Friday, October 11, 2013

3 Principles to generate superior returns from your investments...

On 31st March this year the BSE Sensex was at 18835.
The return across different time periods looked like this:
1 year 8%, 3 Years 2%, 5 years 4% and 7 years 8%

To anybody investing in Indian Equities over the last 7 years! It has without doubt been a painful experience.  This is understandable but not justified, if you have set your goals and believes in your financial plan.  The challenge is to control your emotions, to stay away from panicking and taking impulsive decisions regarding your portfolio. It is not so hard if you believe in basics.
We all like our investment to generate the best (which in our mind is highest) returns.  Rather we should aim for superior returns across our lifetime.
First to understand “Superior Lifetime Returns” – it’s not the highest return but return that is required to achieve goals with minimum time, effort & stress. If you stick with these principles & practices – they will account for 90% of your investment success.  So here are the 3 Principals to ensure your investments deliver SUPERIOR RETURNS…


There is difference between hope and faith.  Hope is the state which promotes the desire of positive outcome related to events and circumstances in one’s life or in the world at large. But we don’t have proof for hope.  Faith on the other hand (at least in the investing world) is based on historical data and facts.  You need to be an optimist to make create wealth in equities.  Equity may delay returns but have never denied it.


Warren Buffett once said “The Stock Market is a highly effective mechanism for the transfer of wealth from the impatient to the patient.”  Some may not lose faith easily but they do lose patience.  We are beginning to learn from our media to focus on the “Breaking News” rather than the complete picture.  Likewise in investing we focus on the current bleak situation rather than on our own long term goals. Even the long term investor is tempted ‘right now shift to debt till the things improve’.  In doing so have you considered that you are attempting to be right Twice Over !!!  Once when trying to exit, and once when re-entering.  There is no successful investor who can ever boast of getting this strategy right consistently.


Patience will help in not doing wrong things and Discipline will help in keep doing right things.  All of you at some time or the other have heard me speak of SIP (Systematic Investment Plan).  This is the medicine that will bring discipline into your investing.  Dispassionate investing on a monthly has weathered many a storm and given Superior Returns over time.  Remember discipline fails, the plan fails.

Coming up next – 3 Practices to achieve superior returns from investments…

This article has been inspired by a Financial Planner Hemant Beniwal.  His articles regularly appear in financial magazines.

Tuesday, October 8, 2013

Does High Income mean Financial Security

Does high income means Financial Security
Do you always struggle to pay your bills towards the end of the month despite earning decent money? If yes, then you need to keep a check on your spending habits. It's a common notion that higher income is the key to one's financial success. Many of us believe that jobs paying lucrative packages and providing thriving opportunities are a pre-requisite to secure our financial future. But we often forget that money doesn't beget money on its own; it's us who can make money work for us. We need to understand what may spoil your financial future despite of you earning high income.
 What should you be careful of?
·        Excessive spending would leave lesser amount in your hands for investment
·        Excessive debt would always eat into your earnings eroding your surplus
·        Poor utilisation of your surplus may reduce your chances of earning attractive returns on your investments
High income and lesser responsibilities may entice people to spend excessively on their lifestyle related expenses and splurge money on recreation without even giving a second thought. One might be getting a good hike in income every year; but may pile up huge debt being extra-optimistic about future rise in income. Some may have lesser debt but ineffective investment plans may still generate lower returns on their investments. This may eventually lower your chances of generating wealth that you may otherwise have generating have had you invest in winning investment propositions.
What should you do to make your money work for you?
·        Avoid impulsive buying
·        Plan and monitor monthly expenses
·        Make effective use of credit cards
·        Avoid excessive borrowing
·        Make a list of your goals
·        Forecast amount you need to achieve your goals
·        Prepare an effective investment plan
·        Monitor and revisit your plan at regular intervals to make it more effective
 Many of us spend first and invest later but it should rather be the other way round. You should spend on your lifestyle and other recreation activities only after investing an ascertained amount every month.  Habit of investing systematically helps you grow your investments which can be utilised for achieving your goals in future. It is important to estimate amount you may require to achieve your goals in future. You should try to first predict as to how much money you may need if a particular goal was to be satisfied today. 
Using appropriate rate of inflation you may arrive at the amount you might require in future to satisfy the same life goal. For Example, if you have 15 years left in your retirement; you must first forecast how much money you may need every month post- retirement if you were to retire today and try to estimate how much money you would need every month after you hang up your boots. For planning your finances you might take professional help. Once the amount needed for fulfillment of goal(s) is ascertained you may chalk out a suitable investment plan. You must know your risk appetite before investing in any asset. Right asset allocation and timely monitoring is the most important part of any investment plan.

Drop us an email and help us re-work your finances for a secure financial future.