Congrats Holistic Investment Planners

K.Ramalingam of Holistic Investment Planners got the CNBC award for Best Performing Individual Financial Advisor. I am so happy to have published more than 50 articles on finance by K.Ramalingam in my blogs StreetSmart@Work and Bonsai Bumblings. I feel so proud to have worked with you all. For a person like me whose financial knowledge was restricted to just collecting salary and saving money, Ramalingam's articles were an eye-opener in areas of inflation, investments, and spending. I enjoyed the finance tips & tricks as i shared the articles with my blog readers. You deserve the award Holistic Investment Planners.

                   

Leak Proofing your Personal Finance to Build Wealth

Financial Plumbing

Many have a tendency to complain about inflation, taxes and EMI’s as deterrents to saving and investments. But the question is are we making a conscious effort to save and control spending? Do we have any financial leak and are we ignoring them?

My intention is not to confuse, but to emphasize that you need to fix these leaks. So that you can create and build wealth that can last for a lifetime.

Arun, a marketing professional earning Rs. 24lacs per annum post tax was surprised how his friend Girish who earned just Rs. 18lakh per annum and having similar family conditions could save and invest. Taking Girish into confidence he explained his problems. Girish gave him a patient and empathic hearing. Girish explained where Arun spent unnecessarily or created financial leaks and how these leaks could be plumbed. This could make Arun feel financiallt fulfilled in his life.       

   

The Financial Leaks:

 In addition to his necessary expenses, Arun spent a lot on things that were unnecessary and unhealthy. Some of the financial leaks or avoidable expenses included his smoking and drinking expenses. Since he belonged to the upper status of society Arun believed that drinking and entertaining his friends and colleagues with foreign liquor at least once a month was essential. This even took up about Rs.1.5laks to 2lakhs of his annual income.

In addition Arun dined in star hotels at least once a month, with dining out in other restaurants at least twice a week. This took up about Rs.1.5laks annually. The family believed in shopping in expensive malls and watching movies in multiplex that cost him about Rs.300000 per annum. In addition there was the yearly recreation and other lifestyle expenses.

Method of Financial Plumbing:

Girish emphasized to Arun to cut down on his cigarettes and alcohol to not only save money and invest, but also to care for his health. In addition Girish suggested that he find other healthy ways to relax like doing deep breathing, meditation and relaxation exercises daily. Next he suggested that he entertained his friends in more healthy ways and minimized his visits to star hotels and restaurants for a meal.

He told Arun that dining at home, experimenting on their new favorite recipes. Cooking together as a family provided the togetherness and helped to get the family’s cooperation in meeting the savings goals. Shopping just for essential needs, with entertainment in theaters or watching videos at home instead of visiting multiplex theaters saved money on tickets and in travelling to these theaters that were on the outskirts of the city.

I am sure we all could relate and find some that could identify with our spending habit patterns.  

Your Excellent Life Balance Sheet:

Just have a look at how fixing financial leaks could help:

v  Your monthly unhealthy expenditure of Rs10000 on alcohol, if invested at 12% would give you a corpus of Rs. 23, 00, 386 in 10 years and Rs. 98,92,553,  in 20 years.   

v  Next your unhealthy monthly expenditure of Rs.2000 on cigarettes will grow to Rs.4, 60, 077 in 10years and Rs. 19, 78, 511 in 20 years at the same rate of growth!  

v  Similarly, your extra unwarranted expenditure of watching movies at multiplex and shopping in malls of Rs.5000 each month would grow to Rs.11,50,193, in 10 years and to get Rs. 49,46,277 in 20 years at the same growth rate!  

v  Cutting on extra dining out expenses of just Rs.5000 per month could accumulate Rs. 11, 50,193 and Rs. 49, 46, 277 in 10 years and 20 years at the same interest rate!  

v  Aren’t you surprised this amounts to 50 lakhs in 10 years and 2.17crores in 20 years with a mere cutting Rs.22,000 a month? You are more  healthy and financially sufficient all your life!  

v  Plumbing some other financial leaks switching off fans, heaters, air-conditioners and other electric and electronic appliances when not in use would help make savings and the energy crisis!  

v  Avoiding financial leaks with avoiding the use of credit card unless very necessary would help avoid payment of high interest. Detesting the idea of just making payment of minimum amount on credit card outstanding balances is one of the worst financial leaks. This applies also to giving priority to paying off low interest loans in favor of high interest loans.

v  Next avoiding the financial leak of paying high interests paid on loans, with earning lower interests in savings accounts and fixed deposits is important. 

