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Many a times, the battle is lost for the want of a horseshoe!

Prathiba Girish Financial Freedom, Financial Planning, Personal Finance September 19, 2019September 19, 2019fee-based advice, financial independence, financial planning 0 Comment

For the want of a nail the shoe was lost,

For the want of a shoe the horse was lost,

For the want of a horse the rider was lost,

For the want of a rider the battle was lost,

For the want of a battle the kingdom was lost,

And all for the want of a horseshoe-nail.”

― Benjamin Franklin

It may not sound nice to the ear, but as Indians, we are, in general, poor at DIY (Do It Yourself). As such, we are not brought up in a DIY culture and this perpetuates. Even now, we are used to having help at home for the smallest of things, and as a result, an average middle-class Indian is hugely lacking in basic life-skills as compared to his counterparts in most developed economies.

To make things worse, we place a premium on DIY when it comes to knowledge-skills. It could be that it gives bragging rights that you could manage something by yourself, when many others found the need to engage with a professional to get ahead.

For example, we resort to self-medication because the symptoms seem “similar to what she had” or worse, we googled it up. Similarly, planning and managing your personal finances often is a DIY activity. While this may work at times, what many people don’t see is the many risks that one may encounter due to this.

In the hundreds of interactions with numerous customers over the past few years in my financial planning practice, I have seen many such mistakes committed. I have tried to list a few commonly encountered ones to help you avoid the DIY trap.

Investing too little

This is something we see often. There is a lot of media noise around mutual funds, and listening to the ‘mutual fund sahi hai’ campaign on a constant basis, people feel the need to be a part of the success story. They decide that setting aside some money is required and start with some small amount. A person whose monthly expenditure is Rs 1 lakh starts saving Rs 10000 per month in MFs and is very happy that he is putting something away for the future. For a low-income family, whose monthly expenses are Rs 25000, being able to save Rs 10000 per month consistently truly deserves a pat on the back, since the family is saving a substantial part of their income and may well on its way to financial freedom. But in the above example the Rs 10000 investment in mutual funds is not going to help you save anything substantial and is a mere tick-mark activity which lulls you into believing you are saving, thereby allowing you to indulge guilt free.

Not assigning any goals

In almost all cases when money is invested there is never a purpose to it. When you invest without a purpose it is mentally extremely easy to redeem. The next iPhone upgrade or the long-dreamt-of trip to New Zealand seems like an emergency, when you have sufficient money invested. Imagine if the savings were given a name, say Child Higher Education Fund. What are the chances that you would withdraw from it, to fund your trip to New Zealand?

Trying to time the market

When you are sitting on the fence, it never seems like the right time to start investing. One month you are worried that the markets are creating new highs every day, second month you are worried that the political situation may spell dooms day to your investments and the third month you are worried about recession. If you are investing with a horizon of 7 to 10 years what happens in this month or the next is not going to have much of an impact on the outcome. What is important is to get off the fence and get into the field of play.

Investing in schemes based purely on recent performance

Most investments are based on past performance, and even star ratings of Mutual Funds are largely based on past performance. One should keep in mind the recent performance has a huge bearing on the 1-year, 3-year and even 5-year returns. It is also important to understand the reasons for the outperformance or underperformance before deciding. Make sure that your investment advisor has a proper framework for selection is important.

Discontinuing investments during down times

Markets are by nature turbulent, and you are going to have to accept your share of this, if you are in for the long haul. It is important to have conviction in your choices and stay put. However, there is a lot of noise in the media and Whatsapp forwards from well-meaning friends proclaiming that doomsday is around the corner. The immediate instinct in such situations is to stop any further investments. However, that would be a very bad strategy since you are getting an opportunity to accumulate at lower prices. Unfortunately, this awakening will come in hindsight.

Not bothering to understand tax implication

Many a times we see people have invested without understanding the tax implications. Just because the dividend which is given to you is tax free does not mean there is no tax applicable on it. It is paid out after tax is paid by the AMC. There have been cases were people have invested in dividend pay-out option for years when they had no use for the dividend and had no clue what they did with dividends. They would have been better of in growth option where the capital would have appreciated substantially given the long tenure of investment. In other cases, we have seen people in 10% slab investing in dividend option of Debt fund where the tax is much higher. Investing in NPS without checking the taxability on exit. Buying ULIPs purely for the taxability. The list is very long and exhaustive but I guess the point is made.

