Skip to main content

Instruction Manual for Investing

Let’s open the manual:

 

Every gadget you buy in the market comes with an instruction manual or user’s manual. But your salary, savings...retirement don’t come with an instruction manual.  So we don’t know how to handle these and we end up mishandling. The result is poor investment choices and unhappy retirement. This article is an effort to draft an instruction manual for our investments.

 

Investment forms an integral part of our work life, with many wanting to save and invest to meet our long-term financial needs. We would all agree that just living from paycheque to pay cheque would leave us in a bad financial state making us incapable of meeting our family’s financial commitments and our expenses after retirement.

 

Don’t Fly Blind; Have a Financial Plan

 

It is vital to chalk out a financial plan at the very beginning of our career. This plan would tell us how much we should save and invest. This plan also ensures that our long-term financial needs are met. It may prove difficult and sometimes costly in the long run if we chalk out a financial plan on our own. So it is better to engage a professional financial planner, who would be in the right position to advice us on the investments to meet our long-term objectives in life.

 

Generally investment advisors or financial planners ensure that we invest in the right type of investments that are relatively safe and tax efficient. They ensure that our investments do not divert away from the set financial goal. The advisors or planners who charge a fee, can be expected to act in the best interest of us; their clients. But we will not be in a position to trust those who live out of the commissions earned from selling insurance policies or mutual funds or stock broking.

 

However, it is best for you also to be cautious and not allowed to be fooled by flattery. Since it is your money you need to be cautious and vigilant.

 

 

Do control what you can:

 

The first thing that we can control is unnecessary expense on investment. It is in our interest to try to minimize or avoid investment expenses like entry load, exit load, fund management fees, commissions for buying and selling stocks, account maintenance fees,  allocation charges, administration charges, surrender charges, and other overheads. Small drops make a mighty ocean. Similarly these small amounts of cost cutting will definitely pay us in the long run.

The second control is over the diversification of your investment. You also need to ensure that at all times your investments are done over a wider variety of assets. This will ensure that you do not suffer large losses in one type of investment. The losses in one would then be offset by the gains in the other and you will be financially safe at all times.

 

The third control is the maintenance of our asset allocation to reach our financial goal. We need to keep a check over the asset allocation or ratio of equity to debt and to other things in your portfolio with the help of a professional financial planner. This will help us ensure that we are not taking more risk than what we want or can possibly handle. 

 

 

Do pay as little attention as possible to the financial media.

 

 

It is best not to be influenced too much by the media to buy and sell investments. Investing is not a competitive sport. Buying and selling stock frantically by being influenced by the media is counter productive to your financial objectives.

 

It is best to understand that our conscious investment is for long-term wealth appreciation. So we should not be distracted by the investment shows that run 24 hrs a day, investment column they publish 365 days a year. Media doesn’t understand your requirements. So it is difficult to get a customized solution for your personal finance.

 

Don’t fall into “Invest and Ignore”

 

We have invested your precious savings, so do not be careless and sleep over it. Though our investment advisor would make sure that our investment grows, it is better that we too are vigilant and keep track of market conditions. It is our precious savings that we have invested. So if we lose it, we would be losing not only money but also our peace of mind.

 

Don’t fall into “HNI Trap”

Being a high net worth person exposes us to being influenced to invest in dubious projects that may bring down your financial status. This is true because the financial industry are on the look out for people that have a lot of money and are of a high status. They try to influence them to invest in dubious projects appealing to their status and vanity. 

 

Being a HNI doesn’t mean that you need a completely different set of investments. They try to pack something and will say “This is a HNI product”, just to massage your ego and get business. Many HNIs would be lot richer, if they could have bypassed their private banking department and just invested in an index and a very few diversified equity funds.

 

A final thought:

The instructions in the user’s manual need to be used to get the maximum benefit and long life of the gadget. Similarly, having read the set of instructions to make wise investment decisions, it is up to you to follow them strictly or leave it and go back to your routine life.

 

If you decide to follow these instructions, you will definitely see a lot of positive changes and financial prosperity in the long run. So today is going to be the first day for rest of your life.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

 

 

 

Comments

Popular posts from this blog

Give reasons to smile :-)

Everyone in his life has a wrap of worries and concerns, Someone is worried for his career, someone has a family related issue, lot many are strucked in business, few are just too busy with the tension of studies, a lot many are busy with the tensions in friendship and amongst the friends... In my opinion, giving others a reason to worry is an easy task, it takes just fw minutes to hurt anyone, slap him, hit him, say him something undesired, it'll solve the purpose... but for spreading smiles something extra needs to be done.. it is difficult to manage tears than to bring them from someone's eyes. its too difficult to make others laugh from the heart... Looking at few of my peers ( not my close ones frm instt) , i find ppl changin for their parents, why do we tend to forget them ? when we grow? , why our friends become more important in a way tht they take a pie from the share of our moms and dads.. how many times do we think before saying a lie to our moms and dads. Hw do we ...

YTD..EOD... EUGMP... CRAMS... NON BETA Synthesis.:-)

On my c-pad(Old model m2000 Compaq Presario)...I am writing after long...Have two reasons for it, which i'll like to hide from you:) Life is moving at a pace with work,life,Family,Friends each getting muddled in 24*60*60 seconds of the day.. :):(, Yes each facet demands its time, but as of now work takes it all:), and it is not wrong too... As at the EOD Work has to pay back something... It was the end of week 3 for my new journey that made me see few new words(Both in day and night): EOD- End Of Day YTD- Year till Date GMP-Good Manufacturing Practices and so on... Yeah, getting connected to the Pharma buzz, Things are interesting in some ways but quite exasperating on the other side, My dreams see me finding the cost of cephalosporins, SSPs and many more... The names that i could never ever see again in last 5 years, Someday a name came 'Pencillin' and i went back 10 years and realized that we are talking about the same Pencillin that was discovered by every Child...

New Journey!!! - Plannin to write my blog

Well, I m no Amitabh Bachhan, No Aamir Khan, tht ppl will be reading my blog or will be finding it worth reading. All i know is tht i am getting inspired from Ankur to write it. This is my opening post meant to be read for ppl close to me.   Its 10:10pm now, September 25 th 2008 , I have decided to replicate the high flying Blogging concept whilst I know I have the slightest listeners. Holidays have started, No great work to do these days, except getting inclined to TV and gossips, ‘Roz ki faaltu baatein’ would be the core activity in my list regularly till 5 th October.   Will be missing my college buddies, Its always a dependence tht gets created when you meet the same ppl regularly, The best and worst part of “Chhutiyan-Holidays’ is the “ending/missing of monotonous routine” , on one side I m happy tht this break would end up my daily 9 to 6 college routine and on the same time I will be / already started missing my friends and foes J . Tension mat lo, foes are an import...