Financial Planning mantra #7

When is a good time to start investing? Simple answer - NOW!

Should I start now or wait till I get my bonus next month. Many people drag their feet when it comes to saving money. It is always NEXT week, NEXT month, NEXT year, NEXT increment, NEXT bonus. It is a never ending NEXT cycle. Time flies by and before you get down to it in a serious manner, maybe even 5 or 10 years have gone by. The cost of a 10-year delay (in starting) can be as huge as 50%. In other words, if you start at age 40 instead of age 30, the difference in the end corpus can be as much as 50% plus.

The longer you are able to grow your investments, the better returns you are bound to see. The ‘power of compounding’ kicks in only when you have given your investments a long time to grow. Hence, the earlier you start, the better it is for you.

Mark Twain has rightly put it - October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February. Simply put, there is no ‘safe’ month (which you should wait for) to start your investments.

Who is 'KING'? Equity, debt or cash?

This is one helluva time for investments. With stock markets down and interest rates on an upwards spiral, all the three instruments today are ‘kings’ in their own right

This is one question which everyone today is confused about. Should one invest in the equity markets now or in fixed maturity plans (FMPs) and other debt instruments or is it best to be in cash (meaning cash at bank or in liquid funds; I am not referring to bundles stashed underneath your mattress).

The answer would vary from one individual to another. Of course, it would depend on certain factors like risk profile, tenure of investment, allocation, etc. But if I were to speak from a general point of view, I think this is a good time for all round investment. In short, all the three components are king!

Equities have had a downward roller-coaster ride since January 2008. The Sensex has slipped by over 30% since the beginning of this year with sectors like real estate and banking being pummeled by over 50%. With most people being caught between the devil and the deep sea, it is more out of compulsion that they are not in a position to sell their stocks today. So is this the ‘right’ time to get into equity or equity-related instruments? Well, I would say yes. But your perspective should be long-term perspective. In the short-term, your investments will encounter more volatility. Therefore, the selection of quality funds / stocks is imperative.

Now you would ask – “what about debt?” With deposit rates moving up, both FMPs and fixed deposits look attractive. With indicative ‘post-tax’ returns of 9-9.5%, FMPs and liquid funds are attractive options for the risk-averse, who fall in the highest tax bracket. For those in the nil or lowest tax bracket, FDs present a good investment avenue.

For those who are ‘convinced’ that markets have not bottomed out yet, cash is the ultimate answer. I would still recommend you to invest via the SIP option rather than trying to catch the bottom (which, in any case, is more a matter of chance than actual skill).

This is one of those ‘rare’ times when investing in both equity and debt is a good option. It is extremely rare to witness times when good opportunities present themselves both in the equity and debt segments. And with such volatility in the markets, it is always good to keep some cash ready to invest -- either when the markets slips further or when the interest rates rise again. Happy investing!

How can I become a crorepati?

Most of us want to become one, but ‘believe’ that crorepatis are born and not made. Wrong!

As Noel Whittaker (a well known Australian money columnist) put it: “Becoming wealthy is not a matter of how much you earn, who your parents are, or what you do….it is a matter of managing your money properly”.

Some people believe that ‘they’ cannot make money. Wrong again! Money can be made by anyone and everyone. All it requires is planning and discipline. Any investor who takes care of these factors is bound to make money in the long term. There’s nothing like a quick buck. If you made it, consider yourself lucky and not skilful.

The legendary investment guru, Warren Buffet (his net worth in 2008 is USD 62 billion or Rs 2,48,000 crore) has said: “Time spent IN, is more important than TIMING the market”.

The more time you give your money to grow the more it will grow. In other words, the younger you start investing, the more money you will have at your retirement. Each year delayed would mean a loss in earnings. Let us look at an actual example:

Investment: Rs 5,000 per month up to age 60
Expected Return: 7% per annum

Notice how the ‘cost’ of a 10-year delay is HALF the amount.

The chart above clearly indicates that the best time to invest is NOW! More so, when markets are down and the long-term picture looks encouraging. Every day, every month, every year that you delay is an opportunity lost. And the loser is no one else but you!

To conclude, as Mary Kay Ash (a business woman and author of three best-selling books) says: “Don’t limit yourself. Many people limit themselves to what they think they can do. You can go as far as your mind lets you. What you believe, remember, you can achieve.”

When is a good time to invest?

Focus on your long-term goals. And stop trying to time the market. Even the wisest pundits have failed to predict the ‘top’ and the bottom of stock markets

When should I invest? Whether the markets are up or down, this is a million dollar question that constantly looms over an investor’s mind. Should he/she invest now or wait for the markets to fall even further. This waiting for a ‘more opportune’ time goes on and on. As a result, time passes us by.

Over the last two years, I have seen people withhold the decision to invest, despite my spending considerable time with them to convince them to make the investments. Their reason - they feared that the market has ‘topped’ or they had the ‘greed’ to wait for the markets to hit the bottom.

