The benefits of working in an organisation harping all the while about capital markets, asset management, transfer agencies and mortgage services rub on to ye whether ye like it or not. The 3 year stint has educated me a little about the stock market, risk, debt instruments, IPOs et al. Words which earlier were guaranteed to elicit a big yawn. Now the antennae starts twitching when someone mentions share price, NIFTY, Bengali sex duh I mean Sensex...So a few thoughts towards investment and early planning for everyone. To be able to enjoy those idyllic lounges when ye are old and want to ogle at the beauties on the beach in Malta or Hawaii. Or want to go on that hugo world trip with yer loved one..
In today's world with falling interest rates, fixed deposits and other schemes are no longer attractive for the investor who wants quicker returns on his investments and is willing to take calculated risks. The stock market certainly provides the depth and opportunity and is open for everyone worth his salt to have a go. Successful investing is the key goal and should be followed by all and sundry especially today's youth who are earning at ten times the pace of their fore fathers but not investing a tenth as much. For those interested in investing in equity, here are a few key notes. Mark my words this is not the entire symphony but following it could very well make it so
1 - Start as early as ye can - The sooner ye invest, the more yer money will have time to grow.
2 - Keep some liquid cash aside - It is always a good idea to spare some cash aside in a deposit account in case of emergencies. Enough to cover 3-4 months expenses is always a good guide to how much ye need. There may be many reasons ye might need yer money at short notice e.g. medical, the big purchase, taking a holiday etc
3 - Ask yerself how much stomach ye have for risk - It doesn't make sense investing in equity if yer stomach will lurch at the slightest dip in the sensex. Investing in equity requires staying power and the capacity to hold on through the ups and downs. An Investment Advisor might help ye decide yer capacity for risk
4 - Always remember that inflation will nibble away into yer savings - Returns on risk free cash investments sounds impressive, but when ye subtract the current rate of inflation, the impression will go for a toss. Ye need to make yer money work harder for ye.
5 - Think carefully about the length of time of yer investment - Take a shot at the stock market if ye are prepared to put yer money away for a decent period of time i.e. 5 to 10 years or longer. If ye are likely to need yer money any sooner, keep it in a lower risk investment so the chances of fall in value are minimized.
6 - Spread yer butter over the bread - Its not a good idea to invest all yer money in one type of investment. Depending on yer goals and appetite for risk, ye will probably want to spread yer money over different types of investment - equities, bond, cash and so on. Ye will also want to diversify within each of these categories.
7 - Invest regularly - Investing regularly can be a great way to build a lump sum (remember the piggy bank in yer yesteryears?). Ye will also benefit from what is known as rupee cost averaging i.e. if ye are investing in a mutual fund, over the years ye will pay the average price for units. If the market goes up, the units ye already own will increase in value. If it goes down, yer next payment will buy more units.
8 - Choose yer funds carefully - Select investments on the basis of yer personal goals. If ye are deciding on a mutual fund to invest in, don't opt for the one that is advertised the most unless ye are sure it will be right for yer needs in the coming years. Look at the details of what a fund invests in and check if ye are comfortable with its investment style and objectives.
9 - Time is the key to successful investing - It is tempting to wait for the market to reach a low point before investing in the same. But how will ye know when this happens? Ye run the risk of missing out on the significant rises that often occur in the early days of an upward trend. It is always better to choose an investment that ye feel confident about and take a long term view, so that ye have time to ride any ups and downs.
10 - Review yer investments - yer investments need to adapt to changes in yer life such as getting married, having kids or starting a new business. A portfolio that is right for ye at one point in life may not be so a few years down the line. It always makes sense to check that the funds in yer portfolio are living up to yer expectations.
Lastly, when making yer investment decisions, choose a partner ye can trust - a company with a clean reputation for providing consistent returns to its investors. Its very similar to marriage. The first step can very well be the last.
In today's world with falling interest rates, fixed deposits and other schemes are no longer attractive for the investor who wants quicker returns on his investments and is willing to take calculated risks. The stock market certainly provides the depth and opportunity and is open for everyone worth his salt to have a go. Successful investing is the key goal and should be followed by all and sundry especially today's youth who are earning at ten times the pace of their fore fathers but not investing a tenth as much. For those interested in investing in equity, here are a few key notes. Mark my words this is not the entire symphony but following it could very well make it so
1 - Start as early as ye can - The sooner ye invest, the more yer money will have time to grow.
