Personal Finance Planning and Management in your Fifty's and Retirement

       Who is a wealthy person, I believe, is someone who has enough money so that he can work because he wants to, not because he has to. A wealthy person can walk away from a job at any moment and still lead the life he wants. With everyday intentions, planning and discipline, you can build wealth. In addition to establishing good saving habits, it’s just as important to exercise smart spending habits as well. Here are FOUR ways to start : –

1. Establish Good Savings Habits : –

  Good habits lead to good outcomes. Creating wealth isn’t about hitting the boundary, it’s about getting into consistent habit of saving. When you’re younger and just starting out, you may not be able to save a lot, but save anyway. Set a percentage of your income to save, say 10 percent, not a fixed amount. But when you are old enough, say in your 50s, that amount may not be sufficient for meeting your financial goals and live a comfortable retired life. Therefore, you may have to increase your saving percentage to 15 – 20 percent.

       Similarly, when you earn more in the future, you will save more in dollar terms. You can increase that percentage of saving slowly over time. This one decision has the power to set you up for financial success or failure.

  2  Invest A Part Of Your Income : –

            The act of saving is amplified when you invest those savings. Investing does not mean keeping your cash in a savings account earning nothing. Investing is putting your money into a well- diversified portfolio of stocks, bonds, mutual funds, ETFs and allowing     the growth to compound over the long term. Compounding is arguably the most effective way to build wealth over time.

        I see too many people who have an un- required amount of cash as part of their net worth. While having enough cash is important for emergencies, cash will not make you wealthy. In fact, when inflation is factored in at, say, 4 percent, by holding onto cash, you are not even breaking even and you are in fact losing due to purchasing power of dollar going down in real terms, due to inflation. The younger you start saving and investing, the more time your money has to compound year over year. But it is never late You can start now also in your 50s. Let your money go to work for you and give it the chance to multiply over your lifetime.

      3  Delay Spending Gratification : –

            In addition to establishing good saving habits, it’s just as important to exercise smart spending habits as well. It may take some time to adjust and form smarter spending attitude. Hence, I love this quote by Warren Buffett, “ If you buy things which you don’t really need, one day you will have to start selling things which you actually need.” Credit -card has made it much easier to spend money, even if you don’t have the actual cash to cover the expense, which can quickly lead you into high -interest debt. Therefore, be mindful about your purchases and delay gratification until you know you have the means to cover the cost. When you already have smart saving habits established, it makes delaying gratification a little more pleasurable because you will actively be saving for that car, those concert tickets, or the vacation you really want. It’s not that you won’t attain what you want, but with smarter spending behaviours, you won’t compromise your financial security just to get something immediately.

       4  Set Financial Goals And Be Intentional : –

               You’ll be able to achieve your financial goals faster only if you have goals and you make intentional financial decisions. Just like attaining a certain physical fitness level, setting goals, being intentional and taking action all play a crucial role in determining your success. Before you make that next purchase, think to yourself: “ Is this purchase in line with my goals? Will I be closer to my goals if I don’t make this purchase?”. It’s a simple “Yes” or “No” answer that should make your decision easier.

            When it comes to your finances, building wealth is possible when you take action to secure your financial future and take advantage of wealth- building tools that passively grow your money over time. Your long-term financial success isn’t decided in an afternoon; it’s determined by the financial choices you make today and everyday. So start making financial decisions that make you building lasting financial independence.

     Not everyone likes equity investing. Some see it as a Zero sum game; and therefore, wasteful; some equate it with gambling; some are suspicious because money seems to be made easily; some dislike anything that does not come with guarantees; and some love their deposits too much to even bother.

      But there are some who simply love it, even if they don’t understand a thing about it. Trading in stocks has spread from traditional strongholds to various locations across the country, thanks to the electronic trading screen and technology.

       The real story about equity investing is neither of these two extremes. Mindless trading does not make anyone rich, except the ardent believer in luck. If a trick cannot be repeated for predictable gain, it is useless. Shunning equity is a gamble also does not help, as it shuts one’s wealth from an otherwise legitimate and democratic way to multiply it. What should an ordinary investor know and keep in mind about Equity Investing?

   First- It is Saving For The Future : –

         To invest in Equity is to invest in the future of a business enterprise. There is still no surefire way to tell what the future holds. Despite all pretenses of expertize, no one can tell in advance which business will succeed and which will fail. This reality that you don’t know how your investment will perform in the future, is what makes equity investing risky, scary,exciting or thrilling, depending on how you are wired. You should like dealing with the unknown without getting stressed about it.

  Second- It Is Not A Smooth Sailing : –

          The many stories , you hear about how someone bought a stock for a pittance and is now sitting on millions, are sickingly one- sided. They are all products of hindsight. It is easy to look back and track how brilliantly a stock has moved over the years. An actual investor in the stock will tell you how bumpy that ride was, and how there were many points at which it was unclear whether the stock was still a winner or not. For one success story, there are a hundred failures which no one usually talks about. Be aware that no one pays you for doing nothing.

    Third – Stock Picking Is Unpredictable : –

         There is no easy way to pick a stock. There are multiple factors at play, and you cannot tell which one will become important and which one will fade away. Those who have spent their lives analysing stocks would have developed the expertise, and an intuitive judgement about what to look for, and how to spot the warning signs. Thy know that they could go wrong, and therefore, are usually humble and quiet. Discard all tips that are dished out free.

   Fourth – Investor should Form Their Own Selection Approach : –

          The decision to buy is a tough one. There is the entire universe of the listed stocks to choose from, and no one knows which one will turn out to be a multibagger or what the time frame to look at is. Investors form their own selection approaches- we will call them Investment Theses. In a formal investment management set up, the specific reasons why a stock is being bought is written down. It is a good parctice to do that, so performance is tracked in terms of what the original assumptions were. A stock trader sets a price target; a short- term investor sets a time- frame; a value investor sets a margin of safety; and so on. Buying must be subject to a discipline and write down why you bought a stock.

