Retirement planning when is the right time

I have many people telling me, I’ll discuss when I have the money, but as you keep accumulating the money, you have lost time and the key to making money multiply is time.  Life expectancy is going up regularly, because of better healthcare and increased knowledge of personal care. In addition to this our standard of living is also improving on a daily. All this is leading to longer life, but our working life remains the same. We have time till the age of 60 or 65 to earn, but life expectancy is increasing. As per the statistics they say average life expectancy is 66 in India. Look around you, is it actually so, it is much higher. Though healthcare and personal care has gone up, there is a silent killer which few of us keep track of and that is inflation. This disease Inflation just reduces our purchasing power, petrol which was Rs.9 per litre in 1990 costs Rs.70 today, we don’t know what it would cost some years hence, but are sure it would increase.

Prices of everything has gone up and keeps increasing. As we are on the topic of prices, even healthcare prices are going up. If we continue to invest in our normal style of investing, soon there would be a day, where all your money would be gone. So we need to find a cure for inflation. Since we want to earn better we put in more efforts towards education, which again is an investment as well as a cost. As we study longer our working life reduces, remember, retirement age is not going to change very soon. So the time to make money is shortened. We might live a good life when we are working, but would end up with old age poverty. Everyone expects returns, but for insurance returns is only if you get sick, which comes to you only in your old age and this will lead you to poverty faster, if you do not invest in a medical insurance policy early.

Most of the insurance companies refuse to give insurance to old people or they give it with a lot of restrictions. Just planning for having enough money to take care of your necessities after retirement is not enough, you also need to take care of your medical needs. Medical needs keep increasing with age. So start investing in medical insurance now. Fixed returns are safe, but the returns never beat inflation, hence you need to start investing in high risk securities at a younger age to build the corpus for retirement. You go to any financial planner at the age of 60 and tell him to help you in planning his funds and most would put the money in debt schemes with a visibility of returns as your risk taking capacity is reduced or should I say Nil. Don’t think of retirement planning then, start planning now, however small it might be, let the power of compounding will help you.

Asset allocation is the key to retirement planning, when you are younger, equities is the way to go as you start aging, slowly reduce the quantum in equities and increase your investments in debt, so that by the time you retire a major portion would be in debt, but you would have enough to take you through. You would have noticed that all the time we just did not talk about money, but we also spoke about time. So do not waste time, let us work towards taking precautions against the silent killer and ensure a safe retired life.

Invest to create wealth

Wealth creation is putting money aside or investing today to get more tomorrow. When we mean more we mean more than our cost of living at that point of time. We usually put aside this money over a period of time, just like SIP but it is not Systematic, but periodic. I would say 90% of us invest in Fixed Deposits as we know they are safe, but inflation eats into the corpus over a period of time. Wealth creation is also possible through Real Estate investment, but this requires a large chunk of money. Also this investment is not very liquid and there is long term capital gains tax. Gold is another investment which most of us do. Then there is the equity market. These also give good returns as good or better than real estate, depending on the period invested. The best part is liquidity and no long term capital gains tax.

Now when we talk of equity, there are 2 ways, trading and investing. For regular trading you need to have market knowledge and research on a regular basis. In addition to that you have keep watching the stock movement, to make profit or reduce loss. In trading concentration is usually only on price movement of the stock. The other option is investing, here it is always long term. Here you invest after some research only. Once you have done your research, let equity work to create wealth. Never sell the equity, just because the market is down and the equity price is fallen because of that. If your research is through, the equity price will come up. As I said earlier, let the equity work for you. Some tips on research. Check the last 5 years results, they should have always been positive and have been growing. If you don’t have the time or temperament to do the research, invest in mutual funds and let them do the work for you. The price paid in not much.

Remember there is only one way to create wealth, buy smart. Whether it is real estate or equity, you have to research on the growth potential and stay invested over a long period of time. Always review the results of the company every year to see that there are profits and there is growth, if not why. In case of real estate, check if the growth is better than inflation. Companies always give yearly guidance, read it. So invest right and create wealth.