Conclusion:

Hope you are set ready to fix your financial leaks and to channellise the extra savings in a fruitful investment option. Here’s the road map to riches. Fix your financial leaks; get extra savings; invest the extra savings properly; become wealthier.  

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.  

You Want to a be Lender or an Owner? To be or not to be in Equity

Are You a Lender?


A study revealed that only 47% of Indian households had bank account. In addition every 3 out of 4 households had a quarterly bank balance of only Rs.5000. With the recent savings bank account de-regulation many banks have raised their interest rate by 1%. But households would not benefit much, as banks could charge increased transaction fees to offset increased cost, and also the additional interest income from savings account is negligible.


A further study has revealed many other interesting facts. Most Indians prefer to be lenders and not owners that have enterprise.


We tend to play safe and prefer to be lenders by investing in fixed deposits and debentures of banks and companies. Investing in fixed deposit or debentures gives us a fixed interest. The bank in turn lends money to others for interest and makes a profit on the difference between the borrowing rate and lending rate.


Do you want to be an Owner?


You can be a lender by investing in fixed deposits of SBI. Also you can be a part owner of SBI by investing in its shares.


As a part owner you would not get a fixed return in the form of interest. Since you own the company partly, you would share in profits or losses. You would get a part of the profits in proportion of the shares owned by you. Owning means risk-taking with the chance to get higher returns than lending to the bank or companies by making fixed deposit with them.


Suppose, Tomorrow Tata motors comes out with 12% interest paying debenture, what will be the response? There will be a huge response. It will definitely be oversubscribed. All investors will not get the allotment.


For a moment, just think. If TATA motors was to pay 12% interest to debenture holders, then it need make more than 12% with the borrowed money. Will you benefit more by being a lender (debenture holder) or part owner (Shareholder) of TATA Motors?


Lending or Owning?


We as Indians should be proud to be a part of a developing country. Owning would give us an opportunity for long term capital appreciation and growth. However, it is best to understand that the Sensex may fluctuate, but an increase is definite over a period of time.

In the last 10 years, sensex gas grown at 17.79% CAGR. That means, if someone could have invested Rs. 1 lac 10 years back, it could have grown to 5.14 lacs. In the last 10 years one third of diversified equity mutual funds have delivered a CAGR of more than 25%. That means if someone could have invested 10 years back in these mutual funds Rs.1 lac, it could have grown to Rs.9.31 Lacs.

So the coming decade post 2011 is the golden period for owning. This period would help the so called middle-class people to build wealth. With the middleclass aspiring for quality education for children,   quality healthcare for their family and a decent lifestyle after retirement, owning equity is the only time-tested means to get a decent inflation adjusted returns. So we need to get our long term perspective right and start owning equities.


Asset Allocation:


Owning and investing in shares means creating wealth with a long term perspective. But balancing the way we invest matters.


First, we need to allocate some amount of money for risk coverage. This could include money set aside for insurance, medical insurance and critical illness coverage. Next we all need to set aside money in liquid sources as savings accounts / bank deposit / liquid funds that would come handy in contingencies like loss of job and sudden illness. Then money required for short and medium term needs has to be set aside in debt investments.


Once this is done you are free to buy equities and build wealth. Equities can beat out all other investment categories in the long run. Equity is one of the few investments which can give you a positive return after adjusting for inflation.


Last but most important, feeling motivated that you are an owner would make a significant impact on the way you multiply your wealth. It would also give you the positive spirit and affirmation to stand by your decisions during the downs of the economic market.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in/mutualfund-sip) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.  

Financial Planning Lessons from Republic & Independence Days

India obtained its independence from British Rule on 15^th August 1947. India became independent and wants to develop and prosper with its own decisions.

Constitution

Though we became independent, we did not have our own constitution. Without constitution it is difficult to take the right decisions for growth.  So we needed our own constitution which will be the principles and guidelines, based on which we will be able to take the right decisions at the right time. Constitution also deals with the procedures and methodology of taking decisions.