    Fifth – Seek The Help of Professionals/ Brokers : –

          An ordinary investor is disadvantaged with respect to access to information and its analysis. A broking house hires and pays for databases, qualified manpower, and tracks stocks and sells reports. A Mutual Fund is able to hire brokers to serve it and offer it recommendations, apart from having in-house expertise in analysis, research, selection and portfolio management. Individual investors have to rely on publicly available information to work as a group, sharing costs and discussing stocks, and undertaking extensive research on a shared basis. Online chat forums and television programmes should not be mistaken for research. Be prepared for intensive homework, else you are hoping to just get lucky.

       Sixth – Have Patience : –

         Money is not made on single bets. Successful entrepreneurs who set up Worldchanging businesses are the only exceptions to this rule. Not everyone can become the next Bill Gates or Jeff Bezos. For most of us,there is no courage or conviction to stake all that we have in a single business. We all invest in many stocks, and that is how it should be. Recognise that you are building a portfolio and focus on its composition- what it holds and how much. Having small bets in a many stocks will not make you rich.

      Seventh – Have a Realistic Expectation From Your Investment :-

          When you don’t know the future, and you buy based on incomplete current information, and when that does not perform, your only saving grace is the ability to accept your mistakes and cut your losses. Money is made in Equity investing not from stock picking alone, but from recognising that your investment thesis was wrong, and that the stock is not doing as well as you expected. A trader is swift to book losses; he won’t let his capital erode. An investor has to deliberately take the steps to sell what is not working. Many cannot let go and live in false hope. Too many invest when a stock is falling in value, putting good money to chase the bad. Too much has been lost in Equity investing by those who refuse to own up to their mistakes.

       CONCLUSION : –

         A Diversified portfolio of stocks, selected for their potential, but replaced when they fail, will deliver the growth you are seeking. Investing in an Equity Mutual Fund is an efficient way to invest in Equity. Investing by yourself is thrilling, but fraught with mistakes as you climb the learning curve at this advanced age of 50- 55 years. Choose your pick, but do choose Equity.

         The wealthiest people in the world today are Equity investor . Don’t get left behind because you don’t understand how a business should run. Someone else has figured it and Equity investing offers you a fair , democratic, and efficient opportunity to take part in that success. Don’t wait for names. Spend your energy on putting down your process for participation.

        Having a purpose in mind is extremely vital regardless of what you do. It serves as a guide until you reach your goal and gives you a sense of satisfaction and achievement.This applies to saving and investing too, and that’s why purpose- based investing is better way to create wealth than chasing returns. It can be explained as under : –

      When you Are Driven By Greed : –

     If you let greed drive your investment strategy, then the goal would be to make more money. In order to reach that goal, you might fail to check how safe the investment option is.

      When You Are Driven By A purpose : –

     When your purpose takes precedence ,you would operate on a clear, time-driven approach. Your approach would be more disciplined and you wouldn’t get affected by the ups and downs of the market. You will also choose safer and apt investment options that align with your financial goals.

       How To Become A Goal- Based Investor : –

     The first step is to have a goal and define it with a target amount and timeline. It could be saving for your retirement or becoming a millionaire. Once the goal is set, select your frequency of investment. It could either be a one-time investment where you invest a certain sum of money at flexible intervals or do it through a SIP and invest a small amount every month till you reach your goal. You must be disciplined in your contribution every month and track progress regularly.

       Although investments are more about logic and purpose, we tend to behave according to emotions. Mainly, fear and greed. It’s upto us to drive them the right- way. To make your life easier, you can take help of some professionals or investment advisors or use various tools to help you calculate the goal amounts and choose the best funds for your goals and also it automates the whole investment process to make it hassle free, and also tracks the portfolio, and makes sure you meet your goals.

    How Do Mutual Funds Work To Grow Your Wealth : –

        For many people , a mutual fund is a “Black Box”, a sort of a vehicle where one would invest. It has a price which goes up and down.

        If one considers Mutual Funds a Black Box, without knowing what really happens inside a Mutual Fund, then on would find it difficult to hold on through long periods of time. As Warren Buffett once said –Risk comes from not knowing what you are DOING.

    What Are Mutual Funds, And More Importantly How Do They Work

  Mutual Funds(Equity- Oriented) are essentially vehicles which hold”Share” of various companies. There are many successful companies in America, addressing the various needs of the American

economy. The”Shares’ of these companies are listed on the stock exchange. When you buy a unit of the Mutual fund, the money is used to buy parts of those companies.

    How Does A Mutual Fund Grow Your Money : –

      Mutual Funds tend to do well, if the companies they hold do well. Since Equity Mutual funds own “Shares” of some of the leading companies, the growth in the value of these Mutual funds is linked to the growth in revenues and profits of these companies. Obviously, there is little more to it, but one can leave it to the professionals to manage that. The performance of some of the leading companies in United States Of America over the past decade has been phenomenal, to say the least. As these companies have grown, so has the value of their Shares and in turn the wealth of the investors, including Mutual Funds, owning these Shares.

      How Can We Say That The Companies Are Doing WELL?

       Because the economy is “The good companies in the economy should do well as the economy, if not better. The American economy is one of the fastest growing economies in the world, growing at close to 7 percent in nominal terms, and it is expected to do very well for years to come.”

        The incremental growth in the economy in the year 2018 alone was equal to the size of the economy in 1996. This path of progress is here to stay. The growth is driven by one of the largest pool of the young people who are up-skilling themselves and creating more value for themselves as well as for economy.