Moving from savers to investors

Every time the market goes up all of us start investing into the market. Last quarter saw some very heavy investments. Now the market is down, with uncertainty about who would for the government in Delhi. Let me know frankly, how does it matter? It would matter in the short run, but in the long run, the markets would be up. So if you are investing for the long run this is the time. In every market cycle most of the retail investors invest when the market is up and actual investors invest in every market cycle, depending on the stock and not the market. This is the reason in the last article I had asked if one needs a financial advisor. A financial advisor would advise investing in the market based on the client’s goals and not the market cycle. What is actually happening is Mutual funds come with more schemes when the markets are up, as they are sure to get enough collections. Distributors sell these schemes saying you are getting the fund at a low NAV, price is good etc. The retail investor looks at the market and says yes currently the market is giving good returns for this type of investment and the investment looks safe or they look at past performance.

But the actual way for investing should be why am I investing? What is my risk tolerance and what is my return expectation. This is usually taken care by a financial advisor, who does Investor profiling, what are the investor’s goals or needs and then matches the product with the investor’s needs, goals and risk profile. The Market would continue to perform as always. The Mutual funds companies would then start concentrating on giving better returns and not on new products. SEBI has come with direct plans which help the investor save, but then this is only for an educated, well read and well informed customer. It is not everyone’s cup of tea to decide on where to invest. Some of their decisions might work in the short run.

Let us look at what happened in 2008, there was a meltdown in the US, nothing in India. But our markets fell, why? Just because the FII’s sold and took their money to the US. What did we do at that time? We also sold and are still scared to return to the stock markets. The FII’s returned and invested much more than they actually withdrew and are making money and we are still waiting. If during the melt down we had continued with our investment strategy based on our goals and risk profiles, we would have made much more money. But today the FII’s are making money.  The reason for us not making money is we do not believe in our stocks, but we are the same people who are buying the products made by the very same companies in whom we say we do not trust to buy the stock. We are contributing to the company’s profit by increasing its sales then why should we not participate in its growth and make money? Why sell a stock just because the FII’s have sold?

The other problem with us is we like to buy low and sell high. Remember good stocks will always be priced high. Their prices will be low only when there is distress in the market and when there is distress we just refuse to buy, even when we are getting a stock at a low price. Always remember, everyone buys a stock which is good, so the price will be high. Low price means low quality or the company is not proven. This is the reason why you will see that the FII holdings in good quality stock is high. Why do we refuse to buy into such stocks? You take any stock and check the price along with the dividends paid over 10 year period and you would have noticed that a good stock would have always gone up, irrespective of the market cycle. Take any 10 years period.

We are a nation of savers and not investors. Savings does not beat inflation. So let us slowly start upgrading ourselves to investors and make the money which is there to be made.

Does one need a financial advisor

In the past few post, I have always kept saying buy into equity. It’s easier said than done. There are a few challenges one of them is getting returns. There are many strategies followed by analyst to make money. Some follow the P/E route where they track the P/E of the NIFTY or SENSEX and decide if this is the right time purchase a stock. Some follow the Price to book value method. Some methods are good for some industries, but you just blindly follow the same method for all industries. P/E would be good for IT industry and Price to book value for banking, but these are just indicators. These indicators along with a bit of research should help you get a good price. Frankly there is no one best way by which you could decide if a stock is good. You should research and buy only if you trust the company. Just as you would do for any other purchase.

We keep saying invest in equity, but do not go by reports. That means sit and do research. If I have to sit and do research, then why am I working I would have been buying and selling stocks as a full time occupation. This is where financial advisors and mutual funds come in. They are in a specialized field, just as you are. Everyone has different skill sets, you make your money using those skills and the financial advisors help you make money using theirs. So when you make money for your skills, why should they not for their skills? We are ready to pay a doctor, why? Because we believe he has the skills, but we are not ready to pay a financial advisor.

This is because we have got into the habit of getting things free, but nothing actually comes free. It is a risk a person takes, this risk is a gamble. The problem started because many insurance agents or mutual fund distributors started mascaraing as financial advisors. They were and are more interested in your investment, so they give you free advice, which in most cases is in their interests. Some of them are good, because of their experience in the financial industry. You would have made money, where you could have made more if you had invested with proper advice. But the point is have you made enough to secure your goals?

Goals are something which should drive your investments and not just invest and hope you have enough at the end to meet your goal. Goal based planning gives meaning, purpose and focus to your investments. Some people have money falling on their laps, whereas for others they have to struggle for it. Why not meet a financial advisor and work with him to meet your goals and ensure a secure and peaceful life. Like they always say, Money is the cause of all problems, those who have it don’t know what to do of it, and those who don’t have it know what it means.