Asset Allocation

If you look at any smart investor, s/he follows these 3 strategies

1)     Asset Allocation – Smart investors do not put all their eggs in one basket. The allocation of funds to different asset classes is based on his/her risk profile and time horizon.

       2)     Differentiation between risk and reward – Wherever the risks are more than the rewards they avoid those     investments.

3)     Discipline – Once a strategy is devised they follow it, till the goal is achieved. This does not mean that they will not review the strategy. Strategy is reviewed periodically and not daily, even this review is done in a disciplined manner.

Let us look at asset allocation. Asset Allocation is a strategy where investments are done in different asset classes so as to balance the risks and rewards. Depending on the risk profile an investment portfolio is designed to diversify the risks and increase the rewards. As you are aware, each asset class has a different market cycle and the time frame for each cycle also varies, but we will never be able to time the market, so the next best thing to do is follow an asset allocation strategy and follow it. This discipline will help you get better returns.

Historically the major investment asset classes are real estate, Gold, Equity and debt. But Investment in real estate requires high investments, for doing asset allocation with real estate would be difficult, unless you have a lot of money. In that case we usually do an asset allocation between, gold, Equity and Debt. As you know each of these assets moves up or down at its own market cycle and we know of the market cycle only as an historical fact but not on a day to day basis. As market conditions change the risks and returns of the asset class changes, so by asset allocation you tend to reduce this risk. But how do you make money by just reducing risk. This is the second part of asset allocation i.e. rebalancing.

In rebalancing what we do is at every periodic interval we rebalance our portfolio. What does this mean? As time passes, one asset class would have given better returns than another. So if initially we had decided to invest Gold, Equity and debt in the ratio of 5:50:45 and at the end of the period the ration becomes 6:55:39 then we will sell some equity and gold and invest the same in debt to bring the ratio back to 5:50:45. This way you sell when the market is high and buy when the market is low for that particular class of asset. If all this sounds difficult, just go for a balanced fund which will keep doing this for you.

Hesitating to invest

Let me start with the story of Edwin C Aldarin, also called as Buzz Aldarin. Do you know that he was chosen to be the first person to step on the moon as he was the pilot of Apollo mission? The story goes like this, when the spacecraft landed on the moon, they received a command from NASA center “Pilot first” Aldarin hesitated and not for long but a few seconds, but in the meantime NASA sent the next command “co-pilot next” and rest is history. Neil Armstrong become the first person to step on the moon. This happens to us in everyday life. Nobody remembers the person who comes second. Go through history, it is always first person to …. Etc. All of us the potential, but we hesitate. The only thing that stops us is our fear.

All of us know that equity gives us the best returns, but then we have heard so many stories of failures or have the fear of the unknown like Aldarin. We are even scared to ask for help. Is there any player who has succeeded without a coach? The reason they go to a coach is to bring out the best in them. Every person has the talent, but then the coach gets the best out of them. In investing also, we also fear or hesitate, because of the fear of losing money, but this fear will get us the next best think. Aldarin had all the qualifications and training, but he hesitated. Why are you hesitating, if you are not sure, get hold of a financial advisor, who will help you remove the fear? With the current market volatility there are a lot of opportunities, do not hesitate go out and invest. There is money to be made, be the first.

Rebalance your portfolio

One of my clients had a very large portfolio with major investments in Real Estate, Fixed Deposits and Insurance. He even had some money lying idle in his saving bank account waiting to pay his son’s fees which were to be paid a year from now. As per the government and RBI, inflation has been low and would remain low for some time, so they think the interest rates should be low and hence they have kept reducing the interest rates so that industry would take advantage of the low interest rates and start investing, whereas we would stop saving and start spending. This would bring about demand and so the economy would rise. But how does this impact my client? Now when he wants to invest his money lying in the saving bank account, in fixed deposits he would get a lower interest rate and when his existing fixed deposits come for renewal they would also be at a lower interest rate.

The era of high interest rates is gone. One option would be to go for debt mutual funds, depending on the time frame for which he intends to keep his money, he can decide on long term debt funds, medium term debt funds or even short term debt funds. The returns would be definitely higher than the bank FD’s he has and they will be tax efficient if the investment period is greater than 3 years. Net, the return after tax would always be better. This is the time to have a relook at your portfolio and decide if you still need to keep those FD’s. As regards insurance, don’t use it as an investment option at all. Returns from real estate depends on when and where you have invested, if the return has not been good, have a relook at it both from the investment and tax point of view. So rebalance your portfolio now.