     Want To Create Wealth? Start By Owning Great Companies, Indirectly : –

        In summation, Mutual Funds are essentially a vehicle for you to own “Shares” of some exceptional companies in the country and participate in the long- term progress of the nation. If the economy does well, which it will, then one should participate in this journey.

       The best way to do so is to BUY a slice of great companies. If you can’t do it all on your own, hire a professional to do it for you, which is exactly what a Mutual Fund manager does for you.

        How Do A Professional Help In Investment : –

      Let’s face it, investing is not easy. Figuring out the right instrument from thousands of options is quite tedious. The THREE big worries , most investors have are : –

1  Am I making the right Investment?

2 What if I need money for an emergency?

3 Do I need to manually keep track of my Investments?

   These and similar problems put a lot of mental stress to an investor. The professional, with their vast experience and knowledge of the equity market are a great help for guiding you to invest in proper funds and keeping proper records as well as keeping a track of your investments

   The biggest problem ,most of the Americans face at the time of retirement, is carrying forward debt balances in their retirement lives. These can be debt against the personal finances; education loan; credit- card balances or the unpaid mortgage loan. The limited earnings after the retirement are further stressed as a lot of money goes every month in payment of these loans/ debt, which seriously affect your retirement life. Therefore, it is always advised that try to repay most of the debt/ loan during your working life so that your retirement period is comfortable and tension-free.

        Dealing With DEBT : –

      The Debt can be classified as – Bad Debt and Good Debt.

    The consumer Debt like buying room furniture or a new car, that you really can’t afford, is like living on a diet of sugar and caffeine; a quick fix with little nutritional value and/or borrowing on credit card is known as Bad Debt, whereas,

       When you use Debt for investing in your future like borrowing money to pay for an education; to buy real estate; or to invest in a small business is like eating fruits and vegetables for their vitamins. This type of Debt can be called Good Debt.

        Calculating how much Debt you have relative to your annual income is a useful way to size up your Debt load. Ignore, for now, Good Debt. To calculate your Bad Debt Danger Ratio, divide your Bad debt by your annual income. For example, you earn $40,000 per year. Between your credit cards and an auto loan, you have $20,000 of Debt. In this case, your bad debt represents 50 percent of your annual income.

         Bad Debt/ Annual Income = Bad Debt Danger Ratio

       The financially healthy amount of Bad Debt is Zero. When your Bad Debt Danger Ratio starts to push beyond 25 percent, it can spell real trouble. Such high levels of high- interest consumer debt on credit-cards and auto loans grow like cancer and we have to put all out efforts to control and reduce it.

          Finding The Funds To Pay Bad Debt : –

       To repay Bad Debt or consumer Debt, the following few steps can be helpful : –

  — Borrow against your cash value life Insurance policy.

  — Sell investments held outside of Retirement Accounts.

  — Tap the Equity in your Home. You can generally borrow against real estate at a lower interest rate and get a tax deduction.

  — Borrow against your Employer’s Retirement Account. The interest rate is usually reasonable.

  — Lean on Family. Borrow money from your loved ones. But don’t forget to pay them back. Treating the obligation seriously is important.

          Identifying And Treating A Compulsion : –

       No matter how hard we try to break the habit, some people become addicted to spending and accumulating Debt. It becomes a chronic problem that starts to interfere with other aspects of life and can lead to problems at work and with family and friends.

         Debtors Anonymous(DA) is a non-profit organisation that provides support to people trying to break their Debt Accumulation and Spending habits. DA has a simple questionnaire that helps determine whether you’re a problem debtor. If you answer “YES” to at least 8 of the following 15 questions, you may be developing a Debt Accumulation Habit.

    — Are your Debts making your home life unhappy?

    — Does the pressure of your Debts distract you from your daily work?

    — Are your Debts affecting your reputation?

    — Do your Debts cause you to think less of yourself?

    — Have you ever given false information in order to obtain credit?

    — Have you ever made unrealistic promises to your creditors?

    — Does the pressure of your Debts make you careless when it comes

          to Welfare of your family?

    — Do you ever fear that your employer, family, or friends will learn the

          extent of your total indebtedness?

    — When faced with a difficult financial situation, does the prospect of

          Borrowing give you an inordinate feeling of relief?

    — Does the pressure of your Debts cause you  have difficulty sleeping?

    — Has the pressure of Debts ever caused you  consider getting drunk?

    — Have you ever borrowed money without giving adequate        

           consideration to the rate of interest you are required to pay?

     — Do you usually expect a negative response when you’re subject to

           A credit investigation?

     — Have you ever developed a strict regimen for paying off your Debts,

           Only to break it under pressure?

     — Do you justify your Debts by telling yourself that you are superior to

           “Other” people and when you get your “Break”, you’ll be out of Debt

               Assessing GOOD Debt : –

          As for Bad Debt, the following are the important questions to ponder and discuss with your loved ones about the seemingly “Good Debt”,you’re taking on : –

     — Are you and your loved ones financially able to save what you’d like

          To work towards your goals?

     — Are the likely rewards worth the risk that the borrowing entails?

     — Are you and your loved ones able to sleep well at night and function

          Well during the day, free from great worry about how you’re going to

           Meet next month’s expenses?

              CONCLUSION : –

          If you have a knack for spending more than you should with those little pieces of plastic – only one solution exists – Get RID of your credit- cards. You can function without them. Try to live within your Budget and pay in cash. Never purchase consumer items or cars etc. on credit cards or loan/debt. Try to get maximum information about the various charges/ fees and the credit- card limit before purchasing a credit- card. It is always advisable to pay off your Debt early but definitely before you retire. This will make your retirement life stress-free, enjoyable and comfortable.