Have a laundry list of investments in the name of diversification

The intention is right, one should not put all eggs in one basket. However, having 25 schemes in the name of diversification is no good. Further there is no thought given to overlap. It would be a good idea to start investing only after you clearly decide how much goes into debt, equity and other assets. Within equity you need to decide percentage allocation to MF, stock, PMS etc and have optimum stocks /schemes and not go over-board with it.

Taking your RM at face value

For many clients, the trust they have on the RM is a transfer of the trust they have in the Bank. They truly believe that products suggested by him/her is totally in their interest. I wish this were true, but its not! We encounter customers who have been sold the wrong products – eg. bad performers, high lock-in products with little or no exit options, complete laggards, etc. so often. Remember, there is no free lunch, if someone is giving you a “free” recommendation in your interest, it may make sense to understand how he is compensated for his time and effort.

Herd Mentality

Last but not the least is following the crowd. The crowd is always excited when markets are touching new highs every day. They don’t want to be left behind and hence jump in when markets have already gone up. However as soon as they see some down side they want to jump the boat. Where-as caution is in order when markets are going up and one should invest more if possible when markets are going down. However, to do this you require conviction and belief.

As the title says, it makes little sense to learn by making mistakes with your own money rather than engaging with a professional at a fraction of that sum. They could guide you to take better decisions and keep you safe from your impulses.

After all, Benjamin Graham did say ‘The investor’s chief problem – and even his worst enemy – is likely to be himself.” Think about it!

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Image by Steve Buissinne from Pixabay

“No Pain, No Gain” is as true for your finances as it is for your fitness!

Prathiba Girish Financial Freedom, Financial Planning, Personal Finance September 12, 2019September 12, 2019financial independence, fitness and money, personal financial planning 0 Comment

The year seems to have flown by quickly, with less than 4 months left for it to end. As I look back at the things I planned to achieve, one stands out – getting fit! This has been on the list for nearly a decade and this year, I finally managed to get somewhere close. This journey of mine towards fitness, has many parallels with people trying to get financially independent and this has helped me understand and empathize with customers better, by looking at the need for financial planning, being in their shoes.

Phase 1 – It’s a breeze, I can do it myself. I don’t need a trainer

When I decided I wanted to get fit, I thought it would be a breeze, and now that I had decided, all I had to do was do a bit of exercise and eat smart. I could not understand why people engaged with a nutritionist and trainer. What a waste of money and time, to do something as basic as getting in shape, I thought.

Armed with the newfound motivation to get fit, I did a bit of walking, changed my eating habits very slightly and looked at the weighing machine with hope every few days. It just refused to move. This whole phase lasted a few years. There was no consistency in my effort, and though the intent to do it right was very much present, it always kept getting pushed to “tomorrow”, which obviously never came.

I see many parallels to this in the journey of people trying to achieve financial independence. Many of them start out saying this is common sense, just save every month and very soon you will have a good corpus. The amount they save has no correlation to the goal they are trying to achieve. The investments are dipped into at the slightest of provocations. The newly launched phone, a lavish birthday planned, are all legitimate reasons to put the savings on hold.

I often tell people – don’t kid yourself by starting an SIP for a miniscule amount, its only a tick mark activity, and unlikely to ever take you anywhere on your path to financial freedom.

Phase 2 – I need a bit of motivation and help, nothing personalised, let me join a group

It took me a few years to wake up to the fact that my walking and working out on an irregular basis was not going to deliver at all and I did need some help. I decided to be smart and achieve the target by joining a running group. It was of course better than phase 1, and since I had paid up, I did manage to train 3 times a week and made some fabulous friends. It was also a good point of discussion in many social gatherings on how I trained for marathons. Yes, I did manage to do a few marathons. Neither did my timing improve nor did I lose any weight or inches. I can now honestly say that I was nowhere near my definition of fitness.

Again, in their financial independence journey, I see that most DIY people at some stage, sufficiently alarmed by the years passing by and the savings pot not growing in tandem, move to seeking advice from some form of website or robo-advisor or even “tips from knowledgeable friends” where they get advice instantly on where to invest and how much. There is a sense of achievement on being more systematic with investments. There again, they may end up saving more than they did previously but are they really taking their entire unique situation into consideration and moving comfortably towards their financial independence, is something they need to ponder on.

