Investments As a Good Habit

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7 steps to better Investment Planning:

We invest to safeguard ourselves for a rainy day. If you’ve just started investing or want to start, then you could use our 7-step plan to become your own investment consultant!

Managing your investments becomes easy when you make it a habit to save, even if it’s very little money. You need to keep a meticulous account of personal income versus expenditure on a monthly basis before you start investing. Here are some steps you can follow:

Step 1: Create a budget and track your expenses

A budget helps you identify problem spending areas and also helps regulate your cash flow. Tracking your expenses against the budget helps you control spending and free up cash to clear existing debt and save for retirement or your child’s education. For example, your budget allocation includes a certain amount for groceries for a week. You discover on comparing that amount against actual expenses that you have overspent on buying additional items that you did not really need. This will caution you against making similar expenditure next week and at the end of the month, you will end up saving money!

Step 2: Pay off your existing credit card debts

Are you surprised that paying off credit card debt is a step towards investments? Credit cards charge a high amount of interest along with the principal repayments. When you clear this amount, you‘ll be glad to realize that all the interest amounts and late fees you paid to credit cards can be utilized for your savings and investment program.

Step 3: Save effectively for a rainy day

Emergencies often arrive unannounced. Ensure that some money is set aside to cover monthly expenses for at least three months. These funds should be invested or set aside in instruments that can be readily accessed should you need cash. For example, keep these funds in a savings account in a bank or invest in a money-market mutual fund.

Step 4: Design a disciplined savings program

You can open a recurring deposit account. In this case a particular amount from your income gets deposited every month for a fixed tenure. You can also invest in a series of fixed deposits (FDs). For example, if your cash reserve is USD 24,000, this amount can be divided into six FDs of equal amounts, each with a 6-month maturity. At the end of 6 months, you’ll have a fixed deposit maturing every month. You can continue to roll them over to create a source of regular income and minimize risk.

Step 5: Invest in education, pension, and retirement insurance plans

You can get life cover, education cover and save for retirement when you invest in insurance. Besides this, you get tax exemptions to reduce your current tax payout. For example, you can invest in the insurance plans which offer not only life insurance, but riders for investment of the premium amount so that you get good returns when you retire.

Step 6: Buy yourself your dream home

Investing in a house is one of the best investments you can make. First, your payments towards interest and real estate taxes are tax deductible. Second, your property increases in value over time.

Step 7: Invest in a diversified investment program or systematic investment plan

Your risk tolerance level goes a long way in defining your investment approach. If you’re not averse to taking risks, then you may want to invest in an equity based mutual fund. Else, you may want to invest in a plan that involves bonds and other safe securities. Also, ensure that you keep in mind your investment objectives before you subscribe to an investment plan.

Source: ChilliBreeze

Saving For Your Child:

Securing your child’s future is important to you and education and marriage are part of this prized goal. However, many of us leave investing for our children to the last minute, while others tend to rely on a half-baked plan. The earlier you plan for it, the greater will the benefits be. Here is taking a look at how to meet these future needs.

Estimating

To achieve specific goals set for your child, calculate the potential future value of the corpus required after adjusting for inflation. This will save you the right amount of money. The goal being long-term, go in for equities—these deliver higher inflation adjusted returns than any other asset type. For example, a wedding that costs Rs 25 lakh today, would cost nearly Rs 70 lakh 21 years from now at an assumed inflation of 5 per cent. Now, assuming that equities generate a return of 12 per cent for the next 21 years, estimate the monthly savings for the purpose. Similarly, you can calculate the monthly savings you need to make for your child’s higher education.

The Right Mix

When it comes to planning for your child, you may want to stick to large-cap funds as they invest in well-established, top-rung companies and are, therefore, less volatile. They give reasonable gains when equity markets rise and are also comparatively less volatile when equity markets fall. A little exposure to mid-cap funds, which are known to give sudden spurts in their performance along with high-risk funds such as thematic funds can be considered to get the kicker in returns. You may, however, have to increase your portfolio review frequency. The idea is to take the equity advantage and yet control the risks you take. Choose well-performing equity schemes with an established track record. A more passive way is to choose ETFs and index funds, or a mix of them. Simultaneously, open a Public Provident Fund account in your child’s name. Make him continue funding it when he begins to earn.

