Tag: Investments

15 Things Your Financial Advisor can do for You – Part 1

[Inspired and in part taken from JAS Wealth’s eBook of the same name]

(1) Do you have a budget? Do you stick to it?

It’s a simple statement which can be made using a pen and paper, an Excel worksheet, an App or anything similar you can imagine. The idea is to bring a pattern to a chaos named family budgeting. After checking out lots of tools – online and offline – we found one simple Excel sheet that you can use to maintain an account of your income and expenditure. Make a request using comment section below; we will mail that to you. Your adviser can and should work with you to develop a budget, one that suits you and your lifestyle and will set you on the right path to live the life you want now and in the future.

(2) Put your debt to work

There are different types of debt – good and bad. Your financial advisor can explain the difference and make sure that – where possible – your debt is working for you and your future. Sometimes at start of your career, when you do not have much of savings, you have to take a home loan to buy your house. But it is not as simple as that. Do you really need to buy one? If you are the only child of your parents and have a spacious house to live in; you may not need to buy a home just to satisfy your ego, or just because your friend has bought one. If you have moved to a different city for work and are planning to buy a house there – think. What if, you may again change your job and move to a different place? Is rent an option? If buying a home makes sense, then what should be the budget? If you get a higher loan amount sanctioned – does that mean that you should take a higher loan? Your financial advisor should guide you here.

(3) Assist you with a savings plan

The benefits of a good, regular savings plan cannot be stressed enough. How do you start? How much can you afford? What will your short-term, medium-term and long-term goals be? What will your savings milestones look like? As your financial coach, your adviser can help you develop a plan that will work for you and will also help you meet the goals you set together.

(4) Invest your money

Saving is one thing and without the discipline of putting something aside it won’t be possible to invest. Investing is something else – investing is making sure your money is working as hard as possible. Where to invest is difficult to know. Your adviser is qualified and has the experience to help you navigate the myriad opportunities available to give you the best options available for you.

(5) Help you realize your goals

There is a way to achieving your goals. First is to talk through and understand your goals. Next is to make a plan – the plan should be clear in showing how you are intending to reach these goals. The plan may change over time as your priorities change and goals need to adapt to changes of mind or circumstances. Your financial adviser will be able to work with you in adapting and reshaping your plan to meet these new goals. But without a plan in place reaching your goals will be much more difficult.

To be continued…

April 20, 2015
Risk – What is Important?

In its “Investment Advisers Regulation” SEBI has mentioned the following –

Investment Adviser shall ensure that, it obtains from the client, such information as is necessary for the purpose of giving advice, including Risk Appetite / Tolerance.

We are following the above guideline strictly.

But at the same time we strongly believe that there are more to it. As far as Risk Appetite / Tolerance is concerned investors are mostly classified in three broad groups – Conservative – Moderate – Aggressive. But such ‘One size fits all’ strategy rarely works. Let us consider a few case studies –

(1) When ‘Risk Profiling Questionnaire’ is given to Mr. Sumit, aged 35, employed in an IT MNC, his answers revealed that he is a conservative risk taker. He wants to avoid equity, direct or indirect, as an asset class from his portfolio. His preferred assets are fixed return products. Now when his retirement goal is being planned it is found out that to achieve the goal following scenarios are there –

Current Age – 35; Retirement Age – 60; Life Expectancy – 85; Household & Lifestyle Expenses – Rs. 30,000; Inflation – 7%;

(a) Monthly savings or SIP required is Rs. 11,023 when expected return from investments is 15%.

(b) Monthly savings or SIP required is Rs. 19,030 when expected return from investments is 12%.

(c) Monthly savings or SIP required is Rs. 26,947 when expected return from investments is 10%.

(d) Monthly savings or SIP required is Rs. 37,596 when expected return from investments is 8%.

(e) Monthly savings or SIP required is Rs. 51,594 when expected return from investments is 6%.

Now, current monthly investible surplus in Mr. Sumit’s case is Rs. 20,000. The goal is also 25 years away from now. Should we recommend him to invest only in fixed return products?

