Clean your Portfolio

Prime Minister had started the Clean India Campaign with a lot of fanfare. We are coming to close to a year of this campaign, some things changed, but most of it remained the same. At that time I had mentioned about cleaning of Portfolio. For those who did not do it then, this is the time. Rains is a time when our pressure is a bit less, as appointments are reduced. Weekends, which are usually packed are a bit relaxed and if its raining, then you get some free time. Use this time to clean your portfolio.

First look at what are the typical investments one has in his / her portfolio. Life Insurance Policies, ULIP’s, FD’s, MIS, RD’s and NSC/KVP. Then there would be some Company FD’s or NCD’s. Some enterprising persons would have some investments in a few equity shares, which were purchased on tips from friends, neighbours, newspapers or TV. Some had invested through IPO’s. Some made money, some lost, but all of us have held on to our investments. This is our hard earned money, so what if it is losing money. A few of us would have invested in NFO’s of Mutual funds, here again, some schemes are doing well, and others are not. Now a days I meet a lot of people who do not know what to do as companies are not returning the money they had invested in Fixed Deposits.

This shows that we just kept investing without a purpose. The only aim was to invest and make your money grow fast and in the bargain lose money. Now that you have time do a clean you do the following:

-       Make a list of all your investments, so that you have a snapshot of your portfolio, include investment date, maturity date, and maturity value.

-       If shares are in physical form, demat them immediately.

-       Check if nominations are in place for all your investments.

-       Now review and see if these investments are really helping you make money.

If you are not sure how to review, get in touch with a financial planner. Now is the time Clean your portfolio.

Learning from the Chinese Bamboo Tree

Not sure if you have heard of this particular species of bamboo tree in China, which takes around 5 years for the shoots to show up, but in the next 3 months it grows to a height of around 80 feet. So what the farmer does is for 5 years he just keeps watering and waiting and then in the next 3 months he just reaps the benefits. This is very similar to the stock market. Sometimes the market just keeps fluctuating for years with no major movements and then all of a sudden, the markets just keep going up and that is the time to reap the benefits. This happened last year, when the markets just went up, those who waited, just reaped the benefits. Going by this does it mean that this is not the right time to invest in the stock market. In fact, if you do systematic investments any time is the best time.

Many persons just quit watering just because they do not see the shoots, but then you have to be patient and fruits you will bear. Many of them selected the right stocks, but only walked out, just because they were tired of waiting. Investing in stocks involves waiting time, nothing happens overnight, but then nobody is ready to wait. Even though you have heard of so many success stories, you are not ready to wait. It’s not that you need the money immediately, but it’s the impatience. If I tell you invest Rs. 100/- and I’ll give you Rs. 200/- after two years, you will not accept as the waiting period is long. But if I tell you after one year you will get Rs.130/- but if you keep the money for 2 years you will get Rs.200/- you might accept. The only reason is for the additional waiting period of 1 year you could double your money. If you actually look at it, your waiting period in both the cases is 2 years, but our mind tricks us. We look for immediate results. Our mind thinks it’s just one year. If in the same way we work with a plan that you will get double only after 5 years, you just keep waiting and you will bear the fruits, but if you invest with that horizon and expect returns faster, you will not reach your target.

There are many persons who put their money in stock and wait, after the first year, the returns are small, lesser than the fixed deposit rate. They start complaining. Next year the returns are almost equal to the fixed deposit rate and they start wondering if they had taken the right decision. In the third year the markets fall and their stock are in red. Now they are on the verge of removing their money. They wait have waiting for 3 years. In the fourth year, the market moves up marginally and your investments are now at cost. This time they are frustrated and think luck is not on their side. They decide to go one more year and again the markets move up just marginally. Now the person decides to quit and market gives a small leap. This is when the shoots start showing and in a few month’s time the markets start soaring and gives you a return much better than any other investment option. You could take the parallel of the Indian stock market from 2007/8 to 2013/4 almost same number of years and those who waited made the money.

There would have been many who quit on the way. But those who waited made the money. So just like the Chinese bamboo tree, in equity investments one should wait till the money grows.

How good are you at planning?

Failing to plan is planning to fail. This saying we have heard so many times, yet most of do not even put the little effort required to plan. We are ready to plan for everything, but when it comes to our financial future we leave it to fate. We plan for buying a house, but have we worked on a plan for it, think…. Most of us just work on the minimum sum required and then depend on a bank loan and then only keep hoping you have your job intact so that you would be able to keep paying. Even for your children’s education, you will start collecting all your certificates to pledge or break to collect the money or go for the loan and then keep hoping things fall in place. Why don’t we start planning in advance? We plan for everything, so why not some long term financial planning.

When we have to go for a holiday, we plan months in advance, foreign exchange, visa, tickets, hotels, places to visit etc. but for basic things like home, child education or even marriage we do not plan our finances. We plan everything around it. I know of a few friends of mine, who on meeting me or even over phone, say good article, we have to start planning, but let some money come first. I know these persons find planning a drudgery, so they keep procrastinating. A little effort and everything would look simple. This happens with most things. How many of us plan to start doing exercises daily. Almost all of us, but only a few do it, since it requires effort. Same is the case with financial planning. If we plan in advance, the amount you need to keep aside a month would be very small.

You could start a SIP in a good mutual fund and watch your money do the work for you month after month, but you need to start. All it needs is a change in attitude. We just follow the advertisements, almost all banks advertise easy money and we start believing. But do you realize that after the loan, you are under so much stress, month after month. All this is just because of lack of planning. Most of us have gone through this phase and how relieved we were when the loan was repaid. The relief was not because you repaid the loan, but because you were able to get away from the forced commitment, which you had walked into because of lack of planning.

I think its high time you took financial planning a bit more seriously.