Invest in the stock market

I spoke to a young girl the other day, who had just started working her first job and she very proudly mentioned that she has opened a demat account. I said well, now what. She was looking for tips to invest. This is what most of us do, we want to excel in something which we are not good at. Investing directly into the stock market requires time, effort and money. Now if you are working or in business, you do not have the time to do this. So then just pay an expert and let him do the job for you. Whenever there is a leaking pipe in the house, you too can repair the leak, but you still call a plumber and pay him. But when it come to your own finances, you start being penny wise pound foolish. Instead of opening a demat account and trying to become a financial expect, let a financial expert guide you. This way you can spend more time on doing your best at what you are good at, be it your job or business.

One of the best things a financial advisor would suggest is Mutual Funds depending on your goal and time frame. Why Mutual funds? The main reason is diversification, no other fund will help you diversify your risk other than a mutual fund. The Fund manager’s job is to identify sectors and company’s which are doing well and will keep doing well. Whenever there is a downturn he knows when to get out. This helps you maximize your returns. If you look at most of the good funds, the fund manager would have beaten the benchmark. But to identify a good mutual fund is the job of the financial advisor. You can go by so many rating sites but all of them do the rating based on past performance. A good advisor would be meeting the fund managers and then making up his list of funds which he advises to his clients.

The advantage of mutual funds is that it is not just shares, but also bonds or debt funds. So you do not become a good investor by just opening a demat account and buys shares based on tips, It is a lot more, you need to beat the benchmark and be able to reach your goals in the defined timeframe. As I told the girl, your time starts now, you need to decide if you want to make or lose money or want to work towards achieving your goals, and the choice is yours.

Employee Stock Option Plan (ESOP)

These days in campus interviews, majority of the firms which come for placements are startups. Most of the students I have spoken say we would like to join a startup as the learning opportunity is greater and the chances of making a windfall is even higher. Which is true, if the startup you have chosen to join makes it big. There are many such examples available in the market. The biggest dream a startup sell’s is ESOP’s and that is the reason the joining CTC looks big, compared to other companies. Remember that these stock options would make you a rich person only on paper, as converting them to cash would take a lot of time and conditions. First you have to remain with the organization till the vesting period, secondly, unless the entity is listed, you do not have any exit option and have to rely on what the organization says is the worth of the option. Thirdly the ESOP conditions are not easy.

I know of a young smart lady, who joined a startup for internship, there was a big bonus they had promised, but as the days came closer, she realized that she was not even halfway close to receiving the bonus. The chances of a startup closing are much higher, therefore the value of your ESOP will be worth zero unless the company really makes it big. In case it’s time to buy the shares based on your ESOP, be careful if the company has not been listed, as if it does not list, you would end up holding dud papers. ESOP’s are given by these organizations for 2 reasons, one they cannot afford to give high salaries, because they are short of cash and secondly it works as an employee retention tool. Now the tax aspect.

Tax is to be paid on the date when the ESOP is converted to Shares, i.e. you decide to put in money, this really hits you hard, as you need to put in cash and you are also taxed for the difference between vesting price and market value (book Value). Again when you actually sell the shares, it is taxable as capital gains. You would be lucky if you the shares are listed on the exchange, as if they are listed and you sold within a year of the shares being vested, it is short term capital gains taxable at 15% and if after a year, then tax free. The situation is different, if it is not sold on the exchange. The short term capital gains is taxable as per your tax slab and long term would be taxable.

Financially secure marriage

Marriage season is round the corner and most of those whose marriage date has been fixed and eagerly making arrangements. All these arrangements do not come free, there is a cost involved for every action you take. When I speak to newlyweds, most of the time they are happy because they have gone into a new life or relationship from being single to being responsible for each other. On speaking on finances, most of them are starting their lives with zero or negative balance. Would you like to be one of those? I’m sure you would not, so it is better to make a positive beginning in your married life. First is be open on where each of you stand financially and how your expenses would be after marriage. This will give you an idea on what money you would have to spend for your marriage. This will set expectations right and you can keep any extravagant expenses at bay. Elders are important, but do not let them dictate your expenditure plans. Any major expenditure decision should be taken jointly, there will be a lot of emotions involved, in such cases, involve a sound elder who can give an impartial judgement.

