Over the three year duration of investing and four year period of saving I have collected some data/information. Most of this data is easily available but some has been collected talking to different money managers. I am writing this down here so that this might help me to stay committed to my financial goals and help some of you in not committing mistakes which I made. (“shooting in the dark” Investing).
This is how you go about doing it:-
A>Expenditure Maintenance:-
This is best practical way to get a hold of your spending. Over the duration of two-three months identify and analyze your expenses. This task can be boring but it’s the awesome tool to realize where every penny is going.
B> Goal:-
On a piece of paper write your financial goals. Write what would you like to do after 6 months (Short term goal, example:-Buy a Pulsar), what would you like to do after 2-3 years (Medium Term Goal example buy Maruti Swift). What would you like to buy after 5-6 Years (Long Term Goa example buy a Sobha/DLF apartment?)
C>Banking:-
Banks are one of the safest places to park money but too much money in banks is also not advisable. Make sure that you have at least three bank accounts you can have more but it becomes tough to manage.
A>1st account is Salary account.
B>2nd account is Investment account. (This should preferably be a bank which allows ECS deposit and withdrawal)
C>3rd account is Emergency account. (This should be preferably a fixed account in a PSU bank for example SBI or Corporation bank)
D>Time for Calculations:-
1. Calculate the average expenditure over the period of the 3 months (You can make that 6 if you have that kind of data).Suppose you have a salary of Rs10, 000 and average expenditure is Rs 6,000.
2. Subtract this amount from your salary.10000-6000=>Rs4000.This is your savings.
3. Out of the Savings amount deposit the 75% (Rs 3000) in the Emergency Account.
4. The rest of the saving go into the Investment account (Rs 1000)
Assuming the salary to be around 10,000 the initial target of the Emergency account is 6 times the salary i.e. 60K.Any bonus should be transferred into this account. Once this initial target of 6 times the salary is met change the 75% to 15% .In our case after meeting the target just deposit Rs 600 in the Emergency account and Rs 3400 in the Investment account.
E>Time to Invest:- The investments depend on goals, While selecting investment refer to your goals and chose the one which matches, for simplicity sake assume that we have a starting investor named Ashish. Ashish is able to transfer around Rs 5000 to his investment bank account (after depositing money in his emergency account).
- Ashish realizes that his “Ultra Long Term Goal” is to save money for his retirement around 20 years from now.
- His “Long Term Goal” is to make a down payment for an apartment/house around 5 years from now.
- His “Medium Term Goal” is to make a down payment for a Maruti Swift around 3 years from now.
- His “Short Term Goal” is to buy a sleek new Nokia Mobile around 6 months from now.
Ultra Long Term Goal Solution
1. Ashish is not a very high risk talking investor so he invests Rs 500 in the PPF every month. This also provides tax deductions as per the current IT laws in India.
Long Term Goal Solution
1. Ashish’s friend Suneel convinces him in investing in Mutual funds as the returns are better and its safer than buying individual stocks.
2. Suneel suggests following websites to do preliminary research
a. www.valueresearchonline.com
He advise Ashish to invest in the best funds mentioned in the above websites (more emphasis on valueresearchonline ratings J )
3. Ashish invests around Rs 1000 in a five star equity diversified fund to bring some aggression he also invest around Rs500 in the Mid Cap mutual fund and Rs 1000 in one more five star equity diversified fund.
Medium Term Goal Solution
1. Investing Rs 1500 in a five star rated Balanced fund (Balanced funds invest in both equity and Debt thus they are less risky as compared to the equity diversified fund.
Short Term Goal Solution
2. Invest Rs 500 once again in a Fixed Deposit account provided by one of the banks or in a short term liquid fund.
Investment Chart
|
Investments |
Options |
Percentage |
|
Ultra Long Term Investment |
PPF |
10 |
|
Long Term Investment |
Equity Diversified , Mid Cap fund |
50 |
|
Medium term Investment |
Balanced fund |
30 |
|
Short Term Investment |
Fixed Deposit, Debt Fund |
10 |
After every 6 months Ashish analyses his Mutual funds, He checked whether they could beat the category average, sensex/nifty and made the necessary modifications.
P.S.:- In case you would like to bring more aggression to the above mentioned portfolio you may want to remove the PPF and replace it with a Mutual Fund. The above mentioned portfolio follows the Graham’s rule of 75%-25% allocation.
Ashish wanted to increase his knowledge about financial markets and investing.Suneel gave him the below mentioned resources:-
Online:-
* http://www.sharekhan.com:-It has a Knowledge center section which has some excellent articles.
* http://www.investopedia.com
* http://www.valueresearchonline.com:- My personal favourite J.
* http://www.moneycontrol.com
Books:-
* Outlook “The Layman’s Guide to Mutual Funds” Amazingly good starting book
* “Intelligent Investor” :- Benjamin Graham.
* Rich Dad Poor Dad:- Don’t read too much into it but do understand the concept of creating assets and labilities.
Investing is a journey and not a destination hopefully the above method helps you get started on this long but enriching journey, Questions and criticism are most welcome .I would like to finish this article with some of the quotes by some investing gurus.
Note :- The 75-25 limit which Graham talked about depended on the market.If the returns from the bond were better than stocks the 75% should be invested in bonds 25% in stocks and vice versa.
If you have trouble imaging a 20% loss in the stock market, you shouldn’t be in stocks.”
:- John C. Bogle
“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”
:-Benjamin Graham
“Investing without research is like playing stud poker and never looking at the cards.”
:- Peter Lynch
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
:- George Soros
Posted by sabab 
Hmmmm 