EAST WEST LOVE STORY

How easy it is to say “I love you”,but do both the parties understand the meaning, well I am talking about young adults of either gender and meaning no offence intended for aberrations intended or unintended. Psychology says that love in such cases has three aspects to it First is passion , which is natural with coming of age, second is intimacy which is more of accepting each other living together with individual strong and weak points and finding a happy balance and tolerance to live happily ever after till death does them apart. Third is commitment to each other and mutual inter dependency in times good and bad and in joy and sorrow.

So when which aspect is meant or which aspects are excluded or included is the question.Offer and response both may get mistaken intentionally or otherwise.

Eastern world lays emphasis on the aspect of commitment and hopes that passion and intimacy aspects will match or will result as a part of mutual adjustment. Thus the social practice as in India of arranges marriages which are often decided by parents and families with the couple hardly getting any opportunity and time to interact or explore the first two aspects of passion and intimacy.

Western concept of dating and living together lays emphasis on the first two aspects of passion and intimacy before finally deciding to tie the knot and get married.

Both the systems seem to work in many cases but have exceptions in both the systems. Finding common grounds and a balanced middle path is difficult and works in a few cases .Belief in marriage as an institution of social relevance for human beings seems to find a general acceptance too. Given what can be controlled and managed by human beings the evolved system has endured test of times and does not seem to face any serious challenges but improvements and better balanced middle path between the two one can hope for.   

       

Asset allocation

All savings will finally get converted into an asset; these are of four types Equity, Real Estate, Gold and Silver and Fixed income instruments. The assets portfolio will consist of these four, all of them have some characteristics like ease of liquidity or absence of it, positive or negative correlation with each other and risk associated with them. Within fixed income instruments also higher interests may be offered as returns but beyond a point the capital itself will be at risk. All of these assets have already been discussed in my earlier blogs which are available for reference  

Thus there is a need to optimize the allocation for these assets and balance it once in a while.Asset allocation needs to be balanced to suit your age and life position and situation too.

 Even if you were to make an asset allocation there are constrains which will not make it practical for small amounts of savings to be invested in assets like real estate or even precious metals. You need to understand the characteristics of these assets well in order to make timely switches and build your desired portfolio to become wealthy and achieve financial freedom, which, to me, seems like a worth a while aim and aspiration. Earlier you achieve it more time you have on hand to do what you enjoy and like without worrying about the monetary returns from your activities which then become immaterial.

Journey to this aim through assets allocation is an interesting one and enjoyable too. Initially when your savings are small, you can use fixed income instruments and equity to grow the savings at a rate higher than inflation. When you build a little kitty good enough to serve as your margin money for your first house, you can take a housing loan and pay EMIs instead of monthly rentals.

Before you do these don’t forget to build your emergency fund which can be roughly equal to six months of your monthly expenditure and it must be liquid and available easily.

As regards precious metals these are recommended to be about 10% of your net worth or total assets.

In the long term the assets which help to build your net worth and wealth are likely to be Real Estate and Equity.Level at which you aim for your Financial Freedom will depend on your needs and life style; everyone has to define this Financial Goal for himself.

There is no asset which always appreciates or depreciates but over a longer period equity serves the purpose and depending on your choice of real estate that asset can complement too.

This is my last blog in this series on Personal Financial Management. I thank all the readers who read it and tried to benefit from it.I am happy I could write one every week regularly and complete the task. Now it will be available as reference material for the future.

Any questions or queries are welcome on my email id prakunda@yahoo.co.in. I plan to now write randomly on different topics as and when I think of one and get down to write.  

HOW TO START INVESTING IN EQUITY AND GROW YOUR SAVINGS FASTER THAN INFLATION WITHOUT SPENDING TOO MUCH TIME, WITH REDUCED RISK TO ACHIEVE YOUR GOAL OF FINANCIAL FREEDOM AFTER YOU ARE READY TO START !!!

Characteristics of Equity Investments

1. Equity is risk capital so risk is inherent, skill lies in managing it to minimize it.

2. Risk and returns are co-related to a point, where this point is crossed risk is of losing the capital and not merely a question of returns.

3. Equity as an asset class give best returns over longer periods of over 10 years and more.

4. Patience and discipline along with a carefully selected strategy is required.

5. Better returns will follow if you can stick to your strategy, ignore the clutter and noise created by the media, brokers and vested interests.   

I have discussed at length various subjects understanding which is essential for preparing yourself to be ready to start making equity investments. These preparations,I am delineating again for emphasis,  will provide you with a strong base and reduce the risk.

1. Making a budget

2. Keeping a record of daily expenditures and comparing it with the planned budget at the month end to make course corrections.

3. Focused savings, sustaining the savings and increasing if possible.

4. Creating an emergency fund

5. Taking term insurance for both spouses

6. Buying your first house

7. Planning for retirement - Pension Scheme or PPF accounts for both

8. PPF accounts for children -(PPFs are NOT for NRIs.)

9. Separating business finance from personal family finance if doing business.

10.  Developing correct attitude towards money,giving away a part to more needy ones and being disciplined and patient with the savings and investments.   