Republic Day

The Constitution of India came into effect on 26^th Jan 1950 which we call it as Republic Day. Since 1950 we were able to continuously grow with the guidance from our Constitution. Without an effective constitution, this exponential growth could have become impossible.

Amendments

So far we have made 96 amendments in our constitution in the last 62 years. Amendments make the constitution more dynamic and implementable in the changing times.

Financially Independent

You will be financially dependent on your parents till you complete education. Once you get a job you will become financially independent. You can take your own financial and investment decisions. You may want to financially grow and achieve financial goals like buying a car, buying a property, children education and marriage, and having a comfortable retirement.

Financial Constitution

Do you have your own financial constitution? That is you need to have a set of financial principles guiding you to take the right financial and investment decisions.  Without these guiding principles it is difficult for one to financially grow and achieve financial goals.  This financial constitution or financial plan details the step by step procedures and methodologies of taking sound financial and investment decisions.

Illustrating a Case:

Rahul would like to retire in 25 years. He would like to have (when retiring) investments which can generate lifelong, the equivalent of Rs.50000 per month and additional Rs. 2 lacs per annum at today’s costs.

A Mediocre Approach:

Rahul may choose invest now and then. He may contribute Rs.3000 in one month, Rs.15000 in another month. He may skip investments at times. So his financial picture will not be very clear. He will not know how much he will be accumulating when retiring. He will have insecurity throughout.

Financial Planning Approach:

Financial planning approach has got some principles and guidelines. These principles and guidelines are like a light house for a ship. They give you the right direction at any point in time.

Investment Principles and Guidelines in Financial Planning Approach:

•       A good investment need to generate a decent inflation adjusted return.
•       Not investing in risky avenues like stock market is also riskier.
•       When doing trading, you are not investing.
•       Asset allocation is a proven strategy to reduce the overall risk of the portfolio. Periodically rebalancing the assets will enhance the potential of wealth creation.

In the financial planning approach, the situation will be detailed with more facts. As you have well established procedures and methodologies in financial planning, you will be able to do a sound plan and course of action to be taken to achieve the financial goals.

Present Age	30
Retirement age	55
Life expectancy	85
Expected Annual Income (Post Retirement in today’s value)	800000
Inflation	6%
Pre-retirement return	12%
Post-retirement return	8%
FV Expected Annual Income	3433497
Retirement Corpus	79582501
Required Annual Investment	596866
Required Monthly Investment	49738

If Rahul is able to invest Rs.49738 per month, he will be able to accumulate the retirement corpus easily.

Alternatively Rahul can start with Rs.22000.per month, and increase the contribution every year by 10%. Even in this method he will be able to accumulate enough towards his retirement.

Amendments Vs Review:

Financial planning reviews are what amendments to a constitution. When there is a change or deviation from our original plan, we need to do a review to control the change. The reviews of financial plan accommodate the changes and deviations and make the whole plan achievable.

When celebrating the Republic Day of our country, why don’t you create your own financial constitution /financial plan for a better prosperity?

Long live Republic.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.  

How to be Proactive on Your Potential Financial Problems?

Most of today’s problems are yesterday’s challenges overlooked. It is always considered a wise thing to perceive problems before they arise and attend to them at the earliest. By doing so, you will be spared from the trouble you may have to undergo in the later stages. Here are few pointers to assist you in identifying the problems related to your spending and saving patterns.

Potential problems related to your spending habits:

You are finding it difficult to repay your debts.

Potential Problem: You decided to splurge in on your salary and went ahead purchasing everything you ever wanted on monthly installments and did rest of the shopping on your credit card. A few months later, you come to terms with reality not being able to service all your debts.

Possible Solution: You must take into consideration the fact that all your loans combined should not go beyond 30-40% of your salary. It is imperative that you bore this fact in your mind before taking any new debt.

You find yourself in a tight financial corner every next month.

Potential Problem: You spent a little too much on your vacation and are now feeling the pinch for not being able to pay up for the insurance premiums that you are required to pay the next month.

Possible Solution: In order to deal with such a situation, you need to monitor your accounting constantly on a monthly as well as annual basis to see how the cash flow is. This will help you to manage your cash flow in an effective manner.

You are unable to determine what you really need and whether you can afford it.