Retiring comfortably- never mind wealthy- may seem out of reach to many people, given current savings rates.

    But don’t let these statistics scare you. With a little advance planning and self- discipline, you can have a golden nest egg at retirement. Here is a 10 step plan , a guaranteed way of retiring rich : –

    Rule 1 – Spend less than You Earn : –

   The formula for retiring rich starts with you actually putting money in the bank. Social Security benefits alone won’t be enough to have you living the good life during your golden years.

     If you have Zero savings right now, concentrate on building up Emergency Fund in a savings account, perhaps by setting aside 10 percent of your each paycheck. Then, once your rainy day fund is full, put that 10 percent you have not been spending into a dedicated retirement fund.

      Rule 2 – Start Saving Early : –

      Thanks to the power of compounding interest, a little money saved now can go a long way at retirement time. But to get the most benefit, you’ll want to start saving as early as possible. Assuming you get an average 8 percent returns, your money will double in amount in about 9 years.

       Rule 3 – If You Start Late, Make up For the Lost Time : –

      May be you’re 55 and think you’ve missed your window of opportunity to retire rich. Don’t wave the white flag just yet!

      The Government allows those 50 or older at the end of the year to make Catch- up Contributions to their retirement funds. For 2019, you can contribute an extra $6,000 to your workplace retirement program, such as a 401(K), for a total annual contribution of $25,000. IRA catch- up contributions can be $1,000 for a total allowable contribution of $7,000.

        You might think there’s no way you’d ever have that kind of cash to invest in a single year, but you could be surprised at when and how you come into extra cash. You may benefit from a loved one’s estate, downsize your house or sell some items that no longer fits your lifestyle.

        Rule 4 – Don’t Leave Free Money On the Table : –

     If someone tried to hand you $100, would you say no?

   That’s exactly what you’re doing when you fail to take advantage of a 401(K) employer match. Your company is basically giving you free money with the only sting being you also need to cough up some of your own cash for the retirement fund.

      You won’t get rich by passing golden opportunities like this for extra cash. If your employer offers a 401(K) match, make sure you are taking full advantage of it.

         Rule 5 – Minimize Your Taxes: –

      The rich stay rich because they’re saving enough not to allow government take too much of their money.

      When investing your retirement money, be sure to use tax- sheltered accounts such as IRAs and 401(K) plans, whenever possible. In addition, be smart about which type of account you use.

        Traditional retirement accounts, let you invest money tax-free now and pay once you make withdrawals in retirement. Meanwhile, Roth IRAs and Roth 401(K) plans tax you now, but you get to make withdrawals tax- free later- on.

         Rule 6 – Take A Little Risk : –

       You could put all your money in bonds and sleep well at night knowing you’ll probably never lose any of your money. But with that approach, you’re not going to retire a millionaire either.

        Stocks and real- estate are where the money is to be made, but then there is always the risk of a housing bubble bursting or the market crashing. Take heart in knowing that stocks and real- estate historically have appreciated in the long run.

         Rule 7 – Stay Informed About Your Investments : –

      Don’t mistake taking a risk with being dumb.

     A smart risk may be investing in the emerging market fund. A dumb move may be pouring your life savings into a speculative fund. How do you know the difference? By researching available investments, weighing your options and selecting the amount of risk that works for your unique situation. For example, those nearing retirement age may want to minimize their level of risk, while young ones can be more daring because time is on their side.

        Rule 8 – Break Free From the Herd : –

     When the stock market crashed a few years ago, too many people freaked out and sold their investments. The people who are going to retire rich are those who saw an opportunity to snatch up stocks at bargain- basement prices in 2009, then saw their value climb by double digits in the following years. Same thing goes with the housing market.

      It’s easy to follow the herd, but if you want to be rich, you need to keep a cool head and make rational money decisions even in the midst of crisis.

          Rule 9 – Work Longer : –

         Or atleast wait a few years to file for Social Security. While you can file for Social Security benefits as early as age 62, you’ll get a lot more money if you wait until you’re 70.

          Once you hit your full Retirement Age, you can get an 8 percent bump in your benefits for every year you wait to start receiving payments. However, you’ll want to file by age 70 because there is no benefit to waiting than that.

           Rule 10 – Maximize Your Income Potential : –

       Finally, if you want to retire rich, you need to maximize your earnings. That means no more setting for a dead- end job that pays pennies. Look for ways to increase your income, which, in turn, increases the amount of money you are saving for retirement.

          Most people don’t know or have only a vague idea of the rate at which they are saving money. The amount you actually saved over the past year is equal to the change in your net worth over the past year. If you own house, ignore it in the calculations. And don’t include personal property and consumer goods such as your car, computer, clothing and so on with your assets.

        Save at least 5 to 10 percent of your annual income for longer- term financial goals such as retirement. But if you are starting late, say at the age of 50 years or so, this amount may not be enough. You must save atleast 15 to 20 percent of your income and be sure to invest your savings properly to grow it further. In this way you can nullify the effect of Inflation and various state and federal government taxes.

          Don’t Let Your Money Sit Idle : –

       Money not invested properly loses its value with time due the adverse effect of Inflation. Let us assume a conservative 4 percent rate of annual inflation. The purchasing power of 100 dollars will be equal to just 50 dollars after 18 years. So, be sure that your savings are invested properly in various investment vehicles.

         But before you select a specific investment, first determine your investment needs and goals. Why are you saving money- what are you going to use it for? Establishing objectives is important because the expected use of the money helps you determine how long to invest it. And ,that, in turn helps you determine which investments to choose. The risk level of your investments should also factor in your time frame and your comfort level. Investing in high- risk vehicles doesn’t make sense especially at this age of 50- 55 years.