Phase 3 – I need proper personalised guidance to help me get on track and stay there, let me engage with a professional

I finally realised that if I seriously wanted to get fit, I would need to engage with a professional who knew his job and so, I enrolled with a personal trainer. I now realised the difference between what I was doing in the name of exercise and what it really meant to exercise. I was consistent and trained 3 days a week without fail. I started to lose inches and feel more energetic. The weight wouldn’t budge. I realised that I would not only need to exercise but also ensure that my nutrition was right if I were to get anywhere close to being future-fit from a health point of view. I then visited a naturopath to get rid of some of my niggling health issues. My stated objective was to get rid of allergies, my secret hope was to lose weight. Major lifestyle changes were suggested by her, give up on sugar, no processed food and a lot of other changes. I followed advice strictly. The initial few weeks were very difficult. Despite giving up my favourite food, there was no improvement. It took few months for the changes to be seen. And a few more for people to comment on it.

A journey towards financial security and independence is similar, your situation, goals and aspirations are unique and hence advice that is personalized keeping those in mind will hold you in good stead. Similar to the above story, just concentrating on one thing, investments, is not going to be sufficient to get you to your destination. Apart from investments, you would also need to look at your spending and income. Like with my weight, you may secretly aspire for a certain return. You may peg it to the best return you have got over a life-time and evaluate your investments against your benchmark. Your planner will not even be aware of what you are anchoring your expectation to.

Financial planning requires you to see much beyond returns and wait patiently without losing faith during turbulent times. At least in the above case of my health, results started showing in a few months post engaging the right professionals. In case of your finances, it may take a few years for you to see meaningful results. In the interim there is only pain, since you will need to cut down on unnecessary expenses, ensure you invest smartly and stick to it even when you see you are getting unsatisfactory, maybe even negative returns.

Again, unlike the fitness story, there is no before- and after- picture to flaunt, all you will have is peace of mind that you are well prepared for your future. No one is going to compliment you on your financial health, unlike your weight. What you will see though, is that you are inching closer to your life’s goals, sometimes because of your returns and sometimes despite your returns. Either ways, having someone who has your back through the journey and motivates you to stay the course and steer you clear of some impulsive emotional actions can be invaluable!

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

To receive our articles through email, pl subscribe here.

For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Image by 5132824 from Pixabay

Why women must constantly reskill to deal with life’s googlies

Prathiba Girish Financial Freedom, Financial Planning, Finwise Woman, Personal Finance August 23, 2019August 23, 2019 0 Comment

If you are wondering what reskilling and upskilling has got to do with personal finance, think again. The best investment you can make is on yourself. Today it does not matter where you are – you could have achieved a fair bit of success in your career, you could be just starting out or you might be qualified, yet a housewife by choice.

We are a part of times which are changing rapidly, driven by technology, life-styles and generational leaps. While you could be secure currently, given this pace of change enveloping us, it is important to stop every once in a while, to gauge how you measure up to the changed circumstances.

While some of what I say is gender-agnostic, it is particularly pertinent to women, whose work-lives are characterized by self or externally imposed breaks, societal pressures and who don’t necessarily play as significant a role in family financial decisions, thereby being more “not-in-control” and vulnerable to these forces of change.

Our latest article (link given below), published in Moneycontrol, highlights the risks that women run by not upgrading their skillsets periodically, thereby not being adequately prepared to face life’s challenges.

https://www.moneycontrol.com/news/business/personal-finance/why-women-must-constantly-reskill-to-deal-with-lifes-googlies-4362771.html

Image credit: Moneycontrol

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

To receive our articles through email, pl subscribe here.

For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

My Equity Portfolio is down 20%! Have I made a mistake? What should I do now?

Girish Ganaraj Equity Investing, Financial Freedom, Personal Finance August 14, 2019August 13, 2019Equity investing, financial freedom, financial planning, Goal-based investing 0 Comment

The last 18 months have not been kind to investors in the stock markets. Depending on which period you are looking at, there have been severe corrections, across all market-caps. When mid and small-cap indices fell severely from their Jan 2018 highs, large-cap indices still held on and posted marginal gains. But post the budget presented in July 2019, they too have thrown in the towel.

So, how badly has equities done, and how much has it actually impacted investors? To put things in perspective, a diversified multi-cap index portfolio has fallen approximately 12%, both from the market peak in January 2018 (approx. 18 months back) as well as from the recovery peak in August 2018 (approx. 12 months back). The below table gives the details.