2 - Keep some liquid cash aside - It is always a good idea to spare some cash aside in a deposit account in case of emergencies. Enough to cover 3-4 months expenses is always a good guide to how much ye need. There may be many reasons ye might need yer money at short notice e.g. medical, the big purchase, taking a holiday etc
3 - Ask yerself how much stomach ye have for risk - It doesn't make sense investing in equity if yer stomach will lurch at the slightest dip in the sensex. Investing in equity requires staying power and the capacity to hold on through the ups and downs. An Investment Advisor might help ye decide yer capacity for risk
4 - Always remember that inflation will nibble away into yer savings - Returns on risk free cash investments sounds impressive, but when ye subtract the current rate of inflation, the impression will go for a toss. Ye need to make yer money work harder for ye.
5 - Think carefully about the length of time of yer investment - Take a shot at the stock market if ye are prepared to put yer money away for a decent period of time i.e. 5 to 10 years or longer. If ye are likely to need yer money any sooner, keep it in a lower risk investment so the chances of fall in value are minimized.
6 - Spread yer butter over the bread - Its not a good idea to invest all yer money in one type of investment. Depending on yer goals and appetite for risk, ye will probably want to spread yer money over different types of investment - equities, bond, cash and so on. Ye will also want to diversify within each of these categories.
7 - Invest regularly - Investing regularly can be a great way to build a lump sum (remember the piggy bank in yer yesteryears?). Ye will also benefit from what is known as rupee cost averaging i.e. if ye are investing in a mutual fund, over the years ye will pay the average price for units. If the market goes up, the units ye already own will increase in value. If it goes down, yer next payment will buy more units.
8 - Choose yer funds carefully - Select investments on the basis of yer personal goals. If ye are deciding on a mutual fund to invest in, don't opt for the one that is advertised the most unless ye are sure it will be right for yer needs in the coming years. Look at the details of what a fund invests in and check if ye are comfortable with its investment style and objectives.
9 - Time is the key to successful investing - It is tempting to wait for the market to reach a low point before investing in the same. But how will ye know when this happens? Ye run the risk of missing out on the significant rises that often occur in the early days of an upward trend. It is always better to choose an investment that ye feel confident about and take a long term view, so that ye have time to ride any ups and downs.
10 - Review yer investments - yer investments need to adapt to changes in yer life such as getting married, having kids or starting a new business. A portfolio that is right for ye at one point in life may not be so a few years down the line. It always makes sense to check that the funds in yer portfolio are living up to yer expectations.
Lastly, when making yer investment decisions, choose a partner ye can trust - a company with a clean reputation for providing consistent returns to its investors. Its very similar to marriage. The first step can very well be the last.
P.S. - (Am in a think mode on this Sunday afternoon. All the above is tedious but there's no avoiding it. Next think mode is next year methinx..)
22 comments:
this sounds like a finance 101 class. But yes what you say makes a lot of sense. Only that I dont follow many of them yet,
Hi Magpie,
Nice to bump into another capital markets guy. I agree wholeheartedly with your principle of investing early and regularly. The most important thing before starting an investment plan is to figure out aproximately when and how much you need, and also map out when you can invest and how much of your savings you can invest in keeping with your lifestyle Standard Chartered MF and Birla SunLife both have an easy free software for planning (I would personally reccomend the Birla Planner as more accurate and user friendly). A few thumb rules that I would reccomend are:
a) You should save between 30% and 40% of your gross earnings. If you are single and do not have dependent family, you should try to save 45%- 50% (know its high but the more money you save earlier the better it is);
b) Equities are a great idea, but you should have an idea of how much risk you can digest before plunging into equities (Thumb rule:- Savings %age invested in equities= 80-Your age);
c) Currently though debt looks unattractive, however I believe that within the next ten years, interest rates will start to plummet again, it might be a god idea to lock in a small %age of your savings into high rate long-term debt. fifteen years down the line when you are looking for a lumpsum to finance your kids college, this may just be the bonanza because of the increase in value due to plunging interest rates;
d) There is a real estate boom going on. If you can set aside cash for an appartment, try to see if you can buy an appartment with a ank loan (specially in tier two cities like Coimbatore, Mysoe, Nagpur, Siliguri, Vizag, Bhubaneshwar,etc). You can give this appartment on hire and the rent can meet a large chunk of your monthly EMI's and ten-fifteen years later you have an asset which will give you a return of at least 8-9% P.a.;
e) Its important to have a company that you can invest through, one that you can trust. Please, please don't be foold by flashy ads, high short term returns or the reccomendation of the smooth faced personal banker. Please do your research thoroughly and invest with a company who has an established presence. After all its your money, if you are not going to take care,who will?
