PENNY WISE
HOW TO MAKE YOUR MONEY WORK FOR YOU
An average Indian spends more time selecting the clothes he wears than on financial planning. For most people financial planning is a complex topic. However, it isn’t that difficult. It is the simple discovery of finding what to do with your money and what the money can do for you. Financial planning is very important for you and your family. You can’t predict the future—there could be many unforeseen circumstances in life. Proper financial planning will help you face that situation better. Once you have identified your needs, the next step is to find out what asset class you have to invest in to meet those needs. Let us limit ourselves to five asset classes for our examination. The most common asset classes we invest in India are debt instruments, equity, real estate, gold and insurance. I am including insurance here because insurance products have a good level of penetration in India. Let us now see what our approach should be when it comes to insurance. You should buy insurance cover depending on your long-term insurance needs. As for gold, most Indians are overweight on gold. So, I wouldn’t advise anyone to invest in gold. Real estate is the other avenue. Clearly, there is an enormous opportunity in real estate today. However, one should invest in real estate only after obtaining proper advice. The most important thing here is that you should at least own the house you are living in. At least that much exposure to real estate is a must. Coming to debt, we have some money always lying in our bank accounts. My advise here would be to not keep a lot of money in bank accounts. Keep what you need for the next one month. Even if you don’t need the money for three to six months, invest it in a liquid fund. This, as you know, would give you tax-free dividend. Now let us move to equity. Before investing in equity, I would like people to look at these four points: One, they should have enough money for the next five years. Two, you don’t need 20-50% of the money on a temporary period. Three, if you don’t have enough skills, you should seek the help of professionals or a mutual fund. Finally, follow this thumb rule while taking exposure to equity: Your equity exposure should be 80 minus your age. Don’t underestimate the power of debt. When you are investing in stocks you should remember that its price is the reflection of how the company is doing. What are its future prospects and what is the investor perception? Don’t lose sight of important aspects like its past performance record and the quality of management. Always remember that all companies are not the same. Do your research. If you can’t, seek professional help. If you are taking the mutual fund route, check the track record of the fund manager. Remember the old saying: Time in market is more important than timing the market. If you follow the mantra of spending more time in the market, you would do well.
HOW TO MAKE YOUR MONEY WORK FOR YOU
An average Indian spends more time selecting the clothes he wears than on financial planning. For most people financial planning is a complex topic. However, it isn’t that difficult. It is the simple discovery of finding what to do with your money and what the money can do for you. Financial planning is very important for you and your family. You can’t predict the future—there could be many unforeseen circumstances in life. Proper financial planning will help you face that situation better. Once you have identified your needs, the next step is to find out what asset class you have to invest in to meet those needs. Let us limit ourselves to five asset classes for our examination. The most common asset classes we invest in India are debt instruments, equity, real estate, gold and insurance. I am including insurance here because insurance products have a good level of penetration in India. Let us now see what our approach should be when it comes to insurance. You should buy insurance cover depending on your long-term insurance needs. As for gold, most Indians are overweight on gold. So, I wouldn’t advise anyone to invest in gold. Real estate is the other avenue. Clearly, there is an enormous opportunity in real estate today. However, one should invest in real estate only after obtaining proper advice. The most important thing here is that you should at least own the house you are living in. At least that much exposure to real estate is a must. Coming to debt, we have some money always lying in our bank accounts. My advise here would be to not keep a lot of money in bank accounts. Keep what you need for the next one month. Even if you don’t need the money for three to six months, invest it in a liquid fund. This, as you know, would give you tax-free dividend. Now let us move to equity. Before investing in equity, I would like people to look at these four points: One, they should have enough money for the next five years. Two, you don’t need 20-50% of the money on a temporary period. Three, if you don’t have enough skills, you should seek the help of professionals or a mutual fund. Finally, follow this thumb rule while taking exposure to equity: Your equity exposure should be 80 minus your age. Don’t underestimate the power of debt. When you are investing in stocks you should remember that its price is the reflection of how the company is doing. What are its future prospects and what is the investor perception? Don’t lose sight of important aspects like its past performance record and the quality of management. Always remember that all companies are not the same. Do your research. If you can’t, seek professional help. If you are taking the mutual fund route, check the track record of the fund manager. Remember the old saying: Time in market is more important than timing the market. If you follow the mantra of spending more time in the market, you would do well.
posted by bapsfernandes at 11:29 PM
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