Of course, this varies across market capitalizations, with large-caps still managing to hold on, losing only between 4-9%, mid-caps dropping 18-22% and small-caps plummeting as much as 28-40%.

So, in such a situation, what should one do? Is the market likely to drop further, and if yes, should one exit one’s portfolios? Are equities not the right asset class to invest now?

There are enough and more market news and views answering the above questions, with necessarily no improvement in clarity post reading them. I do not intend to add more to this confusion by also pitching in. Rather, in my view, the best thing to do in such situations is to go back to the “wise men” and learn from them on how to handle such situations. So, let’s see what five such wise men have to say.

You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you are not ready, you won’t do well in the markets – Peter Lynch

The first lesson is about having the right attitude to invest in equity. Be prepared to travel the roller-coaster ride that it will take in the short term and to be unpleasantly surprised despite precautions. Building the temperament needed to invest in the stock markets takes time, so invest only what you can bear and slowly increase it over time as you get comfortable.

The stock market is filled with individuals who know the price of everything but the value of nothing – Benjamin Graham

Markets gyrate excessively, basis the laws of demand and supply, which in turn are driven by sentiment, fueled by a continuous dose of “news”. If you have the temperament and the knowledge, volatility can be an opportunity. That said, timing the market is tough and not advised and for the average retail investor, these are the times when your SIPs and STPs MUST continue, and if possible, topped-up, to take advantage of rupee-cost averaging.

Only when the tide goes out do you discover who has been swimming naked – Warren Buffett

When markets take a dive, the natural response from a retail investor, even some of the experienced ones, is to sell the stocks (or funds) that are holding on while retaining the stocks that have crashed, since they want to “wait for it come back up”.

It is pertinent though to remember that in good markets, even the mediocre performers get “swept up by the tide”. It is when markets go down that these average performers get called out. Also remember, every growth cycle has a different set of dominant contributors. So, use downturns to get rid of your not-so-good stocks while retaining the ones that are still good, thereby building a future-ready portfolio. While the urge to wait for markets to come back up is high, remember, that the good stocks by then would have run up even more.

It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent – Charlie Munger

Building a good, long-term, high-quality portfolio takes time and requires pain-staking effort. Make sure you are taking advice from a qualified investment advisor, whose interests are aligned to yours. But once done, sit back and enjoy the view. The key to benefiting from good equity investments is allowing them time to grow and compound. So, stay the course, and don’t take recourse to stupidity, such as exiting perfectly good portfolios just because the prices are down.

If you don’t know who you are, the stock market is an expensive place to find out – George J W Goodman

Lastly, investing in equity without having sight of what you are hoping to achieve, and over what time-frame, is fraught with risk. The danger is that since you do not know either, you will tend to over-track and get impacted by short-term volatility and performance. Anchor your investments to a goal, and you will suddenly see the big picture, and will not get swayed by what happens during the journey. A good financial planner will help you identify the right investments for your goals and will also help you course-correct over time, and ensure that your portfolio is always future-prepared, thereby allowing you to have peace-of-mind and enjoy the present.

In summary, use the below 5 inferences as guard-rails to both smoothen as well as make safe your equity investing ride.

1. Build the temperament to invest in equity, by gradually increasing your investments

2. Volatility is good. Ride it out, and if anything, use it in your favour through your SIPs

3. Use downturns to clean up your portfolio and make it future-prepared

4. Once you have a future-ready portfolio, stay the course, and avoid short-term decisions

5. Finally, know why you are investing. Anchor your investments to your goals

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

To receive our articles through email, pl subscribe here.

For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Image by Mediamodifier from Pixabay

Empower the women who are also key contributors in your success through these 5 steps!

Prathiba Girish Financial Planning, Financial Planning for the Under-privileged, Finwise Woman, Government Savings Schemes, Personal Finance July 31, 2019July 31, 2019Financial Planning for the Under-privileged, finwise woman 0 Comment

When Chuck Noll said “Every job is important, but no one is indispensable”, he certainly hadn’t kept the Indian working woman in mind! For us working women, one person who is indispensable and brings an immediate sigh of relief and a genuine smile to the face when she arrives, is the house-help. Our lives get complicated when she is on a long leave and turmoil in her life cascades to chaos in our planned hi-speed schedules, to overcome which needs a lot of “jugaad”. Retaining her and ensuring that things are smooth-sailing is non-negotiable for us. Whatever the reason to do so, our latest article published in Moneycontrol.com (link shared below) gives you five simple ways to add a lot of value to the financial condition of these indispensable women, at literally no cost.