       Reduction In Purchasing Power Due To Inflation                                                                                                                                                          

    Inflation Rate       Reduction in purchasing power after 10 yrs

     2 percent                                     (-) 18 percent

     4 percent                                     (-) 32 percent

     6 percent                                      (-) 44 percent

     8 percent                                      (-) 54 percent

     10 percent                                    (-) 61 percent

          Sizing Investment Risks : –

            Before you invest, ask yourself these questions : –

    — What am I saving and investing this money for? What’s my goal?

    — What is my timeline for this investment? When will I use this money?

    — What is the historical volatility of the investment I’m considering?    Does that suit my comfort level and timeline for this investment ?

            Prioritizing Your Savings Goals : –  

         By now, as I have repeatedly mentioned, most of you must have finalised your financial goals. Your financial goals, at this age, may include:-

      — Owning Your Home

      — Making major purchases like car, vacations, fancy furniture etc.

      — Saving for Retirement life.

      — College Education of Kids

      — Owning your own small business.

         Accomplishing such goals almost always requires money. A Chinese proverb says “ Do not wait until you are thirsty to dig well”. So don’t wait any further, as it may already be late.

                  Diversifying Your Investments : –    

         Some of the investment vehicles which are available for investments are as follows : –

 1 C.Ds and Bonds : –  This meets your emergent requirement of funds. These are also suitable for conservative investors.

 2 Mutual Funds : – These can be Equity, hybrid or balanced funds. In addition Index funds can also be considered. But the investment horizon should be long, say 3 to 5 years.

 3 Immovable Property or Real Estate : –  When the amount is sufficiently large and the requirement is not urgent.

 4 Equities or Stocks : – This option, although quite volatile, is available for the investors who can take or withstand higher risk.  

  But, to decrease the chances of all your investments getting clobbered, you must put your money in different types of investments, i.e. Diversify your investments , such as Bonds, Stocks, Real estate and small business. In diversification, although your returns are not completely co-related. It will ensure that when some of your investments are down in value, odds are that others may be up in value. For example, when real estate is down, chances are that stocks may improve in returns.

  — Diversification reduces the volatility in the value of your whole portfolio.

  — Diversification allows you to obtain a higher rate of return for a given level of risk.

          Understanding Your Investment Choices : –

      Your investment depends on where you’re hoping to go, how fast you want to get there and what risks you’re willing to take. It is suggested that: –

  –-Slow and Steady Investments : – Everyone should have some money in stable, safe investment vehicles, including money that you’ve earmarked for your short- term goals, both expected and unexpected. For this purpose , Transaction/ Checking accounts are best option. Investment in bonds and certificate of deposit(C.D.) can be considered.

  — Building Wealth With Ownership Vehicles : – Investment can be made in Stocks, Real estate and Small business. These investments ,historically, has given better returns, may be 10 to 15 percent but, the investment horizon is longer, say 3 to 5 years.   

            CONCLUSION : –

      Making and saving money are not guarantees of financial success; rather they’re prerequisites. If you don’t know how to choose sound investments that meet your needs, you’ll likely end up throwing money away, which leads to the same end result as never having earned and saved it in the first place. Worse still, you won’t be able to derive any enjoyment from spending the lost money on things that you perhaps need or want. Knowing the rights and wrongs of investing is vital to your long- term financial well-being.                

        While discussing various  aspects of Financial Planning like preparation of budget, finding the best investment vehicles for your savings; Mutual Funds, Bonds and Stocks and also investment in various Pension funds as well as Tax-saving, I have mentioned that you may take the help of an experienced financial professional or advisor, as you may not be having a thorough knowledge about all the financial aspects. Sometimes hiring a competent and ethical financial planner/ advisor, at a cost, to help you make and implement financial decisions can be money well spent.

           Your Financial Management Options : –

     Everyone has three basic choices for managing money : –

    (i)   You Can Do Nothing : –  These people are too busy to attend or deal with their personal; finances. They may be high ranking officials, businessmen, or people who have a very busy life, otherwise. The dangers of doing nothing are many. Putting off saving for retirement or ignoring to carry adequate insurance or allowing your buildup of debt eventually comes back to haunt you.

    (ii)  Doing It Yourself : –  These people learn enough by investing some time in learning the basic concepts, to make them confident about making decisions on their own. The hardest part of managing money for most people is catching up on things that they should have done previously. After you get things in order, you shouldn’t have to spend more than an hour or two working on your personal finances every few months.

    (iii)  Hiring Financial Help : –  Realizing that you need to hire someone to help you make and implement financial decisions can be a valuable insight. Spending some time and money with a competent professional can be money well spent. You may benefit from hiring some help at certain times in your life.

       How A Good Financial Advisor Can Help : –

     The following are some of the important ways, a competent financial planner/ advisor can assist you : –

    1 Identifying Problems And Goals : –  Some people are so busy with other aspects of their lives that they may ignore their debt or have unrealistic goals and expectations given their financial situations. A good financial planner can give you the objective perspective you need.

    2 Identifying Strategies For Reaching Your Financial Goals : –  A good planner can help you sort out your thoughts and propose alternate strategies for you to consider as you work to accomplish your financial goals.

      3 Setting Priorities : –  You may be considering doing dozens of things to improve your financial situation. Good planners help you Prioritize your ideas.

      4 Saving Research Time And Hassles : –  A good planner does research to match your need to the best available strategies and products and prevent you from making a bad decision.

      5 Purchasing Commission-free Financial Products : –  Purchasing commission- free is especially valuable when you buy investments and insurance and a good planner can save hundreds of dollars by identifying such products.

     6 Providing An Objective Voice For Major Decisions : –  A competent and sensitive advisor can help you by providing with sound counsel when you’re faced with some big decisions like house purchase, investments etc.

