lower GDP, unemployment, bankruptcy, killer viruses, apocalyptic climate change …gloom and despair is all that we are reading of late! To the point, that many individuals have stopped opening the morning newspaper altogether. In this current scenario, how does one instil confidence amongst the young investors or the first timer who are just foraying into the world of investments? Most avenues of investments are seeing some headwinds or the other. The housing markets are at an all-time low, precious metals are too high for comfort, fixed deposits interest rates are so low that they don’t even beat inflation, and the stock markets are as choppy as the rough seas. In all this chaos, it is but natural for a new investor who has some surplus amount to invest but is afraid of the risks associated with all these above investment avenues and hence is staying on the sidelines. Our aim is to assimilate that scared investor in the big bad world of investments, by educating him and making him understand all the pros and cons of each asset class and help him make an informed decision, and in the process help him create wealth for himself as well as for the nation.

In fact just recently a young investor had just approached me a week ago for his financial planning but he wanted to do was park all his money in Fixed Deposits because he considered it the safest of all scenarios where his money would at least not decrease. Well as much as safety should be foremost on your minds, playing safe will not help you achieve your financial goals. Remember the adage “No risk, no returns”. Well it’s true. But this risk should not be blind, it should be a calculated risk which has also to be mitigated by proper hedging techniques. After all your aim of investment should be to achieve Financial independence, and we all know Independence involves struggles.  So are you guys ready to take your first step towards financial independence?  Then lets start.

Here are some pointers which might help an investor start his investment journey with confidence.

  • Understanding your attitude towards Risk – first and foremost you need to understand your attitude towards Risk. How will you react to losing money in the market? There are four categories of investors –
  • 1 – Pragmatists – who believe the world is full of uncertainties
  • 2 – Conservators – who believes world is full is perils and high risk
  • 3 – Maximizers – who believes world is low risk and full of opportunities and just jump into it
  • 4 – Managers –who believe in taking moderate risk but not too risky.

SO determine your category. But if you are young with time on your side, I would definitely suggest to change your attitude if you think you belong to the top two categories.  At this age it pays to take some extra risk, and build an aggressive portfolio rather than a defensive portfolio.  And even if you lose some money, will be able to bounce back in the future and consider this lost money as a learning experience.

  • Take some time to learn – once you have identified your risk taking abilities, try to understand about the products you are planning to invest in. If you are planning to invest in the stock markets then get a thorough understanding of the working of the stock markets, watch the business news channels, read magazines and business newspapers, take classes if you feel the need to. Prepare your ground work. Once you feel confident enough, understand the trends of the market, if you have a particular stock in mind then understanding the company, the sector to which the company belongs, past trends and other parameters such as its financial reports etc. Also it is a good idea to first do paper investing, i.e., do a mock trade on a piece of paper where you buy a share which you like and see how it goes.  Since there is no real money involved here, it becomes more easy to not be emotionally involved in it and look at the whole process objectively.  And once you are confident on paper, you can move on to actual trading.  If however you feel that you are still not confident enough to do the investment on your own, it makes sense to invest in the markets through the mutual fund route.  These are entities who are experts in the subject and will invest in the market on your behalf.  Also don’t just invest in any mutual fund.  Research a little about the fund house, the fund manager, the companies or securities the fund has invested in, the past returns they have given, etc.  And don’t worry, over time you will graduate to investing your own money with confidence.
  • Know your field – it is always better to invest in avenues that you understand and have a knowledge about. So say your family has been in the pharma trade for decade, it is best to channelize the larger portion of your investment in that sector, since you will have the guidance of your family members and it will help you to skip the initial teething problems that a completely new avenue will pose for you.  In fact you can use your knowledge to expand your investment as well.
  • Rational investor and not emotional investor – investment should always be rational and not emotional. The moment, emotions come into the picture, your decisions can get clouded leading to miscalculations or losses. A rational investor is one who understands that every investment is fraught with at least some amount of risk and hence you have to keep it in mind before your investment begins. Also you have to set a goal for your profits and set a stop loss for your losses beforehand, that way you are mentally prepared.  You might argue that a lot is written about Emotional Intelligence and how it is very important and leads to better output. But for that you need to first understand its meaning  – As per the Psychology Today Emotional Intelligence/EO ‘The Emotional Intelligence is the ability to identify and manage one’s own emotions, as well as the emotions of others’. Emphasis on the word manage. Individuals with high EQ have the ability to keep in check their emotions, and hence  make better decisions.  If you cannot emotionally digest the thought of losing your money and they very thought of it puts you into depression, you are not cut out for risky investments.  Invest in less risky assets, because no amount of wealth is worth the peace of your mind.