https://www.moneycontrol.com/news/business/personal-finance/five-steps-to-ensure-your-domestic-help-becomes-moneywise-4249451.html

More details on their eligible government schemes are easily available online and are also on our website www.finwise.in. Apart from government schemes they could also invest in Mutual funds which are available to everyone. However, given their tendencies to trust people unconditionally, it is important that they have access to advice which is genuine and do not take undue risks with their money. You could approach your financial planner to help with these. A word of caution though, when you recommend someone, the trust they have with you gets automatically transferred to the person you refer them to, hence be sure you send them to someone who will give appropriate and genuine advice. They would otherwise be better off with government schemes that have guarantees.

From our point of view, life might seem unimaginably difficult for this segment of people, making us wonder how they would be able to save, when making ends meet itself is a problem. But believe me, they are resilient and are able to manage temporarily even when they suddenly lose one of their many jobs. Taking some of the above actions will help your own “CAT (Cook/Ayah/Top-help) Commandos” secure their financial futures, while they help you effortlessly manage your present.

Image credit: Moneycontrol

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence.

To receive our articles through email, pl subscribe here.

For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

2 issues NRIs need to address on priority in their personal financial matters

Prathiba Girish Financial Planning, International Investing, NRI, Personal Finance July 24, 2019July 24, 2019financial planning for NRIs, NRI Investing, Personal finance for NRIs 0 Comment

The numerous interactions that we have had with NRI customers over the last few years, has only reiterated to us that the challenges they face related to Financial Planning are, in many ways, unique. Dealing with two different currencies, two different set of tax rules, assets in two or more geographies with their own estate planning laws, restrictions on certain investments in India, opportunities to avail of special products, all this makes it clear that the challenges for NRIs are different and much more complex as compared to resident Indians. We have written earlier about these matters and you can find the article here.

In this article, let’s look at 2 specific issues a bit more in detail.

Affinity towards real estate and reluctance to sell

Most NRI customers we have engaged with have substantial assets in India and as is the case with most residents as well, their assets are invariably real estate heavy. One house is a given, and many of them do have multiple houses.

So, why is this an issue? Most NRIs who avail of financial planning in India are clear that they will return here. However, rarely do any of them have clarity on when that might be, and it is usually “many years later”.

While the original reason for having acquired a house may have been appreciation or perception as a safe asset, their reasons to hold on to them, are however not the same. In many cases the plan is to settle in their own house once they return to India. For them, it is comforting to have a house in their “home country”, where there is no ambiguity in taxation or right to title etc. It is an emotional bond that they retain, almost like their ultimate safety net. But in such situations, rarely do things actually work out the way they have planned.

Most NRIs are used to much better lifestyles once they move out of India, since thanks to the surplus earnings available, their lifestyles get upped automatically. Having done this for years, how feasible is it for them to get back to a house purchased many many years back? Their preferences are likely to have changed, given their experiences outside the country. Is the size of the house going to be sufficient? what about the locality? Are there some amenities which have now become non-negotiable, but may not be available if one were to stay in the house currently purchased? These are some questions worth pondering over.

If the reasons for retaining the real estate is not to occupy it sometime in the future, one will have to periodically evaluate if real estate as an asset class is giving you the expected returns and is sufficiently liquid. With time, the value of the house as well as condition of the house/society/locality can erode considerably. For someone who is going to be away from the country for many years, it might also be unrealistic to be able keep track of these aspects, since valuations of real estate are also very subjective. In such situations, monetizing the current house and investing the money in assets which is best suited as per goals will allow one to accumulate a sizable corpus. This will be available to invest in a house as per needs on return.

Lack of access to professional advice

This is true of a huge majority of NRIs we interact with. Their access to advice, especially on Indian investments, is limited to their bank RM, and maybe some insurance salespeople. As a result, their portfolios are filled with insurance policies and ULIPs which makes limited sense compared to their financial goals, considering that these products lock in money for long periods, give below par returns and play havoc on their cashflows, not allowing them to invest in more suitable and better performing products. To add to it, on every visit to India a new ULIP or endowment policy is sold to them with some very imaginative story.

Another reason why this happens is because the NRI customer is happy that the bank RM has “helped” them with their foreign currency requirements, and therefore feels obliged to purchase a policy which gets pitched to them as an after-thought. It is one of the oldest sales-tricks in the book and is important for NRIs to not fall prey to it.

