Financial Planning | Finwise

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.

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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.

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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.

To receive our articles through email, pl subscribe here.

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

Image Credit: Free To Use Sounds, Unsplash

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

Image by Gino Crescoli from Pixabay

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.

4 reasons why women must take charge of their financial planning

Prathiba Girish Financial Freedom, Financial Planning, Finwise Woman, Personal Finance, Retirement June 6, 2019June 6, 2019 0 Comment

As a woman, you may be in charge of your present. But are you in control of your future?

Taking control of your financial future is important. Take out the necessary time for it.

It is important not to confuse your current financial independence with financial freedom. By being financially independent you are able to take care of your personal expenses at present. When you are financially free you are able to maintain your desired lifestyle throughout your life-time, including your retirement. This is not going to happen automatically just because you earn an income. It requires thought and planning and is more challenging for women than it is for men. Pl read my latest article published on Moneycontrol.com.

https://www.moneycontrol.com/news/business/personal-finance/viewpoint-4-reasons-why-women-must-take-charge-of-their-financial-planning-4048041.html

Image credit: Moneycontrol.com

But I am scared of Equity!

Girish Ganaraj Financial Planning, Personal Finance May 30, 2019May 30, 2019financial planning, Goal-based investing, Investment Planning, personal finance 0 Comment

During most client financial planning conversations, the financial planning process generates a sort of awakening. For some, its like “blinkers off”, while for some others, it’s like “a huge load off my shoulders”. For some, it’s a scientific validation of their understanding of their finances, while for others, some aspects come as a rude shock. But usually for everybody, the discussions lead to a clear shared understanding of their current financial position, a discovery of what their financial future priorities are and what they need to do going forward to achieve them.

As a part of our conversations, we also transparently share the short-term volatilities that asset classes like equities have, which could lead to a capital loss of even 20-30%, even if temporary. Over the course of our discussions, most customers end up building comfort with various available asset classes, as well as the differences between them. With our help, they also get to know what (and how) they will need to invest in each asset class to achieve which goal, and get comfortable with the risk-return trade-offs of each asset class.

Rarely though, we come across some customers who are quite resistant to the idea of investing a part of their savings into equity, irrespective of how critical it is to achieve their financial goals. When we try to understand more, the following deeper truths emerge

I do not want to take any risk, I am very conservative
I just don’t understand Equity
I have no idea of how the stock market works
I am worried that I will lose all my money
I prefer to invest in something I understand – like Real Estate or Gold

To many of you, these reasons may sound familiar. So, how can these worries be addressed?

For us, these worries are opportunities for us to understand customers better so that we are able to adapt their investments to their risk appetites in the best possible way, while enabling them to meet their goals. At the same time, it is also an opportunity for customers to understand a bit more about various asset classes, especially the ones they do not know much about, confront their beliefs and overcome their fears.

Irrespective of your mental approach towards decisions, the below rationales should help you to understand and update your beliefs about the risks attached with equity.

History shows that while in the short-term, investments in equities are very volatile, in the long-term, a well-selected and adequately-diversified portfolio of equity mutual funds is very safe from a capital loss perspective. The below table illustrates this

A significant part of our own portfolio is in equities and we are usually invested in most recommendations to our customers. Our own experiences in investing in equities has been very positive. This also helps build confidence in our customers that we have skin in the game and that our interests are aligned.

Many customers who come to us have a significant % of their Net Worth in Real Estate, which hasn’t had a great run in the last decade or so. That being the case, the risk of remaining further invested in Real Estate is higher, and investing in equities not only helps them meet their goals more safely, it also reduces risk in their portfolio through diversification.

As a people, we are used to taking risks in many aspects of our life. We take those risks by managing them better, by constantly building and updating our understanding of the risks and taking appropriate corrective actions, when needed. Our approach to risks in investing needs to be similar.

Equities are an important asset class, arguably the most important from a wealth creation perspective, and much needed for all of us to meet our long-term financial goals. Avoiding Equities due to your fears of them is something that can severely impact your financial security in the future. The better thing to do would be to understand your reasons for fearing equities and seek the correct information in order to overcome them.

Image by Mediamodifier from Pixabay

Managing our fears while investing our money

Girish Ganaraj Financial Planning, Personal Finance May 22, 2019May 22, 2019Asset Allocation, fear of investing, Goal-based investing, investing 0 Comment

“Planning is bringing the future into the present so that you can do something about it now.” – Alan Lakein

While we have always lived in uncertain times (is there any other kind?), none of us actually welcome uncertainty, especially in our personal lives. As human beings, we avoid uncertainty – just evidence the popularity of daily horoscopes or the rush for numerologists and astrologers.

While we are fearful of uncertainty, we are generally good at managing it. One of the ways one can manage uncertainty is by preparing for it. One way to prepare well for uncertainty is to plan for the probable outcomes.

In many facets of our life, we manage uncertainty very well. A person catching a regular train to work keeps a buffer of a couple of minutes to reach the station to account for a sudden traffic jam. He will also have an alternate plan to reach work in time, just in case the train is missed (eg. take a cab). While this may seem a very basic example, this principle is employed everywhere by us.

Also, when we plan for uncertainty, we plan suitably keeping in mind the “risk”. We make sure that we don’t take more than an acceptable amount of risk for a given event, depending on the severity of the uncertainty and the opportunity cost of failure. We use a “margin of safety” to manage uncertainty and the higher the uncertainty or the higher the stakes (probable losses), higher is the margin of safety. The whole objective is to try and make sure that the plan doesn’t fail, except in extremely unforeseen circumstances.