Potential Problem: You probably got a little too excited when received your bonus amount and made up your mind to purchase a big and brand new refrigerator or an advanced split air-conditioner to tackle the summer heat or a car to swing along the countryside. But, what you failed to assess initially was whether you would be able to meet up with the increased electricity or petrol bills generated in your monthly budget.

Possible Solution: You can deal with such problems by planning well-ahead and deciding firmly on entities you regard as relevant to your needs. You need to assess before you buy whether the recurring expenses of the equipment you’re going to buy in fits into your monthly budget.

Potential Problems related to your investment habits:

You are unable to contemplate or relate to the product you’re in possession with.

Potential Problem: You have decided to invest in the real estate sector after seeing your peers make good returns, especially when the prices were rising. However, nobody explained to you the fact that your money could get bottled-up in there in the absence of a good deal. In the same way, you may have five insurance policies but not enough life insurance coverage.

Possible Solution: It is important that you know the purpose of buying a financial product is it will help you solve your financial problem. Not all products in the market will solve your required needs. By setting yourself goals, you will be able to zero in on the perfect asset choice.

When you need Money, your Portfolio is in Negative:

Potential Problem: You worked hard and even managed to save up regularly cutting away all your unwarranted costs. Yet, when you come close to meet your goal (say buying a property), you realize that your portfolio doesn’t support your need.

Possible Solution: Before deciding to go in for the kill, you need to choose your assets wisely keeping your goals in mind. For example, it is quite risky to keep all you money in equity in case you are aiming for a short-term goal. As a result, your capital may get exposed in the event of the market falling.

You Focus your Investments in only one Asset Category:

Potential Problem: You made huge returns from the stock market last year. So you decide to concentrate your investments only in stock market. You have suffered in the 2008 crisis or 2000 technology bubble burst and incurred major losses and are quite suspicious if things would work out; and decide to stick just to debt investments. It must be noted that neither of the strategies will pay off.

Possible Solution: You may decide to go by your instinct, but it is not always advisable to blindly invest everything you’ve got in a single asset class.  In order to reduce the risk factor and still be on the charts, you are required to broaden your time horizon of investment. Also you need to diversify across various asset classes to reduce risk.

You have understood how to be proactive on your financial problems. Unimplemented knowledge is a burden. Our problem is not ignorance but inaction. You can be different from others by being alert to your financial problems well in advance.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

Are You Guilty Of Financial Infidelity With Your Partner?

Stories of Financial Infidelity:

Mahesh, a successful upcoming software engineer’s life was in a real mess; it is good he realized it at least now. He had come to meet me for financial advice and plan. He started doing online trade after learning that his colleagues were making a lot of money. But he had lost heavily due to his ill-luck, inexperience and lack of knowledge. He indulged in tactics of taking loan from one to repay the other and taking loans from another to repay the earlier loan. Mahesh was in debt to the extent of 20 lacs, and his creditors were pressurizing him to pay back loans given. So far he has not disclosed all these things to his young loving wife, Lekha.  

Mahesh believed that Lekha was no good at finances and was just home bound. He also believed that he had to support her, but had no moral obligation to reveal anything else to her. Lekha was shocked to know that Mahesh was deep in debt. She was sensible and thrifty and thought they would soon lead a comfortable life, but her dreams were shattered and she was forced to sell all the jewelry and some of the household things that her parents had given her in marriage. They found that affording the rent of their flat was also too much, so they had to move to a smaller flat.

Lekha was happy for she knew at least now and could keep a track of Mahesh’s finances, but she lost faith in Mahesh as he hid vital financial information from her and decided that she had to start earning also to feel financially secure in their relationship. Mahesh’s financial infidelity has broken the very foundation of their marital life that is based in trust, confidence and open discussion of all vital issues.

Financial infidelity could go further in various other respects like the case of Ankit that hid vital information about the salary he earned and the increments he got, the loans he took, and the number of credit cards he used. He died of a severe cardiac arrest at the tender age of 32, and this was a shock not only to his wife and children, but also to his parents and in-laws.

Ankit’s wife Anila believed that he had taken sufficient insurance to protect the family in case of his death. She also believed that he had enough savings.  But Ankit a poor money manger had huge credit card dues, as he had borrowed for family expenses. Also he had a sizable amount of car loan and home loan. He had the habit of paying only the minimum due on credit cards. Besides he had defaulted payment of premium on some policies.