Good financial advice which takes your goals, your unique challenges as an NRI into account and incorporates various future scenarios, is available to you in India. There will be a fee attached to it but it will be worth it, since it will help you tie up your entire finances together. Of course, one will require a planner and tax person in country of current residence too.

This will not only ensure that one has a plan which is totally customized to one’s situation, it will steer you clear of wrong choices currently being offered to you for wealth building. The peace of mind which you get, when somebody also ensures you action all the small and currently inconsequential but need-to-do list of financial items like estate planning, closure of resident accounts, health insurance, EPF transfer, timely filing of tax returns and refunds, etc., are added bonuses.

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

To receive our articles through email, pl subscribe here.

For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Image credit: Mantas Hesthaven, Unsplash

Millennials – 7 mistakes to avoid in your wealth creation journey

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance July 4, 2019July 25, 2019financial independence, financial mistakes, financial planning, financial security 0 Comment

For people in their middle-years, what would have been their biggest or deepest aspiration during their early working years? If I were to hazard a guess, I would think that for most people it would be “being wealthy”. The reasons for wanting to become wealthy may vary, since every person’s needs and wants are different, but it would be fair to say that for most people, their significant aspirations in life would be around money and what they could do with it.

A lot of young people think that wealth creation is something that requires tremendous smarts. That it requires access to knowledge not easily available to most, as well as huge skills that help apply the knowledge and convert it successfully into wealth. And that it requires some “big ideas” that will help one break out of the rat-pack. It may gladden you to know that not having access to all of the above can still make you wealthy.

Actually, the fail-safe way to having enough wealth to take care of all your (including your family’s) aspirations for your entire lifetime is in not doing a few basic things in life wrong, and in case you already have, correcting them as soon as you can. So, let me put down 7 mistakes that you should not make in order to build adequate wealth in your lifetime.

Not having a check on your discretionary spending

For most young people, the first few years earnings are spent fulfilling their pent-up aspirations, without necessarily caring about keeping something aside. While some of it is understandable, the danger is if it continues without a check. The first principle of building wealth is to save first and then spend. So, keep aside something as soon as you start earning, and then spend on your material needs.

Over-leveraging yourself early in life to buy “assets”

Another thing many people do early in life is take “big decisions”, the most common of which is buying a house. The power of money compounding over long periods of time is magical and early savings can multiply manifold if invested effectively. Unfortunately, these savings instead get locked into EMIs for repaying loans that leave a young earner barely any space to save or invest for most of his early years. In an “uberized” world, having a home as a personal asset is no longer a necessity. And even if it is, you should consider it much later, when it is a smaller part of a diversified portfolio.

Upgrading ever so often to “keep up with the Joneses”

Nearly every device that comes into the house (or driveway) turns old, if not obsolete, in a couple of years. And getting into a constant upgrade cycle, whether it is your mobile phone, cars, smart TV or household appliance, can be quite draining on your finances. It is important to have aspirations and fulfil them, but just make sure that you aren’t doing to it to “keep up” and importantly, that your finances can afford it.

Investing based on “tips from friends” or even worse, your “private banking RM”

This is the easiest way to lose money, and at an early stage in life, can form experiences which impact decisions throughout your life. A basic principle behind taking investment advice is making sure that the person who gives the advice has incentives that are aligned to your needs. If you lack the discipline (most fall in this category), find an adviser who you can trust, and who represents you, not the products on offer.

Confusing investments with tax-planning

For many young people, investing equals tax planning. And hence their quest for investments begins in tax season. And in the hurry, wrong decisions are taken basis faulty advice. Remember, the tax you pay is a miniscule part of the overall wealth you have today and in the future, and hence basing your investment decisions on your tax needs is plain wrong. A good adviser will also help you take care of your tax-related investments.

Not having goals and time horizons for your investments

An investment by itself is incomplete, if it doesn’t have a goal. And depending on the nature or priority of the goal and it’s time horizon, the savings need to be channelized into the right investment. Not having goals in place means that your investments don’t have direction and hence decisions regarding them will get made ad-hoc, basis the vagaries of the market. So, while you deploy your savings into investments, make sure you have a goal in mind, and the investment is appropriate to the goal, basis its time-horizon and your risk appetite.