(2) When ‘Risk Profiling Questionnaire’ is given to Mr. Amit, aged 35, employed in an IT MNC, his answers revealed that he is an aggressive risk taker. He prefers to invest in equities mostly. Now when his vacation goal, which is due in next 2 years, is being planned – should we recommend him to invest in his preferred asset class i.e. equity?

The logical as well as right answer, according to us, would be a ‘No’ in both the above cases.

So in practice, recommended asset allocation does not (only) depend on someone’s Risk Tolerance Level but mostly on the following two factors –

(1) Time Horizon along with cash-flow situation – When a financial goal is long term i.e. more than 10 years away from now, and cash-flow situation does not allow investments in low yield generating instruments – one has to go for equities. If invested with caution, and review is done at regular interval – equity as an asset class is capable of beating inflation rate with a good margin.

But when a financial goal is due in short term i.e. within 5 years, recommending investment in equities is not right, though investor’s risk profile may be aggressive.

(2) Knowledge – When you spend time in understanding an investment product i.e. how it works, what could be the best and worst case scenario etc. – risk reduces considerably. There is hardly any risk when a car is driven by an experienced driver, but there is a HUGE risk when that same car is driven by a 6 year old kid who does not know anything about driving. That is why over a period of time, when your knowledge increases of a particular product – your comfort level increases, risk reduces.

What do you think? Let us know your opinion in the comment section.

March 7, 2015
Budget – How does it matter?

Just for a moment think that you have been always a prudent investor and you understood very well the power of compounding and impact of inflation on return. Now suppose you always schedule your yearly vacation during budget time. So this means you go to some place far away may be in North-East India or in Galapagos or in Timbuktu island just few days before the budget day. You do not get any internet there, no newspaper, no TV channel. And you come back almost after 7 days since annual budget is presented every year. Do you really think that your overall portfolio would get seriously suffered due this untimely(!) holiday of yours? Time proves – it would not. Chances are it would instead benefit you! As long as you save and invest regularly and your portfolio is designed to beat inflation over long term – you are safe and destined to succeed.

Budget is of utmost importance for country’s economy and for functioning of government. Yes it mentions changes in tax slabs sometime and sometime also changes in product basket that qualifies for tax exemption. It increases or reduces your post tax income. Budget also mentions that some items will get dearer and some will get cheaper. This also may increase or reduce your expenses. So the changes in tax slab alone cannot decide your cash-flow situation. So many other factors are also there. Hence it can be safely said that your overall family budgeting and discipline will finally matter. Nothing else actually.

Some of the indirect tax rules may also see changes in this budget. Some industry may get tax sops, some may have to face more tax burden. Changes in excise or customs duty may adversely or favorably impact some industries. There will be surely some knee-jerk reaction for sure and effect can be seen in stock prices of such companies in short run. But again in long run, a company’s stock price is most likely to reflect only how well a company’s management manages cash-flow, generates return on equities, creates value for shareholders. Hence if in your portfolio there is a stock which is well bought i.e. you bought an above average company at a below average price, you are safe and did a commendable job. Stay assured that such buys will always create lot of real wealth for you in long run.

So the basics remain unchanged. You can skip this budget if you are already on right path. And how the ‘right path’ looks like? See below:

1) Focus on your family budget. Along with your household and lifestyle expenses also allocate fund for leisure, entertainment, travel but stay within limit. Do not overspend.

2) Write down your financial goals. Set your targets. Look at the possible scenarios. Check your surplus. Start investing accordingly, and remain rock steady.

3) Keep emergency fund ready in liquid instruments.

4) Calculate and then take right amount of life cover.

5) Depending on the city you live, likely expenses in nearby hospitals – take right amount of health cover (popularly known as medi-claim).

6) Saving tax is definitely a good idea but not by compromising on life goals’ strategy. If some tax saving investments get fit into your recommended portfolio to achieve financial goals in time, then fine, go for it (early in the financial year) and save tax.

7) Monitor your investments and review your financial plan at regular interval.

Phew! You are almost done! So pack your bag and go for a vacation. Will see you post budget. Happy journey! 🙂

February 26, 2015