Updated: Jun 10, 2021
Q: If you don’t see any positive returns in your SIP, should you continue investing?
A: Do you sell your gold when you see the price going down? Do you cut a plant just because it is not bearing fruit within few months? Do you stop working out if you don’t lose weight? Few things take time.
Never as much as possible take out your money from your investment. Unless, you have invested for a specific period based on your goal and it’s time or if the fund is not that good anymore for which there could be plenty of reasons which your financial advisor will know and help you with.
Market works in cycle so your SIPs has bought you in high price as well as low price, which averages out your buying price. Let’s understand this with an example, suppose you invest ₹1000 every month and your fund NAV is ₹10. In first month you will receive 100units, if in second month it goes down by 1point, new NAV will be ₹9, your investment will buy 111.111 units. Third month NAV is ₹10 again, you will get 100 units.
What are your total units= 100+111.111+100= 311.111
Current NAV is ₹10
Current value of your investment will be = 311.111 x 10= ₹3111.11
Your total investment is ₹3000. Can you see your investment has grown even though NAV is same as your initial investment.
That is the power of SIP.
Q: If you only have small amount to invest, is it even worth it?
A: Investment is not just about making money, it is a habit one inculcates within himself that helps him in the future. Investing a small amount does not necessarily mean that you will never invest in future, it will show that you want to create a better future for yourself. By choosing not to invest that small amount, instead spending it will loosen your self discipline that you could have built. If you don’t save it today, there is a good chance that you will find other reasons not to save in the future as well.
Q: Is it better to invest in Indian Stock market or American Stock Market?
A: Thinking of investing in other stock markets definitely increases your diversity, however it is very important to be aware of the cost of investment as well, which is a topic that hardly anyone brings up. If there are good, low cost options available, it will be beneficial.
Companies have started to create a fund that includes companies that are not included on BSE and one can invest in foreign companies through these funds. Available option does not mean that the option is better, companies that the fund is investing in, charges that will incur to investor, conditions that are attached with investing in American stock market, taxation on the capital gain, etc. are few of the factors we will have to study to determine quality of the investment.
Q: What asset allocation you should use?
A: Well, it totally depends on your goals and the timeline you are setting to accomplish those goals. It also depends on your age as risk appetite in some cases is relatively lower as age progresses. It also depends on how much money you want to invest as first and foremost you should plan for retirement.
Broadly speaking, in the early stage a high proportion can be invested in medium risk funds such as mid cap and small companies. As time passes, the portfolio can be systematically shifted towards less risky A grade bonds (debt funds) and you also might want to keep a safety net in cash in case of emergencies. Percentage allocation can be determined by studying more about the individual investor depending on the above mentioned factors
Q: What are the risks in Investment?
A: If you are investing directly in individual stocks, this will be considered as high risk investment as it needs a great deal of research and understanding of a lot of concepts.
If you are investing based on top performing funds, it poses another risk as past performance does not guarantee similar future returns.
If you are investing into a sectorial fund based on assumption such as high growth in transportation or logistics or automobile any particular sector, this could be risky as your portfolio will be highly concentrated.
One can avoid these risks, either by directly investing in index funds or contacting a good financial advisor.
Q: I am 23 years old, should I already be saving up for retirement?
A : It is great if you have started earning so early on in your life. This gives you a lot of advantages. First is compounding effect. Longer your money is invested, the better chance of having an optimum return. Second is you start to develop good savings habit which pays off in a big way in the long run.
Q : What are the ways by which to secure an early and happy retirement?
A : Creating a passive income source is one way to secure an early and happy retirement. Now, how do you create a passive income could differ from person to person.
- One can start his own business, Or - One can start a business and hand it to someone else to manage and takes a percentage every month, Or - One can invest in companies that pays dividends and live off of it, etc.
Or start saving , save regularly, save for long term, save first and then spend, spend less than you earn and you will eventually reach happy retirement
Q : How do you earn, spend and save money?
A : According to me it is a very simple habit if you earn, save and then spend and once you apply this, you will never have to worry that you overspent or haven't saved enough. On earning more- I would recommend to read a book by Cal Newport- either his ‘deep work’ or ‘be so good they can’t ignore you’. Which tells you to develop skills that are not easily replaceable and that will give you your edge for asking more. On Spending- Now, you have got the sequence wrong here. Or perspective should I say. You have to first think about saving a certain percentage of your earnings every month and then think about spending. On Saving- Just start investing in proper investment avenues with proper allocation and keep your auto deduction on with deduction date close to after you receive your paycheck. Once you don't see the money in your account, you will not be over excited to spend the money. This will create an environment or a habit that will prove to be the best habit for savings.
Q: At what point you should know that you need to change your investment or insurance advisor?
A: First and foremost, if he asks you to invest in a fund that has given highest return in last 1yr. Why? Because, if a fund does good, it means more money to that company, and to promote that fund, company increase commission for the advisor and INVESTORS pay for that commission and there is no guarantee of future performance. Second, if your advisor recommends to invest in highest performing funds for past 1-3 yrs. Because, this is a very short period to determine if the fund is good or not. Third, if your advisor asks you to buy an any insurance plan with fancy name instead of TERM PLAN, because you buy insurance to protect your dependent in case anything happens to you, there are plenty of others ways to get a return other than insurance.
These are just the quick check points, you can DM me to know more in detail.
Q: Why do you need a consultant?
A: Try asking one your friends or relatives about what you should do after 10th / 12th / graduation, or where you should invest your money or which business should you start or how to resolve any issue with your partner. You will always hear their biased opinion or opinion they have created listening to someone they admire or just blabber without having any base. There are very few people around you who genuinely care about your wellbeing and have knowledge or understanding to solve your problem. If you know someone like this, by all means ask them. But if you don’t, you need a consultant who can help you understand the root cause of your problem, so it never happens in future, who will give an unbiased advice with proper explanation to justify their recommendation.
Q: What are some simple wealth generating habits which anyone can start to use, whatever their situation?
A: One has to develop a particular mindset first to accumulate wealth. It starts with saving first and then spending. Spending less than you make. Every person should save depending on the situation and invest in a proper investment avenue and beware of things that encourages you spending more. For example, many people tend to use credit cards but they forget that they have to repay the money and have to pay a hefty interest if they don’t repay. Wise use of credit cards could benefit you in multiple ways such as building credit score, getting loan, other discounts, etc. Reading also can help you generate wealth. To know how, will take another post to answer but know that it does.
Q: Should you invest directly or through an agent?
A: Investing directly will definitely save you some money, however it is your agent who can help you determine, where you should invest? When? How much? How you should plan your goals and retirement? Let’s take Doctor for example, if you get cold, many would try to use home remedies, but what if your cold lasts more than a week or two or three, you will definitely want to see a doctor now, right? Same is the case with advisor, there are certainly basic stuff you could find on google or few articles but in a long term, there are things like above that is best advised by a professional advisor.
Q: What are the best investment strategies for people aged above 40 years?
A: I will have to make couple of assumptions since the answer will differ based on many factors like income, expense, number of kids if married, years to retirement, kids education and marriage expenses, goals like going on vacation or buying another house.
Assuming the individual has necessary term insurance, has at least 6-12 months of monthly expense for emergency, has bought a house and paying its EMI, and has substantial amount saved. This saved amount can be invested in three parts.
One for short to mid term(5-7years) that can be invested in high quality debt funds, second for mid term (10-12years) that can be invested in top 50-100 companies of india,
Third for retirement (20-25years) can be invested in two sets, top 50-100 companies and top 100-200 companies.
Amount will be decided based on the factors mentioned above.