It is not possible to time the market. Even the wisest pundits have more often than not failed to predict the exact ‘top’ and the ‘bottom’ of stock market.

So is there really a ‘right’ time to invest or is it merely a myth or an illusion? The answer is a YES and a NO. ‘No’ because there is nothing like a right month or a date to begin. And ‘yes’ the right time to start (if you already haven’t) is NOW!

There is an old adage – ‘buy low and sell high’. But reality is a lot different from that. Most investors actually end up doing the reverse. They get into the market after the prices have risen because they believe that the ‘bull run’ is back. Such investors tend to panic the minute the prices begin to slip.

Investors must have a horizon for all equity or equity-related (mutual funds) investments of at least 5 years. The longer the better, since only then will they realize the ‘power of compounding’. Discipline and planning are crucial to achieving the goal that the investor has set (be it his own retirement or children’s education or marriage, or any other goal).

As a basic thumb-rule, during volatile markets (like the one we are currently witnessing) invest every time there is every dip. There should be no fear in the investor’s mind if he/she has a long horizon. In the near term, he/she may see negative returns because of volatility. If he looks at the big picture and has a long horizon, he should just keep plugging in the money. The returns will happen in due course.

If you wait to time the market, fear (of seeing short-term negatives) and greed (of trying to catch the bottom) may leave you stranded, thereby seriously affecting your long-term goals and objectives.

An introduction to financial planning

Here’s a lowdown on financial planning and how it can help you lead a life of your dreams.

Welcome to my first blog. Let me begin by introducing myself, my firm - Knowledge Partners - and our philosophy. I am an Associate Financial Planner and have also done my PGCBM from XLRI, Jamshedpur. In 2005, I moved to Gurgaon after spending 14 years in equity research, media and marketing at various firms in Bombay & Calcutta. Numbers always intrigued me. So did various financial instruments. But I also saw how people all around me were getting mislead by so-called ‘advisors’ and ‘agents’. While everyone wants a financially secure future, most people were either unaware or confused as to where and how to start. The result - decisions got indefinitely postponed; or wrong products were bought based on misinformation.

That’s what reinforced my decision to start my own financial advisory. And in 2006, Knowledge Partners took shape.

Financial Planning, as a concept, is still quite new to India. Traditionally, financial advice in Indian homes (invariably) comes from a family elder - who is, more often than not, heavily under influence of an insurance agent or a family friend.

Often, agents and advisors give you an improper advice so that they can make a quick buck. They often sell you a insurance policy or a mutual fund that gives them the highest commission or brokerage.

At Knowledge Partners, we believe in having a long-term relationship with all our clients and advise them to buy financial products they actually need. Our endeavor is to be a partner of our clients till the time they achieve their financial goals.

Have you planned your financial future?

You can get answers to this question by answering these simple questions:

· Have you started planning for your retirement?

· Have you wondering how to plan for retirement, children’s education and marriage in the face of rising inflation?

· Do numbers boggle you?

· Are your savings fetching you sufficient returns?

· Have you ever thought as to how many years you can maintain your current lifestyle if you were to take a sabbatical / retire?

· Is your money lying ‘idle’ in your savings/current bank account – would you not like to earn more than the meager 3.5%?

· Most of us limit our investments to tax saving instruments – or the amount that is to be covered under section 80C. But is that enough to meet all your future expenses? Will that create a sufficient corpus?

If these are some of the questions that are bogging you down, Knowledge Partners could be of help. We are a Gurgaon-based firm offering fee-based services in the area of financial planning having a clientèle in the Delhi-NCR region, primarily, and also in Bombay and Calcutta.

How do we go about it?

Our investment process begins with you. We perform a careful assessment of your individual needs and aspirations, and our evaluation is based on:

· Goals and objectives,

· Investment time horizon,

· Liquidity needs,

· Desired rate of return, and

· Tolerance for risk

The result is a complete understanding of your personal profile that will serve as the foundation for defining a long-term investment strategy tailored to your specific needs and preferences and not just catering to your ‘tax planning’ requirements u/s 80C.

Our philosophy is designed to achieve long-term investment goals, and is based on the following core principles:

1. Identify Your Unique Needs, Goals and Objectives

2. Build an Asset Allocation Roadmap

3. Formulate a Plan & Portfolio Selection

4. Continuous Portfolio Monitoring

We educate our clients so that with time they are more focused to achieve their goals and objectives with the help of their financial advisor, rather than by relying blindly on the latter.

Our fee-based approach is designed to eliminate conflicts of interest and results in unbiased and honest advice.

Money isn’t everything, but having control and confidence about how you are managing it can allow you to concentrate on other things like your family, your career, and your future. We believe that all your dreams are achievable and we look to partnering you so that you can live your dreams!