Once this is done you are ready to make equity investments which are in the form of SIP meaning they are made regularly every month. These are expected to grow over a long period and are not to be withdrawn.

Now we come to the key issue of how to start investing and continue investing in a disciplined manner.

Personally I am of the opinion that this is best done taking help and learning from some one like me as it is simple but not easy and is better done with such help. This reduces the risk and learning will help you to teach others as well as make you more confident and in complete control of your money and lead you to your Financial Freedom goal.

However some may be able to do it by themselves (DIY) hence this blog is meant mainly for them.

Sequential steps

1. Decide how much you want to invest every month in equity investments

2. Understand the basics of finance if you do not have this knowledge

3. Select your criteria for making equity investments like debt equity ratio, PE ratio,book value, dividends pay out etc. There are many of them you will need to understand them and then select a few. Say 5-6.

4. Select companies which meet your criteria again say 5-6.

5. Divide the amount you want to invest in these companies every month or at a planned frequency. This will depend on your criteria selection as well as companies selected, money you want to invest and the market prices of selected shares.

6. Invest only in companies whose business you understand or get to know it if you do not understand and are keen to invest in them.

7. Explore to get an insight into the management of these companies

8. Decide a risk percentage you are prepared for every scrip you have selected. This is your stop loss for that company.

9. Shift the stop loss if market price goes up and sell if it hits your stop loss. If both of these do not happen then continue making investments as planned.

10. Stop reading or watching all media unless it is related to these selected scrips in your portfolio.

11. Focus on your work and career and plan to spend only a 10-15 minutes every day or an hour per week to have a look at your investments. Watch for the margin of safety your scrips generate as time passes.

12. Increase your savings for equity investments as your income increases along with your confidence.

13. Note that results may take at least a few years to be visible so be patient. This is a method to reduce your risk and get enough returns to achieve your goal of Financial Freedom over a prolonged period of time.You will be richer slowly but steadily. Do not discuss your success or failures as regards your investments with bankers, brokers, friends who do not know your life position and situation.They will not be able to give you any better holistic solution. In fact they will like all media confuse you and challenge your discipline and shake your confidence. All the best !!!

With one more blog on assets allocation next week, I will be closing this series of Personal Financial Management.This is what I wanted to share with those interested and also to serve as reference material for those who are learning and taking support from me on www.moneymonk.me  as well as others. In this process I have made new friends and well wishers to whom I am grateful.

GOLD AND SILVER AS INVESTMENTS

High investments in gold is another reason why even high salaried people with many years of long service still do not have high net worth. Historically gold and silver in India have served well as prudent investments because of their rising costs, high relevance for marriages as an absolute essential a “Streedhan” or girl’s own kitty and use as ornaments. It was not only an investment but seen as something investment plus.

Times have changed and a rethink is thus required. Wearing of jewelry has reduced as its risky and out of fashion too.Prices of gold in recent past have fallen rather than increased and are rather volatile.     

Investors bought precious metals earlier for two primary reasons. First, they hoped that prices will continue to increase (desire to gain money). Second, they believed that other investments will decrease in value (desire not to lose money).Real estate and banking was out of reach for many for various reasons and very few people had even heard of equity as an investment option and investing in equity was not easy before technology made it so. Scope to regulate and monitor better still exists though.

Beyond that, a gold coin or silver bullion sits on your shelf and collects dust. Any value it gains is independent of its existence. It's just a lump of metal. It can gain or lose value due to circumstances outside of your control. Year after year, a gold or silver coin keeps sitting around, and there's nothing you can do to affect its price.

Here is what Warren Buffets, the iconic investor behind Berkshire Hathaway said in a talk he delivered at Harvard in 1998,

"(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

The idea is simple: There is no use for gold.

“it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.”

More importantly, holding gold does no value or service to the world. Value is created by producing something or giving some service. No additional value is produced by holding something of value and not making any money from it. An investment is something which pays you money.

Depending on your appetite for risk, sometimes precious metals make sense. Their prices tend to move in directions opposite of the market. If there's a market drop (like in 2008), gold prices tend to rise. You can't count on that happening, but diversifying your investments can help you avoid losing everything

Practically in India it will still take some time before people reduce their traditional attachment to gold but in the mean time except for the jewelry which ladies want to use even occasionally at weddings and other alike traditional functions and occasions, one choice is to keep the gold in pure form as deposit if you know and trust a jeweler and he is willing to give you interest on it and better still if this interest is in gold form and is compounded. Realizing the huge amount of gold with people in India Government too has offered gold bonds which give low interest but risk of keeping gold is eliminated   

Despite all the above those who still want to and keep some gold as an asset class I will recommend not more than 10% of their overall assets but more about asset allocation later in this series.