At the time of crisis everyone tends to get back to the basics. The following article on businessweek is a nice read and must read for all.
Top 20 do's and dont's of personal finance.
Showing posts with label Popular articles. Show all posts
Showing posts with label Popular articles. Show all posts
P2P survival is dangerous.
The economy has been in the path of explosive growth in the last couple of years. Pay packets for all the levels have increased considerably in the past few years.( esp. in the private sector). Although there are a lot of uncertainties in the macro economic environment, there is a lot of room for growth in the long run. Prudent investors have managed to generate a lot of wealth in this period.
There are a some people , who are on a P2P survival mode even though their income/salaries have increased substantially during the years.
Pay check to paycheck survival ( P2P) is a really dangerous habit. Spending all you earn and taking loans that cause a huge burden are really bad financial habits. I know a couple of people who earn 6 digit figures per month, but can't manage even if they don't get their next month's salary. P2p survival (without even planning for contingencies )can be really dangerous.
Saving and investing at least for contingencies is the first step that one needs to take in the journey of financial independence. So, if you are on a P2P survival mode, TODAY is the best day to start saving (...and investing).
Being aware of your finances.
When I was talking to a couple of my friends/colleagues , I got great surprises .
Person A was telling that he had never claimed his medical bills ( 15,000 Limit) in his entire career spanning more than a decade. Not that he wasn't aware of it, but he didn't care to take time to submit claims.
Another one said, he never bothered to withdraw/ transfer his PF from his previous employers. He is with the present employer for six years. He says he doesn't understand finance nitty gritties to do this!!!
In the same way, many succumb to buying money back policies or ULIPs as 'Investments" because they do not do enough research.
Another friend of mine doesn't stretch himself to transfer his funds from his savings account to an 80C instrument and ends up paying extra tax every year.
In none of the cases, this is happening because they can afford to do away with their money. It's because they fail to take that small initiative towards understanding an instrument or making an effort to being aware and acting in time.
In this context, we are in April and this is the right time to plan your tax savings and other investments for the financial year.
Simple and Complex
There are many things in life that we complicate for ourselves. Simple thinking can be one good solution for most of the problems.
Investment is one area where we try to complicate too many things. Choosing the right stock, Timing ups and downs , Listening to experts (??) on TV and other media . Still at times our portfolio built by all this complex info processed doesn't yield the desired results...What's a simple solution??? 1) Invest only for long term in equity with definite goals 2) Do most of your investments as systematically as possible ( Be regular) 3) Don't look at your portfolio value everyday and make wrong decisions ( easier said than done!)
What strategy to adopt now
With a lot of volatility in the market, what is the way to go now.. Buy on every dips???. You never know the real bottom of the markets ...So, never buy on each and every dip .
a) Select your long term stocks
b) Keep aside a fixed amount to invest in those stocks every month
c) Keep buying the chosen stocks on pre-determined dates or when it comes below a particular price.
d) Always invest with a very long term view and never go by TIPs alone.
Or better SIP it out in Diversified equity MFs
a) Select your long term stocks
b) Keep aside a fixed amount to invest in those stocks every month
c) Keep buying the chosen stocks on pre-determined dates or when it comes below a particular price.
d) Always invest with a very long term view and never go by TIPs alone.
Or better SIP it out in Diversified equity MFs
What makes you rich ?
It is not what you eat but what you digest that makes you strong.
It is not what you read but what you remember that makes you learned.
It is not what you profess but what you practice that makes you great.
It is not what you earn but what you save that makes you rich.
It is not what you read but what you remember that makes you learned.
It is not what you profess but what you practice that makes you great.
It is not what you earn but what you save that makes you rich.
Trading and Investing
Recently I happened to meet with two of my friends who have been investing in the stock market for a long time. The first person is not a long term investor. He is a trader although not a day trader. He quoted a particular stock and said he had bought and sold the same stock at least five times in the last 10 years. He definitely gained 20% on each of the transaction.
Another friend has been holding the same stock from last 10 years. He had invested a few thousands. Now the stock after multiple splits and bonuses stands at a couple of lakhs. He has got back more as dividends alone.
Although trading seems to be tempting, Trading alone is not capable of creating wealth in long run. People should understand "Investing " in true sense. Once they pick the right stock, they should be patient for long to reap the benefits. So, it is important to invest money (that you dont need atleast for a couple of years ) in stocks.