The Selection

If you are in for the long haul, assess the targeted MF schemes on the following criteria. Look at the funds’ long-term performance. Consistency pays in the long run and matters most when final corpus is considered. The performance of schemes within the same fund family may vary as they are run by different managers and have different portfolios. Hence, take a close look at the targeted scheme’s performance, its portfolio and the investment strategy that the scheme follows. Do not necessarily choose child-specific MF schemes.

The Approach

After estimating the monthly savings required and identifying various MF schemes, the right approach is what matters. Systematic investment plans (SIP) involve investing a certain fixed amount of money at regular intervals rather than investing a large lump sum. This form of investing suits those who cannot invest in lump sum, but can invest regularly. This way you don’t capture the highs and lows of the market. Rather, the cost of your investment is averaged over a period of time. The essence of SIPs is that when the markets fall, investors automatically acquire more units. Likewise, they acquire fewer units when the market rises. Therefore, the average cost per unit drops down over a period of time. It helps forced savings and doesn’t make you scramble for funds at the last minute. Further, part of the money a child gets in, say, birthday gifts, could also be invested in these MFs.

The Rebalancing

You may choose equities if your child’s wedding is not on the cards soon. Go for short-term debt mutual fund assets to meet immediate goals. Monitor the performance of your portfolio and keep rebalancing it regularly. In part II of this series, we will look at ways to derisk investments as goals approach.

Source: Outlook Money

Develop Good Investment Habits:
Source: TOI

Nothing is stronger than a habit, said the Roman poet Ovid. For investors, good habits make all the difference. Nothing is more important in investing than solid, well thought out planning. But all the planning in the world fails without the right follow through - the right habits to serve and feed those plans. Some of these habits that are most helpful and potentially profitable are:

Keep a diary: Get a spiral notebook for Rs 50 and before making or exiting any investment, write down the reason for doing so. The point of this exercise is twofold: to learn from past mistakes and to force yourself to collect your thoughts. By recording your views, you can judge them later, thereby gaining important insights into your own investment patterns and behaviour.

Keep score: It's important to know how you are performing as an investor. It isn't as simple as it sounds. Take the following steps: Pick the right time frame: Depending on the size of your portfolio and your investing style (active or passive) periodically review your investments. The period could be as short as daily but should not be longer than a quarter. Be brutally honest: Evaluate all your investments as a whole. Human nature being such, we bask in our successes and ignore our failures. The name of the game is appreciation. It's not good enough to see that five of your seven stocks or mutual funds have gained this quarter. If the other two have performed poorly, you may have lost money overall. Pick the right yardstick: How do you decide whether you're winning or losing? Follow two rules: Rule No. 1: Don't lose money. Rule No. 2: Earn real returns. (For me real returns are returns in excess of taxes and inflation, otherwise you are eating into your capital).

Start keeping a score: With the right time frame, honest evaluation of your performance and the right yardsticks in place, you can begin keeping score in your spiral notebook.

Read extensively but selectively: Every investor needs an orderly, rational and consistent reading routine. Set aside a consistent amount of time each day for reading, and consciously decide on what's most important for you to read. Read enough to know where the market is going in general. At the very least, you'll need to know how the market is performing in order to measure your own portfolio's performance. Read about your own investments. A mutual fund you own changes managers, or a stock you own is acquired. You need to know the big changes to manage your investments smartly. Don't waste time on the small stuff. A big up or down day in the markets shouldn't distract you. Investing is a long-term process.

Take stock once a year: Once every year, set aside a significant amount of time for evaluating your investment strategies. This isn't about keeping score. It's about examining the big picture. Be forewarned: This approach can be really humbling. Aristotle said "Good habits formed at youth make all the difference." This is particularly true for successful investing.

Investment Habits Of The Wealthiest Families:

Wealthy investors have ample liquidity, pay attention to taxes and do not hold onto losing investments.

Many of the wealthy families that have been lucky enough to create or inherit well over $100 million. The sources of their wealth have been diverse. Whether they or their family made money in technology, railroads, agriculture or pharmaceuticals, they actually share several investment habits that the rest of us can learn from. Adopting these habits has made their fortunes grow at a steady pace over multiple generations; developing the same habits will do wonders for the intelligent investor.

Financial Planning Process...