     7 Helping You To Just Do It : –  A good counselor can help you follow through with your plan and advise you about the actions need to be taken in this regard.

     8 Making You Money And Allowing You Peace Of Mind : –  A good planner shows you how to enhance your investment returns; reduce your spending, taxes and insurance costs; increase your savings and achieve your financial goals.

           Finding A Good Financial Planner/ Advisor : –

       Locating a good financial planner, who is willing to work with you and who doesn’t have conflicts of interest can be time consuming and quite a difficult task. Personal referrals and associations are TWO methods that can serve as good starting points :

   (i)  Soliciting Personal Referrals : –  Getting a personal referral from a satisfied customer, you trust, is one of the best way. The best financial planners continue to build their practices through word of mouth. But don’t accept blindly someone else’s recommendation. Interview the planner yourself to find whether he/ she meets your needs.

    (ii) Seeking Advisors Through Associations : –  

1. The National Association of Personal Financial Advisors(NAPFA)
2. The American Institute of Certified Public Accountants (AICPA)

   are the two renowned associations, you can contact in this regard.

           Hiring Financial Help : –

        Financial Planners or Advisers make money in three ways : –

    — They earn commissions based on the sales of financial products.

    — They charge a percentage of the assets they invest on your behalf

    — They charge by the hour (this can also be done through fixed-fee )

         Some planners charge a fixed fee to whip up a financial plan for you. If you need just someone to act as a sounding board for ideas to recommend a specific strategy or product, you can hire an hourly -based planner for one or two sessions of advise.

        The Cautions To Be Taken While Hiring Planners : –

     Many people encounter various financial problems and lose a lot of their hard earned money from hiring incompetent and unethical financial advisors. To avoid these mistakes, remember the following : –

    — You absolutely MUST do your homework before hiring any financial advisor/ planner.

    — Avoid or minimize conflicts of interest. Avoid “advisors” who sell products that earn them sales commission.

    — You are your own best advocate. The more you know, the more you realize that you don’t need to spend money on financial planners.

         CONCLUSION ; –

     Finding a good financial planner is not easy, so make sure you want to hire an advisor before you venture out to search one. But if you’re too busy , or you don’t enjoy doing it, or you’re terribly uncomfortable making decisions on your own, using a planner for a second opinion makes good sense. If you have a specific tax or legal matter, you may be better off hiring a good professional who specializes in that specific field rather than hiring a financial planner.

         After my blogs regarding investment in various investment instruments and especially about investment in Mutual funds, many readers have asked me that how many funds they should have in their portfolio.

    Although there is no straight answer to this as this depends on a combination of many factors like your age, your investment horizon; your risk profile and above all your financial goals and so on.But for the investors who are in their 50s and want to save mainly for their retired life, it is advised that three or four numbers is good enough.

        As already mentioned, efficiently managed Mutual Funds offer investors low-cost access to high quality managers and to following too many funds may not be practically possible at this advanced age. Mutual Funds span the spectrum of risk and potential returns, from non- fluctuating money- market funds. But there is always a need to review the performance and re-allocate your investment from time to time.

           What Is Diversification : –

     “ Don’t put all your eggs in one basket”, is the proverb we all have learned in school. When we grew up and became investors, we learned that this is a basic virtue we need to imbibe and it is also called Diversification.

        Funds investors took this as an injunction that they should invest not just in one or two funds, but in large number of funds. This is not Diversification. To understand, consider why we Diversify. Diversification saves you from poor performance of a set of investments. If a particular company or sector does worse than the market in general, then having only a small part of your money exposed to it helps. Diversification could also be across company sizes as sometimes only smaller or larger companies do well or do badly. It could also be geographical. Diversification does nothing for you when the entire market declines.

       What Should Be The Size Of Your Portfolio : –

     Most of the investors , therefore, think that investing in two funds was better than one; three was better than two, four was better than three; and so on. Is there an upper limit here? Is investing in 10 funds better than in nine? What about 20? Or 50 or even 100? At some point Diversification becomes pointless, and then it becomes counterproductive and eventually it becomes ridiculous.

        Is there a point of diminishing returns? Most investors would think a limit on Diversification was a strange idea. A few years ago, someone asked me how many funds he should invest in. I said that three or four was a good number. Later the person mailed me his portfolio and I realized that while the sense of my answer was that he should invest in no more than three or four funds, he had assumed I had meant a minimum of three or four funds. Because most of the investors think that the way to achieve Diversification is to invest in a lot of funds.

        Why Too Much Diversification Is POINTLESS?

      Investing in too many funds is not Diversification. The truth is that no additional Diversification is provided by investing in more funds beyond a certain point. Mutual Funds are not an investment by themselves. They are a way of holding the underlying investments which, for equity funds, are stocks. The reason why too much Diversification Is Pointless is that stocks held by similar funds tend to be of a similar set. Beyond a small number, when you add more funds, you are generally adding more stocks that are similar or identical to what you already have.

           The real reason most investors invest in too many funds is because someone sells it to them and earns a commission. The investor does not have a clear idea of what Diversification is and thinks more funds are good. It’s not just a question of there being no benefit from investing in more funds, it is actually detrimental. Having too many funds in one’s investment portfolio devalues one major advantage of investing in Mutual funds, which is convenience of tracking and evaluating one’s investments. Having investments in large number of Mutual funds makes this exponentially more difficult. Periodically, perhaps once a quarter, investors should evaluate each fund in their portfolio and see if it’s contributing what it’s supposed to.

         How To Limit Diversification : –

       However, when you have 15 or 20 funds, most of them bought because some sales person delivered a hard pitch, then this exercise of review is impossible. There will be funds which are 2 percent or 3 percent of your portfolio and it’s hard for you to figure out what they are doing there, what you should expect and what difference it would make if they were doing well or badly. It’s hard to meet your financial goals when you can’t evaluate and manage your portfolio because it’s bloated.