Be a PATIENT investor to create WEALTH.
Greed and Fear
A reasonably priced IPO is taking a long time to get subscribed fully in the retail segment now. But when the market euphoria was on over priced IPOs got subscribed in lightening speed.
Most of the investors( I should call them traders rather) follow a group behaviour. They either are too greedy or too fearful. Both are not great attributes for a seasoned investor. As a famous quote goes " We should be fearful when everyone is greedy and be greedy when everyone is fearful"
Time matters the most
In this period of high volatility ,many have started thuinking about the risk in stock market. This will be the right ocassion to recollect a slide from the article" Power of Equity *" . The following slide clearly depicts, the longer a person stays in the market - the probability of losses keep coming down.
( As per the slide which has compiled past data from Indian Indices)
If your investment horizon is 15 years , % times positive return is 100% and Minimum and maximum returns are 13% and 27%.
Even if you take the minimum return of 13% ( Equity income which is tax free now as cap gains and dividends), This is far more than a tax free PPF return of 8%. So, its worthwhile to invest in equity for a longer time frame.
As always SIP in an Equity MF would be the best way to go for a novice retail investor.
Guide to investing- Learn from "NATURE"
* from a old pamplet of canbank mutual fund
Invest Early - To get a headstart in life
The zebra foal gets a headstart in life as it stands up within an hour of birth.
Invest Regularly - To create wealth over a period of time
Ants regularly store more food than they consume.
Ensure Safety - By investing in schemes that provide adequate safety
The baby kangaroo is well protected and safe in its mother's pouch even when she leaps
Diversify Investments - To minimize risks and maximize returns
The Squirrel hides its nuts in different places in the woods.
Be Patient- Stay invested to reap rewards
The Crane stands absolutely still in water for hours together for its catch.
Ensure Liquidity - To get your money back when you need it most
The Giraffee feasts on the food stored in one of its four chambers, when it is hungry.
Invest Early - To get a headstart in life
The zebra foal gets a headstart in life as it stands up within an hour of birth.
Invest Regularly - To create wealth over a period of time
Ants regularly store more food than they consume.
Ensure Safety - By investing in schemes that provide adequate safety
The baby kangaroo is well protected and safe in its mother's pouch even when she leaps
Diversify Investments - To minimize risks and maximize returns
The Squirrel hides its nuts in different places in the woods.
Be Patient- Stay invested to reap rewards
The Crane stands absolutely still in water for hours together for its catch.
Ensure Liquidity - To get your money back when you need it most
The Giraffee feasts on the food stored in one of its four chambers, when it is hungry.
Happy Investing
Never do HYPE investing
We purchase some shares or mutual funds just because of the HYPE associated with the names. This can be dangerous at times. It is very normal for everyone to get carried away by hypes. But investing without any due research can be dangerous. There are companies which are trading in extremely high P/E ratios. There may be huge growth possibilities but risks associated with the growth factor has also to be understood before one makes an investment decision. if we invest only based on HYPE ...We should never blame anyone if the investment money diminishes drastically!!
SIP in a single stock?
Like SIP in a mutual fund , can one do a systematic investment in a single stock??...
It means allocating a month every month to purchase a particular stock. Say, on 1st on every month I would buy 2 shares of company X and accumulate it over a period of time. This is definitely a great idea. But SIP works better in case of a portfolio( read as collection of stocks or equity MF). This is because when you invest in a single stock, your risk return proportion is very high. But if you are thoroughly convinced about the growth prospects of a stock you can go ahead understanding the risk involved.
To understand this in a better perspective, someone who was buying Reliance stock every compared with someone who had been accumulating Infosys. Both of been accumulating blue chips , but you know the current scenario is not favouring IT stocks. Things may take a turn tomorrow. So, this kinds of risks / returns and your goals need to be understood before you start an SIP in a single stock.
Base Effect
The amount that you invest is very important in getting a return. eg. A gets 100% return on his investment and B gets 50% return during the same time period of investment. On the outset A seems to have gained more . But the amount invested also matters. If A had invested Rs 1000 and B invested 1 lakh. A's gain is Rs 1000 and B's gain is 50,000.
So, we can call this the 'Base effect'. Having a decent investment base is very critical to make a impact. Many may not be able to accumulate huge money for investments. So , its always better to keep growing your investment base slowly and steadily. Systematic investment plans like RD and SIP would help the investors build a strong investment base over a period of time.