Anila was shocked and disposed off their flat and car to close the loans. She was left with very little from the insurance Ankit had. She only wished that Ankit had told her everything so that she could have set aside enough for the family and not had to send their son Amit to a government school and have no finances for his future education.

Recognize when there is Financial Infidelity:

Mutual Trust:

As the couple ties the knot and takes the marriage oath, it seems so pleasant, but I would say trust and respect for each other need to be for life. The break of trust and respect in major financial matters amounts to financial infidelity. I would say that transparency in marital relationships is very important and could help save situations that are irrevocable.

Financial Openness:

This applies to revealing the number of bank accounts a partner has and the nature of transactions made. You need to have an open discussion with your spouse on the financial matter like the number of credit cards you have, loans you borrow, investments you make, tax you pay…

Family Support:

You need to inform all your family members and dependents about your financial and debt status. Then you will be able to take decisions with much more clarity. Moreover, if your family members know about your debt, they will also change their spending habits and support you in getting out of debt faster

Equal Weight:

You could definitely be not guilty of financial infidelity if both your partner and you consider that equal weight should be given to both views in financial affairs. This is also necessary for the strong foundation of your relationship and family. 

Spirit of Compromise:

It is true that mutual trust and respect coupled with compromise can do a lot to remove financial infidelity and save the extreme situation that we have seen in the case of Mahesh’s and Ankit’s family. A spirit of compromise could definitely save financial infidelities that have their roots in selfishness on the part of one of the partners. This also apples to relationships that is emotionally vulnerable with one partner feeling inferior or being terrorized emotionally.

Lastly I am sure you would all refrain from the guilt of financial infidelity that could not just ruin the financial position of families and their overall peace, but could also cause certain devastating relationship issues that could not heal even in a lifetime.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.  

Six Financial Planning Misconceptions - Demystified

Let’s start the useful exercise:

Finance may mean different things for different people. Some assume that they need no financial planning as they have very little finances. Still others believe that once they have invested their savings for future their task is over. In addition some pre-conceived notions that company we work for, pays our medical and hospitalization expenses so we need no reserve, combined with the notion that a life insurance policy takes care of death, disability and accidents.

The need for no financial planning is complemented with the myth especially among the young that their retirement is far away and they could easily plan for it just a few years in advance. To further complement this myth that our ancestors would leave behind estate and property for us to enjoy with a will.

Well dear friends financial planning can never be overlooked as finances invested well today could provide for good financial resources in future. It is true that a person who helps himself succeeds best in having financial stability in life.

Have a look at the myths of financial planning:

1. “I have life insurance to protect them in case of my death.”

My hearty congratulations for taking up insurance policies to protect your family needs in case of your death. But the question is do you have adequate insurance to look after your family needs for a lifetime. In addition it is worth considering if you have enough to look after your children’s education and marriage needs considering the rate of inflation. Also it is worth considering if your family would be financially secure if they have to repay loans taken by you after your death.

2. “I just make both ends meet, where is the need to go in for financial planning?”

You may be right, but if I were to tell you that we all need to provide for financial contingencies would you say financial planning is unnecessary? So all of us have to plan to make their hard-earned money to work for them, and this applies more so single income families. Financial planning makes sense not only to repay loans taken but also to get continuous supply of money for our needs.  So we need to have a strict look at our expenses and find ways to minimize them. A small example could be to forego a pack of cigarette a day to save and invest in viable investment scheme.

3. “My financial planning is done as I have invested in different schemes.” 

I appreciate you for taking the first step towards financial sufficiency, however believe me this is just the first step to the 1000 miles towards lifelong financial stability.

All you are investments are really supporting your financial goals or not? Is the schemes in which you have invested is really performing or not? Is the maturity value from the schemes is sufficient to meet the goals or not?

A financial need analysis to cover various short term and long term needs could be best accomplished with a financial expert’s advice.

4. “Youth is to enjoy, retirement is far away. It will look after itself.”

Let us face this myth headlong with analyzing that retirement is not a contingency, but a necessity that is to be provided for right from the time one starts earning. It is advisable and much easier to start saving when young, as savings become difficult with additional expenses.  