        The sweet spot for the ideal numbers of funds tends to be three or four, anything more is a waste of effort. In fact depending on the size of someone’s investments, it could be even less. For someone investing perhaps, $250- 300 a month, one or two balanced funds are ideal and anything more than that is Pointless.

          Some Other Key Points For Consideration : –

      1 Don’t Invest Based On Sales Solicitations : –

          All companies have to do some promotion, but beware of the companies that advertise and solicit prospective customers aggressively with various tactics. Good companies get plenty of new business through the word-of-mouth recommendations of satisfied customers.

      2 Don’t Invest In What You Don’t Understand : –

          Before, you invest in anything, you need to know its track record, its true cost and how liquid( easily convertible to cash) it is. Don’t go blindly by the advice or recommendations of brokers.

       3 Minimise Fees : –

           Avoid investments that carry high sales commission and management expenses. Management fees create a real drag on investment returns. Not surprisingly, higher-fee investments, on average, perform worse than with lower fees.

      CONCLUSION ; –

        Investment in Mutual Funds is a better way of investment by small investors. But to understand their success is to grasp how and why these funds work for you. So, periodic review of the funds vis-a-vis your goals is very necessary and for proper review , the size of your portfolio should be small.

          Efficiently managed Mutual funds offer investors low-cost access to high quality money managers. Mutual funds span the spectrum of risk and potential returns from non-fluctuating money-market funds. But there is always a need to review the performance of the funds and reallocate your investment from time to time as the return of some funds varies a lot with time.

   Under performance by a mutual Fund may not be the only reason to stop SIPs. There are many other factors also which should be kept in mind while continuing with The SIPs in a particular fund, Here’s why you may like to quit the fund despite the fund performance being well : –

  1 You Need To Re-balance Your Portfolio : –

     If you are re-balancing your portfolio, it may be reason enough to dump some funds and opt for others that are in sync with your goals. The trigger for re-balancing could be many. For instance, you may need to alter the risk profile of your portfolio due to age,say , when you are approaching your 50s. In such a case, you would want to move from an equity -oriented to a debt heavy portfolio. Proximity to a financial goal could also mean that you move out of equity- oriented funds and opt for safer options like balanced or liquidity funds.

    2 Fund Is Not Performing As Well As Peers : –

       It is possible that your fund is giving high returns over a specified period, which may seem acceptable to you in isolation. “However, if you compare it with its peers and find that other funds are giving much better and your fund is lagging behind, you may want to move out of the fund ad invest in a better performer” say some of the experts. So, a fund may be delivering high returns, but its performance should be seen relative to the category’s performance. If it does not match up, shift to a better fund.

      3 You Have Reached Your Financial Goals : –

         Ideally, one should align one’s investments in Mutual Funds with specific goals. So, if you invest in an equity fund for 10 years for your child’s education, you will need to exit after this period as you will require money. Have the discipline to quit even if the fund is doing exceedingly well. “Don’t get greedy for higher returns and continue with SIPs”. For instance, if you were supposed to exit in 2017, but did not do so due to bull run, you would have suffered a loss when the markets fell in 2018. You are jeopardizing your goal by not exiting when you should.

      4 Fund Objective Has Changed : –

        If the fund changes its objectives regarding risk or return in a way that it is not aligned with your objectives, you should quit even if the fund i performing well. For instance, if you had invested in a conservative hybrid fund, but it raises its equity holding, or a thematic fund starts including scrips not related to the prescribed theme, iot is time to end your SIPs. Instead, opt for a fund that sticks to your portfolio’s risk and return profile making it safer to reach your goals.

      5 Fund Management Team Has Changed : –

        If a merger or acquisition of the fund leads to a change in the management team to the fund manager quits, you could consider bailing out under some conditions. If the fund’s investment policy or objectives change and are not in sync with your goals, or you are not comfortable with the new team and believe the performance may be impacted in the future, you could consider shifting to a different fund. You can also move if you are not happy with the new fund manager’s track record.

      6 Fund Overshoots Median Returns Or Benchmark : –

         It is possible that the fund has performed well over several quarters, but significantly overshoots or falls below the median returns or benchmark during the period. In such a case, even though the fund is doing well, you should quit and go for a less risky option. “It may be a nigh beta fund with excessive volatility and the upside or downside swing may be huge”, says Rohira. If you have aligned the fund to a particular goal, it may not be good idea to retain the volatile fund in your portfolio taken in by the high returns. The risk associated with such funds may not be worth the promised returns.

      7 Change In The Macro-economic Environment : –

        If there are changes in the macro-economic policy by the government or the regulator, and the fund does not align with these or these are likely to impact it in the long run, it may be a good reason to move out. For instance, if a budget announcement renders some funds less tax-friendly than others, you may want to shift even if the fund performance is good as it may impact your returns in the long run. In such cases, to safeguard your capital, you can exit and re-invest when the scenario changes.

       Some Other Salient Points For Consideration : –

    The following are some of the other very important points which you must consider while you make important investment choices : –

      1 Don’t Invest Based On Sales Solicitations :-

         All companies have to do some promotion, but beware of the companies that advertise and solicit prospective customers aggressively with various tactics. Good companies get plenty of new business through the word-of-mouth recommendations of satisfied customers.

      2 Don’t Invest In What You Don’t Understand : –

           Before you invest in anything, you need to know its track record, it’s true cost and how liquid (easily convertible to cash) it is. Don’t go blindly by the advice or recommendations of brokers .