Not planning adequately for the unexpected

Lastly, while the going is good, not making the above mistakes can put you on the right path to financial security. But over a lifetime of a few decades, there will be a few mishaps. Making sure that you have the resilience (both financial and otherwise) to overcome them will mean the difference between being wealthy and not, at the end of it. Hence, make sure that the unexpected is not unplanned. Take care of not only your insurances (life, health, assets) and contingencies, make sure you are nurturing your biggest source of wealth – your skills, by upskilling yourself periodically, and in time.

So, as I said before, building wealth over a lifetime, is more about not making big mistakes, rather than about getting everything right. For those who are already on the path, use the above rules to review your financial health and for those who are just setting out, make these your cornerstones for your wealth creation journey. As Charlie Munger said, “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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Dear Woman, write a Will to ensure your wealth doesn’t go to undeserving hands

Prathiba Girish Estate Planning, Financial Freedom, Financial Planning, Finwise Woman, Personal Finance, Retirement June 28, 2019June 28, 2019Estate Planning, Financial planning and women, finwise woman, Making a Will 0 Comment

Having a will is a must for easy and fair distribution of your wealth as per your desires. After all, it would be a shame that a lifetime of effort towards wealth creation for your loved ones, to meet their aspirations and goals, gets derailed in case of an unfortunate death intestate.

Read more in the below link about how a will can help you protect your wealth, in our latest article, published in our monthly column on Moneycontrol.com.

https://www.moneycontrol.com/news/business/personal-finance/viewpoint-dear-woman-write-a-will-to-ensure-your-wealth-doesnt-go-to-undeserving-hands-4147641.html

Image credit: mastersenaiper, Pixabay.com

Mirror, Mirror, On the wall, Which is the biggest risk of them all?

Girish Ganaraj Financial Freedom, Financial Planning, International Investing, Personal Finance, Retirement June 19, 2019June 19, 2019 0 Comment

“If the highest aim of a captain were to preserve his ship, he would keep it in port forever” – Thomas Aquinas

With the market indices at all-time highs (the Sensex touched 40000 and the Nifty touched 12000 on 23^rd May 2019, post the election results), it will be pertinent to congratulate those retail investors who have benefited from it. They have benefited because they have stayed invested through the bad year that 2018 was, and therefore benefited from this run up in 2019.

Such investors are in a minority today. Most investors either have never considered equity due to fear and lack of awareness or keep their investment to the minimum because they do not want to take the “risk”. By staying away from equities, they avoid a “risky” investment and invest their hard-earned money into other “safe” investments – bank fixed deposits, corporate bonds, gold, real estate.

But, is this really less risky? What investors fear in equity is the volatility that is associated with it. By investing in less-risky avenues, one is avoiding this volatility. When one looks at risk in this way, defined as “volatility”, then yes, equities are riskier.

But, as an investor, the actual risk that you should be worried about is not achieving your financial goals. After all, of what use is the avoidance of volatility risk in the short term, if one is unable to meet one’s financial requirements in the long term?

If you are investing a sum of money without a particular goal and time-frame in mind, then you are making 2 mistakes with your money.

One, you are not setting any expectation from your investment and therefore cannot review its performance over the right periodicity, and take appropriate course corrections.
Two, you will unnecessarily track the movement of your investment frequently and get impacted by the volatility, and since you don’t have a goal or a target in mind, you will move to take hasty short-term decisions with that investment, maybe at a loss.

To understand this better, let us look at two commonly occurring scenarios

A invested Rs 500000 in shares on the advice of his good friend at work, who traded frequently and hence was “knowledgeable”. His friend said that markets are doing very well and if he invests now, he can get a good return in a short time. Instead, 4 months after he invested, the market saw a steep correction and A saw his capital come down to Rs 400000. Not wanting to lose further, A sold the shares at a loss, in 6 months.

B bought a second house in an upcoming suburb and took a home loan of Rs 80 lakh for this purpose. He bought this house because the suburb was slated to be close to the new airport and as per everybody he talked to, the area was slated to explode in a few years. Unfortunately, the house took 3 more years than planned to get possession, and the location still hasn’t developed to that extent, and hence isn’t yielding a decent rental. B still has nearly another 10 years to repay of the loan, and the outstanding loan is more than Rs 60 lakhs.

Do these sound familiar? So, what went wrong? In both these cases, the investment was neither planned, nor reviewed, with an underlying purpose. And hence, while the vehicles (shares, house in suburbs) themselves may not have been poor investments, wrong actions were taken (sell shares early, hold on to the property too long).