Once married, keep your accounts separate, but add the other ones name, this is beneficial from tax point of view. For household expenses, keep a joint account where each would put in their contribution for joint household expenses. For all other personal expenses, savings and investments use your separate accounts. Even on account of credit card, try to keep them separate and one have one from household expenses, this will help in making payment to credit card companies as well. After marriage in most of the cases, there will be a change of address, ensure that this change of address is informed to all financial entities. In case of female, there is a possibility of name change, so keep your paperwork in order.

Get insurance into place, one is health, take a family floater and other is house. If you have taken a home loan then a term policy to cover the home loan. Marriage is a long term relationship so start thinking long term and start planning long term immediately. Though your responsibilities have increased, they will start increasing more and years pass, but on home front as well as job, so start your financial planning immediately. This will ease your financial burden in the years to come. Have a happy married life.

The need for insurance

When I talk to anyone about insurance, most of the time I get a question is what I will get back. This question really gets me thinking, because even after literacy increasing, people still do not understand the meaning of Insurance. Insurance is an indemnity is the event of something happening or not happening. So when you look at insurance, you should not look at return but look at what is the eventuality or outcome you are trying to cover. The following are some major insurance covers available:

Life – This cover kicks in only on the death of the policy holder. So while taking a life cover ensure that you cover only death and do not ask for a return of premium in case you survive the period. This cover is to be taken only if people are dependent on you for their living. So if there is nobody dependent on you, you do not need this insurance. How much cover is needed, depends on the assets and liabilities you will leave behind, so preferably contact your financial advisor to calculate the amount of cover you would require.

Personal Accident – As the name suggests, this cover comes into picture only in case of death or disability in case of an accident. You could take this as a separate policy or as an add on to the life policy.

Home – This policy covers the damage caused to your home and its contents.. Most of us are not even aware of this policy.

Health – With increased awareness, many of us have started taking this policy, but still I know of many people who avoid it, saying my employer has got me covered, but what if you fall ill in between jobs or you lose your job. Think, your whole life savings would go in a flash.

Travel – Most of us take this policy only when we are on official travel, but ignore it when we go on personal trips. We should never ignore this policy.

There are many other types of policies, some of which you buy, just because it has been mandated by the government or your loan provider. Most of these policies do not cover terror attacks, as you know the world has become a very dangerous place, so my suggestion is as the insurance company if terror attacks are covered, if not then ask them to add it. A little extra money, but you would have peace of mind.

The Entrepreneurship bug

Had enough of working or have a great idea and want to start out on your own? Man, the entrepreneurship bug has bitten you. Now that the virus is there, start treating it and allow it to grow for your benefit. If you do not work on it you will regret it throughout your life. I keep hearing many persons saying, I too had the same idea, but…. But what? Why did you not work on it, some felt people would laugh, some felt, they did not have the money, while others, just kept giving excuses or reasons to cover their failure to nurture their idea or dream. You do not know when an idea would come to your mind, but if you definitely have a dream to start off on your own, start preparing for it now. As it is always, finance plays a very big role in such decisions.  

Start by planning your contingency funds i.e.health insurance, term plan and expenses for around 2 years. Ensure that you do not have any outstanding loans or have provided for them. Once this is ready, next would be funding for your idea or business. You would need some money ready to rent a place, phone and other expenses. Once money is there, half your battle is won. An entrepreneur needs to work with a clear mind and money should not the first and only tension. Entrepreneurship is a very rewarding, as you are your own boss and you can keep the benefits of all you hard work. Also remember that 90% of all businesses started fail in the first 2 to 3 years of starting, so you would really need to have researched your business idea and worked out a through business plan. From those which have failed, 50% have failed because of lack of financial resources. So as you can see, finance plays a very important role. Don’t assume that funding is easy, that is the most difficult part.

Give yourself atleast 2 years planning both from business as well as finance point of view, before you start on your entrepreneurship journey. It would be best if you could start your business on a part time basis along with your job, this way, finances would not come in your way. The reason is simple, income will take time to come when you are on your own. So why not start planning your finances now and start planning for your entrepreneur journey now, don’t wait till the bug bites you.