Saving for retirement starting from youth through retirement plans seems much easier when the amount to be put aside for the corpus is much less every year and it is also possible to save through various investment avenues. Starting to invest for retirement when young gives one the advantages of compounding of savings. This would also help take care of inflationary tendencies.

5. “I have enough health insurance, and my company gives me coverage too.” 

Being covered with health insurance and medical expenses at work is great, but this would not cover all your health expenses. It is always good to take additional coverage and provide for unforeseen contingencies like critical illness that would not only involve expenses on treatment, but also on maintaining the lifestyle of the family till one is ready to go to work.

Being young does not prevent you or any of your family members from getting a critical illness with the present lifestyle. With fresh insurance coverage over the age of 45 being tough it is best to save for this period.

6. “I do not have to worry as I will inherit from my parents as my children will inherit from me.”

Inheritance has neither been a cake-walk, and a will is very important for inheritance. Financial planning involves the making of a will to avoid disputes between the heirs. Making a will is not about how big your property or estate is, it is more about necessarily making a will about the inheritance.

Financial planning is not just the forte of finance professionals alone, but is judicious and smart planning of finances for a lifetime. Lastly financial planning is not an end but a means to an end of financial stability and security.

(The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.)  

8 Investment Myths to be Avoided

Today I am going to debunk a few investment myths. You will know ‘why individual investors are failing miserably and how you can avoid being one of them’.

I am too young to plan for retirement

Have you started planning for your retirement? You may be saying ‘who me? I am too young to be thinking about retirement”. It is not so! Rethink. You should have started thinking about it yesterday. Because time flies quickly.

If you were smart, and planned for retirement when you are young, your retirement years will be really those “Golden years”. If not you need to compromise and you need to work longer and retire later than others.

East or West FDs are safe and best

Nothing wrong in investing in FDs. FDs are really safe and it gives us fixed return. But there is no meaning in investing all your money in FD. The post tax return of an FD will hardly beat inflation. If your investments are not beating inflation, then your money is losing its purchasing power. FDs are safe but not always the best option.

I can never be as good as Warren Buffet or Rakesh Jhunjhunwala, so why try?

In the words of Warren Buffet “Success in investing doesn’t correlate with IQ once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” You don’t need a super brain for making investment decisions. You only need common sense and discipline. If you don’t have enough time and expertise, then you can get assistance from professional financial planners.

Stock markets can earn me quick bucks

This is a common myth among investors. Stock market will reward the long term investors. Stock market is a system which transfers money from investors who are fearful and greedy to the investors who are balanced and rational.

You need to be calm, patient, disciplined, and rational. You don’t have to be smarter than the rest; you have to be more disciplined than the rest.

Timing the market is important

Investors often spend a lot of their time in trying to identify when the market is very low or high, and timing the purchase and sale of investments accordingly.

In other words, they want to time their exit when the market has reached its top and to time their entry when the market has reached a bottom. This not a practical idea because there are so many influencing factors to the stock market. Predicting all the factors and making investments is practically not possible.  Instead of that stagger your investments through SIP, STP and stay invested for long term.

There is no such thing as too much diversification

Diversification is needed. A well diversified portfolio can be created with 10 stocks or 3 mutual funds. Having more than 20 stocks or 6 mutual funds can dilute your returns. The reason is you are not only investing in best stocks and funds, you are investing in above average and average stocks and funds. So your returns will come down. Instead of over diversification, you need to concentrate on a few stocks. It is possible to achieve the required diversification with a few stocks or funds.

  

The best way to make money is investing in what is hot

If you are investing in what is hot, then you are following the crowd. If you follow the crowd, you will get what others are getting. You will not get anything more. You need to be fearful when others are greedy and you need to be greedy when others are fearful. So don’t go by the market trend or the hot pick of the month. Think like a contrarian and follow value investing.

Saving tax is the only objective for me to Invest

Which group you are in? There is a group of people who invest just to save taxes. They will not bother to invest anything more than that. They will meet their objective of saving tax. There is another group which invests to save tax as well as to save for their other life goals like retirement, children’s future. They will meet the objective of saving tax and achieving other life goals. Kindly check to which group you belong to.

You can be an assured successful investor if you could avoid these investment myths.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.