      3 Minimize Fees : –

          Avoid investments that carry high sales commission and management expenses. Management fees create a real drag on investment returns. Not surprisingly, higher fees investments, on average , perform worse than alternatives with lower fees.

       4 Pay Attention To Tax Consequences : –

          The more money you pay in taxes, the less you have for investing and playing with. For investment outside retirement accounts, you need to match the types of investments to your tax situation.

       CONCLUSION : –

    Investment in Mutual Funds or Exchange -Traded Fund is a better way of investment by small investors. But to understand their success is a grasp how and why these funds work for you. So, periodic review of the funds vis-a -vis your goals is very necessary. If required, you can re-allocate your investment depending on their performance.

We all know that billionaires, whether Warren Buffett or Bill Gates, have more money than we can imagine. Here’s an interesting question for you though. What do you think is their “ Wealth “ made up of ?

   Is it in their bank balance? Do they have multi- crore F,Ds.? Is it the value of their real- estate holdings, or something like that ?

   The Not-so -Secret Truth.

 The truth though is that they are rich because they own companies and the companies they own are very valuable. The top Five rich people in 2017, from Bill Gates to Mark Zuckerberg, each one has a net- worth more than $50 billions, and each ons a significant share in certain companies.

    Their source of wealth is not “Cash” or buildings or private jets. Nor is it their “Jobs”. It’s the companies they helped establish and /or are part owners of. You might notice that this is also true of the “Rich” people around in general- more often than not they happen to be business owners.

   The rich own not just their own companies, but(like Warren Buffett) may just be part owners of other companies. The top 10 list of richest people doesn’t include any movie stars or sports stars or real estate moghuls.

    So Why Is It That World’s Richest People Own Companies ?

 Companies are generators of Goods, services and most importantly talented people- people like you and me who are key creators of wealth in companies. Their smart ideas lead to the next generation of goods and services.

 The result is that a successful company creates what is called “economic value”. Essentially , their output is more valuable than the sum of all the inputs go into making their product or services. A Domino’s pizza is more valuable to the person ordering than the sum of the flour, tomatoes, building rent and salaries etc. that go into making it. .

     That Is Wealth Creation

      Guess Who Reaps The Maximum Benefit?

   The shareholder does, in the form of an increase in the value of their shares and regular dividends. Since the promoter of the company or the majority shareholder owns most shares in such a “Great” firm, they receive most of the payouts.

  But it’s not just the founders who benefit. Most often there are other investors in these companies- VCs for private companies and individuals like you and me for listed companies. And they benefit Too.

     Why Should You Know All This ?

  Because same solutions to becoming Rich are available to you too. You don’t have necessarily have to establish your own company even.

  The easier option is to part owner of other companies by buying their shares. But, how do you know, among the thousands of companies, which one will be successful?

   That’s where equity Mutual funds come in. Let professionals decide which companies are the most likely to create wealth. You simply invest in them to become wealthy. You might not make it to the top 10 richest people list, But at least you will have enough wealth to enjoy life- or to start your own company.

    What Is A Mutual Fund?

  A Mutual Fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature. The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, and they provide liquidity. But investors in a mutual fund pay various fees and expenses, known as total expense ratio, to manage the funds like professional charges to fund managers.

   Mutual Funds are classified by their principal investments as money market funds, bonds or fixed income funds, stocks or equity funds, hybrid funds or others. Index Funds, a category of Mutual funds are passively managed funds that match the performance of an Index, or actively managed funds.

    Mutual Funds Vs Stocks : Which Is Better?

  In Mutual Funds, for a small fee, the investor gains the stock-picking ability of the professional fund manager, does not have to track his portfolio and also benefits from tax-exemption of the portfolio gains.

     The main reasons why the fund route is better, is as follows :-

1 No Need To Pick And Track Stocks : –

         When you invest in a mutual fund, you get the benefit of a fund manager’s expertise- picking stocks, tracking them, making sector and asset allocation, booking profits, when required- everything is done by a professional fund manager. A professional fund manager ensures that the portfolio holds good stocks with potential long- term returns.

2 Lower Cost Of Investing : –

         Fund houses negotiate with intermediaries and, therefore, have lower costs. If you buy and sell shares, you will probably pay 0.5- 1% as brokerage. You also have to pay demat charges.

       However, due to their scale, mutual funds pay only a fraction of the brokerage charged to the individual investors. This benefit gets indirectly passed to you as a Mutual Fund investor. You also don’t need a demat account.

 3 Instant Diversification : – A well diversified portfolio should have about 25- 30 stocks. But, such a portfolio can be created only with a large corpus. An individual might not have sufficient funds for a large diversified portfolio. Mutual funds provide instant diversification. Since you buy units of the fund that invests across several stocks, you receive diversification benefit without investing a huge corpus.

 4 Low Cost Of Entry : –  Most mutual funds have low minimum- investment requirements, especially for retirement account investors. Even if have a lot of money to invest, consider funds for the low-cost, high quality money- management services they provide.

 5 Flexibility In Risk Level : – Among the different funds, you can choose a level of Risk that you’re comfortable with and that meets your personal and financial goals, like aggressive, moderate or conservative. If you want to be sure that your invested principal doesn’t drop in value, you can select a money-market fund.

       CONCLUSION : –

   You are the master of your destiny. But you must have a Desire to achieve your goal/s; Faith and Strong Belief in you that you can achieve it; Imagination- to rearrange existing ideas into new concepts and Specialized Knowledge and Skills in order to add value and be paid for it. Most of us, at this advanced age of 50- 55 years may be lacking the specialized knowledge of various investment vehicles available and in such a case, the professional knowledge and experience of Financial advisors can be of great help which is available in mutual funds investments. Transforming Desire into money requires specific plans, for which we have to have always deep Desire and Confidence.