I want to buy a car

These days everyone wants a car with no parking space. But the question to ask is do you need a car or do you want a car. A car is convenient and useful, but if you do not have frequent travel then car is just a want. Car is both an asset as well as a liability. Asset if you need to travel frequently, liability from the point of loss of value from the date of taking possession itself. What does it mean? The value of the car goes down the moment it is on the road, add to that maintenance and fuel cost. Whether you run the vehicle or not, maintenance cost will always be there. Car is convenient, but with so many car hailing apps, do you really want a car, just for convenience and because all your friends and relatives have one?

It is good to have aspirations, but these aspirations should not come at the cost of your other goals. So check, if the car is really as important as your other goals. After taking everything into account, if you feel it is a need, then check if you have at least 25% of the cost for down payment and enough surplus to pay monthly EMI. These EMI’s are not tax deductible, so try to keep the repayment period as short as possible, as the interest would be eating into your other goals. Check if a new car is really necessary, these days you get good second hand cars, you can upgrade when your finances are comfortable. If you want to upgrade, do not do so, unless the maintenance cost have really gone up and the car is giving frequent trouble.

Planning to start a family

Just married, what next? Start a family. Starting a family is not just an event but a life changing event. Though there is excitement, there would be a lot of pressures. The pressures would not only be psychological, but also financial. We need to be ready to take care of both, the physical and psychological part would be taken care with guidance from your medical practitioner, but what about financial, and you need to take care of that. Are you ready? Have saved enough for this event and after that. Remember your expenses will start mounting. Now you will have to take care of 3 persons and the third person will need a lots more care both in terms of time and money. Have you take a health insurance policy? If yes, or you have one provided by your office find out if it covers maternity expenses.

On the contingency front, you would have to recalculate your life insurance requirement, as now you would have many more aspects to take care of in your absence. This life changing event can become less stressful, if you have planned properly as the event is just not one time but it will change the rest of your life. If your wife is working, you would also have to consider the possibility of her quitting her job. This means lower income. Though we usually recommend 3 to 6 months of contingency expenses, during this time we recommend to increase it to at least a year’s expenses, that too the increased expenses. Plan early and enjoy the joys of starting your family.

When will the markets go up?

Brexit results are out and everyone has started to predict the conditions of the market. Nobody is concentrating on the company results. What is the point? If the companies are not improving on their profits or their sales are not improving, do you think the market will go up? Even if the market goes up, will all the stocks go up? You need to concentrate on specific stocks and not the sensex or the Nifty. With good monsoons Rural consumption will improve and that will help companies which are impacted by rural consumption. Though Oil prices fell, commodity prices fell, consumption did not improve, this led to a total slow down. Therefore companies were not able to capitalize on this and companies which benefited, their prices have already gone up.

RBI Governor is on his way out and we would have a new governor soon, do you think this will bring down the interest rates? Even if the interest rates come down, would Banks make good margins. If you noticed the last quarter, private banks were the most profitable, the reason is loan writeoffs. Private banks had the least loan writeoffs. Brexit or Rexit the macroeconomic conditions are improving and this will reflect in the earning of the coming quarters and then see the markets just zoom. The government would also be giving more stimulus once the rainy season is over with spending on power, rail and road. So bright days are there ahead. So enjoy.

Best time to buy shares

The market has been falling for the last few days, so do I buy shares now or wait for the market to fall? Serious money can be made if we buy when the markets are done. Take any example from history. But to make that type of money, you need to change your perspective from short term to long term, but the best thing to do would be to start with SIP and keep putting in small amounts on the day the market falls. This would be a rewarding strategy, if you have a goal which is minimum 3 to 5 years away. You can start becoming happy, when the markets go up. Remember investing in a rising market can make you happy in the short run, but investing in a falling market could make you wealthy in the long run.

If you have seen history, a falling market lasts for about a year and then there would be a listless market for around 5 years. But after that the markets just rise and that is the reason, I said, invest in a falling market and you could make money in the long run. So do not stop your SIP’s when the market is down, buy stocks instead of playing in derivatives, buy stocks after research only and buy from different sectors. Keep some money aside in liquid funds, so that if the market takes time to recover, you do not dip into the investment, instead, you could use the money from the liquid fund. Even if you do not need money for emergencies, it is better to keep it aside. After 5 years if you see the market still down, you could use this money to buy more shares.

