Let’s open the manual:
Every
gadget you buy in the market comes with an instruction manual or user’s
manual. But your salary, savings...retirement don’t come with an instruction
manual. So we don’t know how to handle these and we end up mishandling. The
result is poor investment choices and unhappy retirement. This article is an
effort to draft an instruction manual for our investments.
Investment forms an integral part of our work life, with many wanting to
save and invest to meet our long-term financial needs. We would all agree
that just living from paycheque to paycheque would leave us in a bad
financial state making us incapable of meeting our family’s financial
commitments and our expenses after retirement.
Don’t Fly Blind; Have a Financial Plan
It is vital to chalk out a financial plan at the very beginning of our career. This plan would tell us how much we should save and invest. This plan also ensures that our long-term financial needs are met. It may prove difficult and sometimes costly in the long run if we chalk out a financial plan on our own. So it is better to engage a professional financial planner, who would be in the right position to advice us on the investments to meet our long-term objectives in life.
Generally
investment advisors or financial planners ensure that we invest in the right
type of investments that are relatively safe and tax efficient. They ensure
that our investments do not divert away from the set financial goal. The
advisors or planners who charge a fee, can be expected to act in the best
interest of us; their clients. But we will not be in a position to trust
those who live out of the commissions earned from selling insurance policies
or mutual funds or stock broking.
However,
it is best for you also to be cautious and not allowed to be fooled by
flattery. Since it is your money you need to be cautious and vigilant.
Do control what you can:
The first thing that we can control is unnecessary expense on investment.
It is in our interest
to try to minimize or
avoid
investment expenses like entry load, exit load, fund management fees,
commissions for buying and selling stocks, account maintenance fees,
allocation charges, administration charges, surrender charges, and other
overheads. Small drops make a mighty ocean. Similarly these small amounts of
cost cutting will definitely pay us in the long run.
The second control is over the diversification of your investment.
You also
need to ensure that at all times your investments are done over a wider
variety of assets. This will ensure that you do not suffer large losses in
one type of investment. The losses in one would then be offset by the gains
in the other and you will be financially safe at all times.
The third control is the maintenance of our asset allocation to reach our
financial goal.
We need to keep a check over
the asset allocation or
ratio of
equity to debt and to other things in your portfolio with the help of a
professional financial planner. This will help us ensure that we are not
taking more risk than what we want or can possibly handle.
Do pay as little attention as possible to the financial media.
It is best not to
be influenced too much by the media to buy and sell investments. Investing
is not a competitive sport.
Buying and selling stock
frantically by being influenced by the media is counter productive to your
financial objectives.
It is best to understand that our conscious investment is for long-term
wealth appreciation. So we should not be distracted by the investment shows
that run 24 hrs a day, investment column they publish 365 days a year. Media
doesn’t understand your requirements. So it is difficult to get a customized
solution for your personal finance.
Don’t fall into “Invest and Ignore”
We have invested
your precious savings, so do not be careless and sleep over it.
Though our investment advisor would make sure that our investment grows, it
is better that we too are vigilant and keep track of market conditions. It
is our precious savings that we have invested. So if we lose it, we would be
losing not only money but also our peace of mind.
Don’t fall into “HNI Trap”
Being a high net
worth person exposes us to being influenced to invest in dubious projects
that may bring down your financial status. This is true because the
financial industry are on the look out for people that have a lot of money
and are of a high status. They try to influence them to invest in dubious
projects appealing to their status and vanity.
Being a HNI
doesn’t mean that you need a completely different set of investments. They
try to pack something and will say “This is a HNI product”, just to massage
your ego and get business. Many HNIs would be lot richer, if they could have
bypassed their private banking department and just invested in an index and
a very few diversified equity funds.
A final thought:
The instructions in the user’s manual need to be used to get the
maximum benefit and long life of the gadget. Similarly, having read the set
of instructions to make wise investment decisions, it is up to you to follow
them strictly or leave it and go back to your routine life.
If you decide to follow these instructions, you will definitely see
a lot of positive changes and financial prosperity in the long run. So today
is going to be the first day for rest of your life.
The
author is
Ramalingam K,
an MBA (Finance) and Certified Financial Planner.
He is
the Founder and Director of
Holistic Investment Planners (www.holisticinvestment.in)
a firm that offers Financial Planning and Wealth Management. He can be
reached at
ramalingam@holisticinvestment.in.
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