When to invest in the stock market

When it comes to stock markets the most common question is “Is this the right time to enter the market?” Those who sold when the markets were falling are worried that it might fall again. Those who purchased when the markets were falling are waiting for it to rise to a level to recover their losses. Both the set of investors are scared.

Any time is actually the right time. But instead on going by what their friends tell them, they should have purchased shares with strong fundamentals and their fear would have been less. I’m not saying fear would not be there, it would be less. Since shares with strong fundamentals will always perform.

Some people say the stock markets give an actual indication of how the economy is performing with a lag of 6 to 12 months. i.e. the markets started falling in January 2008, where as the news of recession came much later. Why is it so? Since there are analysts who track certain stock or sectors and keep advising their clients on which stocks and sectors to keep invested and which to come out of. Mind you these guys are stock or sector specific. Now as people start moving their money in and out of stocks or sectors, it gives a clear picture of the economy, which takes 6 to 12 months to collate and publish the data.

The markets have started to rise, so is this an indication that the economy is improving? No idea, it would depend on which stocks or sectors in the stock exchange index are actually going up. So you need to watch and invest. If you noticed in the last year, the persons who made money are those who purchased when the market was falling. So does that give you a strategy? Yes, buy whenever the market falls, sell when it rises. Easy to say, but if you follow this strategy you will always win. Especially in this uncertain market, for every fall in the index by 100 points, invest X amount. For every rise of 100 points exit X amount.

The stock exchange index for Bombay stock exchange is called the sensex and the index for National stock Exchange is called Nifty.

The Sensex is made up of 30 shares and Nifty is made up of 50 Shares. Almost all the shares on the Sensex are a part of the Nifty.

As mentioned earlier, invest based on stocks with strong fundamentals. One of the things to check is the amount of debt in relation to equity. A company with high debt will do well when the economy is good, but in bad times, this company will not do well.

The other is stick to index shares, these share have been made part of the index after a lot of study and research. This will lower your risk.

Home Insurance

Whenever we talk about insurance, we always talk about life insurance. But have we looked at the other type of insurances available. Insurance is available for almost everything and Home Insurance is one of them. We might say we stay in a society and as per the society laws, it is mandatory to obtain an insurance policy. But do we as a member of the society inquire if we do have insurance? If our maintenance bill goes up we start shouting.

When we take a home loan we buy the insurance, that time we do it just because we have no choice. We take it only because it is mandatory.

We insure our lives and our car, but our biggest asset, our home is usually not insured.

What is home insurance? Home insurance covers losses to the structure and contents of our home due to natural or man-made calamities. Like any insurance, it protects us in the event of unwanted, unforeseen damage to our home caused by fire or lightning or smoke, storms of all kinds, explosions, riots or civil commotion, burglary, breakage of glass, vandalism, hooliganism and vindictive mischief.

Now the question would be what is the value of the house and its contents? The value of the house is usually the area of the house multiplied by the construction cost of the house. The construction cost would be the current construction cost. So what happens in the case of a society, in that case the society insures the building and charges you the insurance cost based on the area of your house. So if your society is doing the insurance, you don’t need to do insurance on the cost of the house. You just have to insure the contents of the house. How are the contents valued? The contents are valued at the current market value of the items. That means it should be valued at replacement cost at current market rate. Confused? What if it is 2 years old? Then it will be valued at current cost of purchasing the same item less depreciation for usage.

So how does home insurance help? In case of loss, you do not have to worry, just file a claim with the insurance company and you will be reimbursed.

Let’s list some of the advantages:
- Your investment is safeguarded against a variety of unwanted incidents.
- The cost i.e. the premium we pay is as low as just 1% of the insured value.
- In case you are forced to shift to an alternative accommodation because of an insured peril, the cost of the additional rent will be taken care of by the insurance company.

It looks too good to be true, that is why it is important to look at the fine print or even ask questions to the insurance agent and get the answers in writing and make it a part of the insurance agreement. Also take care that the same terms are included during renewal.

- Find out whether the coverage offered by the insurance company is automatically adjusted as a protection against inflation or do we have to review the policy every year.
- Can you make extended coverage for new items purchased during the year?
- If you are in a flood and/or earthquake prone area, does the insurance cover flood and/or earthquake?
- Compare terms and rates with multiple insurance companies and you will be surprised to see the difference in the premium rates.

Almost all home insurance policies have exclusions. Some of the most common ones are:
The company is not liable to make payment for:

- Loss or damage to a human being during an attempted burglary
- Any loss or damage on account of loss of livestock, motor vehicles, cycles, money, securities for money, stamp, bullion, deeds, bonds, bills of exchange, promissory notes, stock or share certificates, business books, manuscripts, documents of any kinds, ATM debit or credit cards, unless previously specifically declared to the company.
- Any loss or damage to any property that is illegally acquired, kept, stored which is subject to forfeiture.Any loss or damage occurring while the insured person’s home is unoccupied, for a period of more than 30 days consecutively and if the insured failed to inform the company about the same.

Credit Cards and credit score

Most of us would have started using credit cards or have credit cards with us. Some of us have 4 or 5 or may be more. Banks also like to give us credit cards. But with credit cards comes financial responsibility. Till recently banks never used to share credit information with each other, now they have started sharing this information.

Come 2010 and India too would have a system in place where you would be able to see your credit score. What is this credit score and how does it help. Most banks would decide on how much credit to give you as well as the interest rate to charge you based on your credit score.
Making use of a credit card judiciously will help you improve your credit score. If you already have a couple of cards do not go in for more. Going in for more cards does not increase your credit score. Mounting up credit on your credit card is also harmful. Just paying the minimum amount means paying interest and other charges.

Remember taking credit on your card is one of the costliest credits given by a bank. Check out your credit card statement for the charges on opening balance. Now divide the charges by the opening balance and multiply by hundred. This is the interest rate you would be paying for raking up a credit. This rate is only the monthly rate. Now multiply this by twelve and surprised, that is the annual rate you pay. On a monthly basis the amount looks low. But would it not have been better to take a loan, the net effect would have been a higher saving.

Credit cards give you convenience, but they come at a cost. Taking a loan is a bit cumbersome, but its better to take those little pains and save. Always check the credit limit being given to you by the credit card company. The higher the limit the better your score; take care, even if you do not use your credit limit, your credit rating will not go down, so don’t pressure yourself to use the credit.

Now on reading this article doesn’t mean you rush to close your cards, do them slowly. Wait till the expiry date and then close the one’s you do not want. The longer you have a credit card and good payment history, the better your score. If you have multiple cards and yet want to keep them, then plan.

One way would be to increase the number of days you get credit. i.e. you use the card say one week from the start of the billing cycle. Since all cards have different billing dates. The other would be to use one card for a particular type of expense only. Also if you want to keep all your cards, ensure that you use them. Taking a card and not using it would prompt the bank to close your card, leading to reducing your credit score.