The first step in investing is to identify what is the goal one is investing for, and what is the time horizon that one is investing for this financial goal.

Once one has identified the goal and the time horizon, then the logical next step is to identify the correct asset class (or mix of asset classes) that one should invest in, in order to achieve the financial goal in the most efficient manner.

This should, of course, be done while keeping in mind one’s risk appetite, but years of investing as well as observing investors, leads me to say that risk appetite is not something that is static – this evolves over time, through one’s experiences as well as knowledge.

Once one looks at the investing process in this fashion, volatility as a risk is something that gets taken accounted for while taking the investing decisions. And hence is not something that as an investor should worry you, since you have planned for it.

In order to achieve one’s financial goals, it is important that your investments not only grow at the right pace, to create adequate wealth to meet your goals, they should also be in the right asset classes so that you have the money when you need it.

By investing in so-called “less-risky” avenues, one is putting a sort of ceiling on the returns one can earn, by sacrificing them at the altar of short-term volatility. In addition, one is actually exposed to both liquidity as well as inflation risks.

By not taking “risks”, one ends up encountering the biggest risk of them all – not having enough money when one needs it, and in the right form so that one can access it easily without any trouble.

So, do yourself a favor and look in the mirror and ask yourself this – do you know what goals your investments are helping build wealth towards? And how many of your investments are actually helping you create wealth that is both, beating inflation and helping you meet your goals?

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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Do you know your “Finish Line”?

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance, Retirement June 13, 2019June 12, 2019financial freedom, financial independence, financial planning, Retirement planning 0 Comment

Over the last few weeks, Std X and Std XII results across various boards have been announced. As usual students all over have done very well, with many students scoring a full 100% as well, and 95-96% almost seeming like an underperformance!

At the risk of sounding a bit geriatric, it seems to me that while our times were reasonably high-scoring too (if am not wrong, my school topper in Std X got around 88-89%, and I was very happy to be in the same decile), in this generation, this scoring business has gone a bit too far. I would like to think that, beyond a certain point, how much you score doesn’t actually determine success in later life, and vice-versa. Also, this extreme focus on scoring in academics in the early years takes away from valuable life-skills and competencies that should be learnt or built, that, I can say, from experience, are likely to hold our children in greater stead in the later years.

But as is said, life is a race, and you have to run it, like it or not. It’s just that no one tells you what kind of race it is! And hence, despite our best efforts both during education and work, we aren’t adequately prepared for it!

Life in school and junior college seems like a 100-meters sprint, with everyone (well, it seems like nearly everyone nowadays!) scoring in the top few percentages (just like in a 100 mts race, where every finisher is within a few milli-seconds of each other).

And hence when we reach “real life”, ie. higher and post-education years, we are still prepared for a sprint and we get a rude shock when it starts resembling something completely different!

My take on this is that Life is actually a special kind of long-distance race because of the following two reasons.

One, like a steeple-chase, there are some reasonably-heighted thresholds that one needs to get past. Beyond a point, how high you jump doesn’t matter, as long as you cross the thresholds.

These thresholds are personal performance as well as personal skills related, ie. making sure that you do reasonably well in your education and initial corporate life, including learning the necessary life-skills. Eg. good performance in your major exams, landing a good job, getting the right breaks at work, building the right professional skill-sets, etc.

Like in a race, success is about making sure that one doesn’t trip on these thresholds. Else, the race in future can have various handicaps.

Two, like in a long-distance race, while all are running, each is running at a different pace, and after a time not running together at all. The race also has a bit of trail thrown in, where one can get lost for a while, in search of directions! Importantly, after a point, each one is running his or her own race, trying to do as best as possible.

Like all races, this one too is a success only if you finish it. The unique thing about this race is that one can determine where is the “finish line” and plan for it. In a way, everyone has his or her own finish line, which they have the freedom of deciding, and which then, they have to reach.

Reaching your finish line successfully means that you have gained financial independence and have the freedom to retire, to do what you love with your time, to follow your passions.

The key to winning your own race is to identify your finish line well in time, having a plan to run this race well, including for any unplanned detours on the trail, and reaching your finish line in good shape, feeling happy that you could actually run a couple of miles more!

So, do you know your finish line? What and where is it? If you do, then do you have a plan to reach it in good shape? And if you still have a good bit of the race to go, are you prepared for the thresholds that will come your way?

Photo by Jenny Hill on Unsplash.com

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.