Saying all the above investment horizon is the key, you need to look at a minimum period of 5 years from the time the markets start falling. But if you are looking at a period of less than that, do not go for shares.

Becoming rich by buying right and sitting tight

We keep hearing that if you want to make good money equity is the best. You would have heard many stories of people becoming rich by buying a stock and sitting over it. This sounds too good to be true, because whenever you have invested you have lost money. Does this sound familiar? These days you would have heard, when the market is down buy and when it is up sell, but how do we know if the market is a falling market or a rising market. This is difficult to tell. It is not easy to time the market, you just need to be lucky to have brought a stock at its lowest value. There would be numerous instances of the stock falling soon after you purchased it, the only reason is nobody knows when a stock or market would stop falling.

You just cannot become rich without taking risks. Equity investing is risk taking and you need to have a risk taking appetite, but not all of us want to take risks. Most of the people I talk to say, I do not have money to invest, but at the same time ask for tips. All want to make it rich soon, not ready to put in efforts or understand the risks. The first thing you need to do is think long term. Next treat the investment like your child, keep track of it, and if you find something is going wrong, take corrective action. Now when your child makes a mistake, you first analyse if it was really a mistake and only then take corrective action, same way, find out if what is happening is natural or the management is not taking corrective action and then decide. Do not regret if you made an error of judgement, this happens to all of us. Next check if the company you are investing has been creating value over a long time and is capable of creating value over the next 3 to 5 years. If it is a new company, would it be creating value over the next 3 to 5 years? Because markets change daily, our lives are also changing daily.

Do not go for IPO’s as they give you a very short term view as their intention is to get the IPO through, take a long term view. Understand that what is good today may not be good tomorrow, so try and take a long term view of any investment. Last whole market keeps following the index, which is a good indicator, you also should track, but track which stocks are part of it and which are not. Remember the index stocks are ever changing and usually only the good stocks remain in the index, so if a particular stock you are holding is removed from the index, it is time you too exited from it. If you do not have the ability or time to do all the above, go for the next best option i.e. invest in Mutual Funds, the fund managers are trained to do all the above and that is their full time job. Here you can just buy the units and sit tight.

Best Mutual Funds to Invest

The market has started to move up and now everyone is thinking of investments. IMD has predicted good monsoons and government has presented some good numbers. We want to invest but at the same time do not want to take too much risk, so most people tell invest in mutual funds. But which mutual fund scheme should I invest in? When the markets are up all the funds show good growth but the best way to check is how the fund did perform when the markets were down. Now many fund houses will give you this information directly. You will have to do your own research, last year was a good example. Check the fund’s performance for the last one year. This will help you narrow down on the schemes you would like to look at. Once you have done that, check the long term returns of these funds. If you find they have done well on both these parameters. You would have been able to narrow down to a funds in single digits. Now this strategy is good if you are a long term investor. So what are you waiting for, do your reading and research and start investing.

Is your portfolio real estate heavy?

A friend of mine came to me asking if there were good investment opportunities in real estate. I was wondering why real estate, as he already had 2 houses. One he was staying in and another on rent. He used to save money and he had enough to make down payment, he would invest in real estate under development project and then keep paying off the loan. Now he is 53 and he want to purchase another flat. On probing he said real estate gives good returns and the rentals would give him regular income. While it is true that there will be appreciation, but when he needs the money liquidity would be an issue. Selling a property is time consuming. Another issue is market prices of real estate are opaque. When you actually try to sell, you will get a much lower value than you actually believe your property is worth and if you really want the money urgently, you would have to give further discount and also with a lot of running about. .

The other issue would be even for a small value you would need to get rid of the whole property as property is indivisible. We always look at the rental income, but we usually tend to discount the expenses which we have to bear on the property on a regular basis viz. property taxes, repairs, painting, maintenance bills, etc.  There could also be times when the property will be vacant. Now what happens is people who talk of investing in property always talk in absolute value terms, if you acutally look at the returns it would be around 3% of the current value. So in such a situation any other investment would have given better returns. But then they will not understand as they are emotionally attached to real estate. So I told this friend that not more than 50% of his portfolio should be in real estate. He said I’ll get back to you and I am still waiting.