Eg. in the above case, in order to catch a local train, one would be comfortable reaching the station about a few minutes before the departure time. But in case of an airplane journey, one generally reaches the airport nearly 1.5-2 hours before the journey. This is despite knowing that the check-in counter closes only 45 minutes prior to departure. In this case, we keep a higher buffer because the “cost” of a missed flight here is much higher than the cost of the missed local train.

So how is this relevant to Investing? When we invest our hard-earned money, we wish to reduce uncertainty. Hence, we seek surety in returns. We also fear the risk of capital loss, even if it temporary. So, how does one handle these fears? Let us attempt to answer this in light of what we learnt from the above quoted examples.

One lesson is to choose the appropriate asset class depending on the time-horizon of the investment. When you do that well, time is the “buffer” that ensures that “risk” (eg. market volatility) gets evened out and generates the necessary return over the long term. Going back to our example – when we have enough time on our hand to reach the airport in time, does an unforeseen traffic jam (or a punctured tire) worry us? The answer is no, because we know that this is temporary, and we have enough time to reach our destination comfortably.

Another lesson is to have a “margin of safety”. As a retail investor, not following the herd to jump in when markets are booming would ensure that “margin of safety” is not compromised. Making sure that your asset selection is in the right products and in the hands of accomplished managers also helps manage this risk fairly successfully. After all, trying to catch a flight with 30 minutes left (before counter closes) versus 5 minutes, would make your journey so much more worry-free in terms of experience, even with the unplanned traffic jams and punctured tires, wouldn’t it?

Having fears while investing your money is natural. They cannot be wished away. But they can be managed and overcome by implementing these lessons. Having a plan for your financial goals, which identifies the right asset classes and investments to meet them, can make your investing journey a far more peaceful one, despite volatilities that will be faced along the way. And having a good financial planner to hold your hand through the planning journey, while keeping in mind your needs and risk appetites, will make sure that you will enjoy your present, secure in the knowledge that your future is also in safe hands.

Image credit: Gino Crescoli, Pixabay.com

Your EPF can be your Secret Santa, provided you don’t touch it until the Christmas of your life!

Prathiba Girish Financial Planning, Personal Finance, Retirement May 1, 2019May 1, 2019EPF, financial planning, Retirement planning 0 Comment

For most of us, our mid-40s seem to be a very hectic life-stage. We frequently imagine our retirement being made up of long holidays with no emails to check and phones to answer, and we hope to start a peaceful retired life someday soon. Unfortunately, these day-dreams end as soon as they start, rudely interrupted by kids, work or something else “urgent”.

Wanting to retire in peace with no liabilities and financial stress is something that everyone aspires for, and rightfully so. After a life-time of hard work, this is something we are entitled to, aren’t we? That said, this peace of mind is not something that comes automatically, and needs to be worked towards, with discipline.

One investment which is the biggest contributor to a salaried person’s peaceful retirement is his or her EPF (Employees Provident Fund). It is therefore extremely important to give it a little attention and time.

When we make a financial plan, a few clients who don’t attach much importance to retirals are pleasantly surprised when they see the amount accumulated. If EPF is left untouched and promptly transferred every time one shifts jobs, it can truly bring a lot of relief when most needed.

Sadly, we see many clients in their mid-forties who have a low accrual in EPF. Ironically, the reason is they are knowledgeable and relatively personal finance savvy! They recognise that there is much to savings beyond Sec 80C and with the kind of time-frame available for retirement, they would be better off investing the amount elsewhere and making far higher returns than that on offer with EPF.

While all of this is true, what most of them fail to recognise is once you withdraw the amount it is needs to be earmarked for retirement with discipline. When you have investments, which are visible and are tracked on a regular basis, you will be surprised at the numerous expenses which suddenly crop up and seem “urgent and unavoidable”. The result is – the EPF amount that is withdrawn and carefully invested while changing jobs, is dipped into to meet this “now important” short-term expense, leaving a big void in your retirement pot.

This might sound unreal, but I am yet to meet a client who has withdrawn the EPF and re-invested it with retirement in mind, but has let it remain there till retirement. Do give this aspect a serious thought before you choose to withdraw it for “better investment opportunities”.

We also come across people who have shifted multiple jobs but have not shifted their EPF from previous employer to the current one. The thought process is, it is earning interest, and it is safe, there is no hurry to transfer, lets do it when time permits. Unfortunately, it becomes another item on the to-do-later list and ends up remaining there.

The process of transferring EPF is now online and simple and consumes very little time. In the minds of most people though, this is a complicated procedure requiring multiple visits, paper work and constant follow up. Once you realise this, it may motivate you to action this immediately.

The more pressing reason for you to do so is that if you stop making fresh contributions to your EPF the interest paid on the amount accumulated is taxable. This is a big downer and should be incentive enough to transfer it on time.

Remember you could be working for the same employer but may have had multiple internal transfers within group companies, these need to be treated as job changes and you need to ensure that the EPF has been transferred. I have seen people quit after 15 years with one group and then realise that EPF accumulation does not go back to their date of joining the group, due to multiple intra-group transfers. Getting these transfers done when you are not part of the system and do not have access to the right people can be frustrating and time consuming.

It is very easy to download an EPF passbook online, I have given the link here on how to – https://www.cleartax.in/s/pf-balance-check. I strongly suggest that you do this at least once a year and ensure that all transfers are done. You will reap rich dividends for the time and effort put in tracking and ensuring your retirals are not idling away. If any of you have had interesting experiences with EPF do share them for the benefit of everyone in the comments below.