Little drops make a big ocean. Small amounts can lead to a huge investment base. Happy Investing.
SIP is the best way to create wealth.
Not comfortable with equities/ equity MF
This week I happened to meet at least a few people who talked to me about the risks of stock market. One of them who spoke on these lines was an MBA (Finance). Even after talking with data, logic and information ( mostly provided on this blog), I couldn't see them impressed. I didn't press them too much because I am not an agent selling Mutual Funds :-).
When so many FIIs flock here ( including some of their pension funds), we are yet to get into a perfect equity investing cult in this country ( esp. the southern part of the country??).
The equity Mutual Fund penetration has been improving but has a long way to go. At the current 30-40% CAGR, MF can be a $10 trillion industry in few years to come. But still it would be only a part of the country's true savings potential.
Equity/ Equity MF investments definitely carry a risk along with them. But by intelligent means of investing and staying in the market for long run, one can definitely get better tax free returns when compared to debt investments.
My lesson from the interaction last week with the equity averse investors made realise...." People create their own destiny".
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Don't forget to consider the entry load on SIP when entering the monthly contribution amount. For example, if you invest Rs 1000 p.m. (Enter only 1000- entry load as monthly contribution).
Returns proportionate to index
One of my friends was asking me . How to get returns in proportion to index ( Sensex/ NIFTY,etc).?
The simplest answer would be buy the index stocks in the same proportion that the index is made of . You can also choose to invest in index funds which try to closely track the composition of index in their portfolio.
There are also exchange traded index funds like NIFTY BEES , JUNIOR BEES and so on. These ETFs can be bought and sold just like stocks.
I know a friend of mine who is used to buying units ( very small quantity) from such an ETF every week (cost price averaging). He would also do value cost averaging by buying more Index fund ETF units on the day when ETF falls apart from his regular buying. This has helped him a lot and he is sitting on huge profits when the sensex is at a great height now....
Sounds like a smart strategy..you can try it out too!.
ETF- Exchange Traded Funds.
Sitting on the fence
Sensex has been soaring. It is said that only 4% of the country has invested in stocks.
Many people are yet to figure out the power of equity. Of course, equity is one of the riskiest investments. But systematised investment and time generates great returns . Personal finance literacy is very low and proper education in this regard from schools would help us a lot.
I have had multiple opportunities to talk to many from the 96% group ( non-equity investors). They have either turned a blind eye to the equity or have been sitting on the fence expecting the sensex to fall( right from days when sensex was at 6000 levels).
Even today, sitting on the fence wouldn't help you create wealth for yourself. Sensex may fall drastically even tomorrow. But you can't keep out of it for that sake. Come in with a long term plan ( not a couple of years !!)and invest systematically through SIPs. This is definitely better than sitting on the fence and waiting for the indices to go down.
SIP ...all the way
Strong and Incredible Performance ( SIP = Systematic Investment Plan)
We have written enough to prove that SIP is always a better option for retail investors esp. in a volatile market. But nothing speaks like DATA.
Look at the returns that Rs 1000*12 in would have provided you during Sep'06 to Aug '07 .
source ET intelligence/ value research
nb :- A lot people come to this site by the search term 'SIP vs one time investment' and ' MF SIP vs ULIP'.
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Stock picking strategy
If you are a beginner and willing to pick up stocks on your own, Looking at the hot stocks that the AMCs hold for their equity funds would be one of the strategies. Continuous monitoring of 'How hot these stocks remain with AMCs' is also very important.
Reliance Industries seems to be the hottest stock with all the AMCs.
Have a look at the list of HOT stocks. you may pick up a clue or two from this .
Source: NAV india/ Hindu Businessline
AMC = Asset Management Company ( Mutual fund company)
Feeling bored..In a negative mood???.. Read some stuff that can inspire you
For 10 year analysis on some equity funds---http://ideasmoney.blogspot.com/2007/05/sip-returns-analysis.html
Power of equity in yielding returns
Was going through this article on Businessline.
The stocks that are shown in the article have yielded between 161 to 2616 % returns ( since Jan'01 to Sep' 07).
Anyone who could have afforded a small investment and stuck on would have reaped huge benefits .
This very clearly proves that equity is the best investment over the long run in spite of all the volatility.
The main attribute that is required for an equity investor is PATIENCE.
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