Contingency Funds

In today’s world anything can happen and if you have cash in hand you do not have to worry, but if you keep too much in cash there could be a loss of earning. Therefore it is very important to have contingency funds to meet unexpected expenses. These days there is no guarantee of a job and people get laid-off overnight leading to months of unemployment or there could be an accident or major illness. In all these circumstances contingency funds come hand. How much money should be kept aside for such contingencies is a big question. Though you would have planned for your major goals, it is very important that you plan for your contingencies as well. You might have credit cards to meet some major expenses, but in case of loss of job or accident or major illness, how would you repay these expenses?

Hence a financial plan should include a plan for contingencies, this includes a health and accident insurance plan. Now health and accident could take care of a part of the contingency, what would happen if you lose your job. You still have to fend for yourself and your family till you get a new job. Some people might say keep 3 months expenses while others might say 6 months, all this depends on the type of job you hold and how long you would take to find another job. If you have Hugh EMI’s or Insurance premiums needed to be paid I would suggest that you keep aside 6 months expenses including EMI’s and premiums. Now that you have decided how much you need to keep aside as contingency funds the next question would be where should I keep it?

Remember that these are contingency funds and you should be able to access them when you need them. The nor mal suggestion would be to keep one month’s expenses in a saving bank account, another months expense in a liquid fund and the balance in short term debt fund. This way when you need the funds you will be able to access them fast and you would also earn some income out of it. The best part would be that this would automatically grow over a period of time. My suggestion is that you review you contingency requirements every quarter and if you find that the amount required is increased, check if the increased funds are available, if not keep additional money aside.

Children and Finance

It is not a good idea to make a child focus only on money, but the lack of knowledge could lead to their exploitation. Just as today’s child is tomorrow’s future, money saved today is tomorrow’s capital and it needs to be channelized properly. Awareness of finance is very important for everyone and making children aware of financial concepts will help the child when they start earning money. They will hopefully not make the same mistakes you may have committed. Start with some essentials like how budgeting can help the child to live within his /her means and then asking for more pocket money could be reduced. Teach them of the problems associated with taking loans. Instead of just filling their pockets, give them a loan and deduct it from next months pocket money. Open a bank account and show them how by saving they can earn money i.e. interest.

Once they understand this teach them about various insurance options and how they help in case of some event happening. Now that the basics have been taken care of, teach them about basic investment options like fixed deposits, recurring deposits and post office savings schemes. Now that they have understood all the different types of schemes in which you had always invested and did not make enough money, introduce them to the world of mutual funds and the benefits of diversification of portfolio. Once they learnt how to make money, now teach them how to save money while investing. Teach them about charges and costs incurred while investing. The various types of charges for different types of investments and finally introduce them to the world of stock markets and how all other investments are linked to the stock market. Once you have done that, they will thank you all their life.

Financial independence cannot be met only by teaching a child to earn high income but by good money management.

Keep your investments under lock and key

Are you one of the persons who has the habit of keeping your money invested in Safe Bank Fixed Deposits? Then this part of the story is for you. Once a man got married to a beautiful girl, he was so possessive of her that he did wanted her to remain beautiful forever. So he locked her up in one room of his house so that no bad air or sunlight would affect her and she would remain beautiful. Initially he would see her everyday, but as years passed, he would see her less frequently and as more years passed he would see her just once a year. He had reached his retirement age, he decided now was the time he would spend with his beautiful wife, but when he opened the door, he saw an old lady. This is what happens when we keep our investments in Safe Bank Deposits, when we need the money, it is not enough as inflation would have reduced its worth. Just like the man, if he had allowed the lady to move around, she would have attempted to look good all the time. Same way if we invest our money properly, our money would work for us. So why don’t you make your money work for you instead of locking it up and then regretting when you need it.

Plan for your holidays

A few friends met a few days back and one of them had just returned from an international holiday along with his family. As usual after mentioning how he enjoyed and where all they went, one of us asked him how big a hole was it on his pocket, he mentioned Rs. 3 Lakhs for 4 persons. Hearing this rest just said, we don’t think we could afford it or they would have to take a loan. That is when our friend told them he did not borrow nor was he a high earning individual, which all of us were aware of. So the next question was how, our friend just told them that he had been setting aside Rs. 8,000/- per month for the last 3 years and this amount grew to Rs. 3 Lakhs along with interest. This was a simple solution, which all of us can follow and still be debt free and both you and your family will be happy.