f) Lastly, and most importantly, do not be inspired by Wall Street's Gordon Gecko and make super-normal returns. The market is nobody's fool, it offers decent returns, don't try to time it or be the smart aleck who is the only one to spot the hidden gem. Given historical probabilities you will fall flat n your face like hundreds of investment bankers on Wall Street, housewife's in Tokyo, day trader's on Dalal Street.
Sorry, got carried away, but could not help myself when I stumbled across this one.
Useful, this.
Wise words!
But all the MFs seem to be investing in the same bunch of stocks.
And stocks plummet the moment I touch them :-)
I remember my Finance teacher imparting with us points one and five. That I'd be very interested to do, I once had this lofty dream of investing in the stock market. The thing is I still do not have the money to burn or risk.
Investments for me still are a wishful thinking.
If I hadn't read your earlier posts, I swear I'd have mistaken this as something from my father-in-law... :-)
oye hoye, plenty of tips and that too for free.. jhakkas! And i like no.7 the best.
where do u work!! all those terms brought back work to my head..lol...capital market, ipo...oof!!interesting but so extensive...and so tough to master..
Shreemoyee: I know I know. It's tough to follow, but once you start you get hooked to it.
Promotheus: I bow down to thee...
Cherie & Sanjay: Methinx investing is something that should be taught in schools at an early age.
Faultless wanderer: Welcome aboard. So ye are the Midas then? Where are ye investing?
Jae: Welcome here. Am sure neone can definitely start with a leetle sum, yes?
Nautilus: Grrrrr!! hehe..
Jhantu: 7 is ur lucky number then? ;)
Neha: ah yes..am into financial services. Not on the domain but ees impossible not to pick up terms..What abt ye?
great tips ty!
Keshi.
great tips... thanks
White Magpie, my long lost Kumbh Ka Mela -wala blood brother from the Indian capital markets. Yups looks like we do share a lot in common. An personally I also found the Seventh Scroll a bit disappointing.
Would love to get together with you and trade books and discuss the Indian financial sector. Why don't you put up some more stuff on 'Investing for Individuals 101' on your blog. I haven't come across much on this issue on blogger.
Would help a lot of people if we could put up some non-partisan basic stuff. What say?
it is not a bad idea to update your blog often....please write and do not vanish
the blog is dead???
hey wow,
those are some useful tips there...now i know whom to go to for investment advice!
Hi Magpie, where are you these days. You seem to have disappeared from blogland.
Keshi: Am sure ye aint gonna use none :p
Monika: Tips? Oh u meant hints..gryn :p
Promotheus: I will meet only on the condition we dont discuss no finance. It oozes outta moi ears sometimes at work..Good idea. Will upload something on those lines when its oozing..
Shikha: I will I will...
Jhantu: Nahin!! I was on a nice yummy leave..Will resuscicate it soon ;)
Ekta: You!! Finally!! surface :o
Dusty: Naw!! Came back to hell again this Monday :(...
Hi Magpie,
Gr8 to have you back. Don't mind if we do not discuss finance, only reason that Ibrought it up was because I am no longer in the financial sector myself. ;)
Prometheus: No problemo..Are ye still in Dhaka?
Ya man. I am still working undercover- 'Aami Dhakay Aachi'.;)
Great tips, common sense actually. I work in the financial sector, so
..
yeah the last step IS something that cannot be understressed.
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