Take professional help not digital – I once had a client who after every consultation or investments, would call me and say I read on a website that a so called fund is better than the fund we are planning to invest in. I needed to explain to him that as per his needs, the fund we have invested in is much better suited to his style of investing and his goals.  Google babaji is now just a finger tip away literally.  But remember, it is after all a search engine, and so it gives search results for your queries, it does not have you interest at heart.  Also what is good for one cannot be true for everybody.  Everybodys needs are different.  So when it comes to planning for your hard earned money, I would REALLY recommend professional help rather than just relying on digital media. Do not shy away from taking professional help, its not just for the filthy rich, its actually for us who want to live like filthy rich in our own limited set of resources.

Overnight Millionaires – no one becomes Warren buffet overnight. Everyone needs to work hard and be a disciplined investor and always look at investments from a long term horizon. Volatility is a part of investments, ride that wave and you will definitely reap the benefits. Rome wasn’t built in a day.

Start small and invest for long term – take baby steps, i.e., start with a small amount and gradually build your portfolio. Do not go all in at first go. Understand, monitor and learn by keeping a regular tab on your portfolio and churn your portfolio at regular intervals, i.e, weed out the nonperformers and add more of the outperformers. Once you are confident start with bigger amounts.

Don’t put all your eggs in one baskets: Although everyone knows this one but no harm in repeating. A judicious mix of various asset classes spread across various investing genres such as aggressive, defensive, high risk, low risk, high return, low return, fixed assets, liquid assets, etc go a long way.  This way a setback in one asset class wont cause a huge dent in your overall portfolio.

As suggested start small, learn from your mistakes, stay for a long haul and evolve into a confident investor.

Where should I be investing in 2020?

A very close friend of mine is the Chief Investment Officer of a very big and reputed Mutual Fund. But he is always complaining that every time someone meets him the first question they ask is where should I invest?   He gets really bugged by this. One cannot just go about giving random advises.

Just imagine if he gave random advise or names of some random Mutual Funds and stocks  or for that matter any other investment advice without understanding When they need the money and for what purpose or goal. Is this fair for the investor? I know it’s not right to just dish out random advice but the investor does not understand. Time and again it has been proved that investing on random advice is DISASTROUS!!

Despite all this I am sure by now most of you will be like get on with the article and just tell us which product should I be investing in?

Contrary to what anyone says or writes there are just this many asset classes – Equity, Debt, Commodity like Gold and Small Savings schemes. All the investment avenues fall under the above mentioned asset classes. There are sub classes which fall under the above mentioned asset categories. New funds get added or new bonds get released no new asset class.

So what would my advice be for 2020 –

INVEST AS PER YOUR GOALS AND NOT AS PER YOUR NEIGHBOURS OR A RICH FRIEND OR RELATIVE

What is right for your neighbours, relatives or friend may not be right for you. If you need money in another three years you should definitely not be looking to invest in Equity. Or if you need the amount for a goal which is 10 years away you should definitely not be looking to invest in Fixed Deposit or Debt products.

So list down your goals with the time frame you want to achieve and then accordingly plan your investments –

  • If your goal is 2 to 3 years away – definitely look into debt products like Short term debt fund or fixed deposit or Fixed Maturity Plans.
  • If your goal is 5 to 7 years away – then you can have a mix of balanced funds (with more exposure towards equity), Fixed Maturity plans, if good AAA rated Company Fixed Deposits then can consider investing in that.
  • If your goals are more than 7 years away – then you can definitely invest in good Equity Mutual Funds, direct equity or ELSS.
  • Gold – I always advise to invest at least 3 to 5 per cent of your total portfolio in Gold or Gold based Mutual Fund  as its one of the most liquid asset in the world and can be liquidated anywhere in the world. Do bear in mind buying jewellery does not count as investments.
  • PPF – a must. Its tax free with deduction available under section 80C.
  • Small saving schemes – a good investment product for senior citizens.

It is not that I am stopping from investing in good  Investment product, but just a way of bearing in mind that if I am investing in Direct equity then I know that my money can get stuck and I have other liquid asset to help me with my need.

Plan wisely and Invest Smartly!!!!!