A break every year is a necessity, but a vacation is a luxury. Saving for a necessity is important, so do not borrow for a luxury. Setting aside money for a dream holiday should be done only after you have set aside money for your necessities. Also do not use your credit card for and during such trips, the foreign currency conversion costs are the most expensive ever. Always stick to the budget you have set aside. Your budget should include so unforeseen expenses as well. All said and done the travel bhoot cannot be stopped, what with so many advertisements and societal pressure. So if you must, then start by keeping aside some money every month and start researching from day one. As you have started researching, you would know most of what you require and costs early, so you could start planning early as well.

 

Doing your visa early would help you with getting good deals on your hotel and air bookings. You could also work on your foreign exchange requirements. Banks are not the best providers of exchange rates, so you could check out and get good deals on foreign exchange rates as well. Early bookings would easily help save around 10 to 20% of your costs. Last but not the least, where you keep your monthly savings, earning the best returns without losing on the capital, connect with your financial advisor before investing. Many travel firms comes with good schemes of saving for your holidays in association with banks, only hiccup is that your dates have to be fixed a year in advance. So do not fret, plan from your holidays in advance.

Is the timing right for Investment?

In the global markets, Gold had fallen some time back and it has now started to pick up again. Why is this happening? The only reason is uncertainty. As you must have seen, whenever there is uncertainty in the market, gold rises, this is the time to make money by selling gold. Worldwide all commodity prices are falling, we all want to know reasons, can’t you see, sales are not picking up, hence the prices are falling. All assets follow a cycle of 30 years, 10 years rise and 20 years fall. So are we in a rising or falling cycle for gold? You take a guess, gold prices just kept going up from 2002 to 2012 and then started falling, and so do you think history will repeat itself? Only time will tell. As regards equity market the cycle is for 7 to 9 years, 4 to 5 years of rise and 3 to 4 years of fall, looking at history where are we?

Real Estate also goes through cycles which is around 20 years i.e.10 years of rise followed by 10 years of stagnancy. Real Estate kept going up from 2004 to 2013, so now what? If you look at all the markets they are all supposed to be in fall mode and hence the uncertainty. Add to this interest rates are going to soften. So in such situation only thing that will go up would be rents, as people will not buy waiting for real estate prices to correct and interest rates to fall. But then you do not want to invest in real estate, so those who have already invested are bound to benefit during this time. So what should one do in such a situation? Depending on your investment horizon you can plan your investments. For short term go for Debt funds again here your choice of Liquid, short term and long term debt will depend on the period you are ready to wait. For medium term go for balanced funds and long term would definitely and always be Equity and that too using the SIP mode. For detailed investment plan or advice please contact your financial advisor.

Direct Investment in Equity Shares

During the last two years many persons told me that they made good returns by investing directly in Equity shares, so this year I asked the same persons what happened last year and they said, there was no loss. Yesterday I asked the same persons and they just told me they were busy. Nobody was ready to talk about the stock market, the reason is the external factors have hit the stock market. Nothing is actually wrong with the stock market, but then we have so much information available that we tend to take very short term view for an asset class which should be looked at from the long term. This is the reason I suggest that even if we want to move into equity, we should go the mutual fund route. If you find it difficult to believe, try this. The amount of money you are ready to put aside for equities, put half of it in a good large cap mutual fund and you play with the other half and let us compare the amount of money you have made after three years.

The chances are that you would have made more money in the mutual funds route after removing all the costs involved with absolutely no headaches. You concentrate at what you are good at and leave market investment to professionals, you will end up making more money. But if you try to concentrate on making money in something which is not your core competency, you will end up losing time and money till you become good at it. That is the reason, businesses employ professionals for every department. So why don’t you behave like a businessman and employ a professional, i.e. a good financial advisor who will suggest how you go about with your investments.  A good financial advisor understands risks and returns and also understands when to exit.

When you try to do it yourself, you have to do all the analysis yourself, which will take time. This is the reason a good businessman concentrates on what he is good at and pays a professional to do a job for what he is good at. One o the basics on equity investing is diversification, you could do the diversification yourself, but then the amount of time you need to study all the sectors will take time, instead a mutual fund will do it for you at fraction of the cost. When you do your investments through a mutual fund you manage to beat the market returns and if you really want to get the best ask your financial advisor to choose the right fund for you.