Posts Tagged ‘investment’

The Investment Demons

The twin demons of fear and greed can destroy the soundest of investment strategies.  No we are not on a moralistic religious talk here. We are taking of two all pervading invaders who destroy our investments.

Be satisfied – aim higher – two contrary ideas which are drilled into the Indian psyche. Both of them are at a constant battle. The virtue of being satisfied with little has been drilled into us and yet very contrarily, we also taught to aim higher. To seek more than what we have, to be the best.

In the investing world, one often hears about the consensus between value investing and growth investing. And although understanding these two strategies is fundamental to building a personal investment strategy, we are often swayed by ‘hot tips’ and ‘insider information’ that can change our life. All the common sense and fundamentals analysis flies out of the mind replaced by greed – shinning and inviting.


Greed Governs

Most of us have a desire to acquire as much wealth as possible in the shortest amount of time and why not? Unfortunately this may take us to the level of being imprudent in our investment decisions.

This get-rich-quick  attitude makes it hard to maintain gains and keep to a strict investment plan over the long term.

Beat the greed

Any prudent investment approach should contain some form of an exit strategy; simply put how you plan on getting out of the stock you hold.

This would be one way to avoid greed, have a set price at which you intend on selling the stock, WALK AWAY with the money in your pocket and move on to the next investment. It sounds like a simple doable idea but one tends to ignore this essential strategy when the market is on the upswing. Holding on for a little higher returns may often cost us too much.

Fear Festers

When stocks suffer large losses for a sustained period, the overall market and the individual investor can become more fearful of sustaining further losses. But being too fearful can be just as costly as being too greedy.

Fear can make you take panicked decisions which do not match with your long term investment strategy. Getting swept up in the prevailing fear of the overall market by switching to low-risk, low-return investments can set you back by years in your financial planning.

Countering fear

The best way to counter fear is to have a financial plan in place and keep the eye on the goal. It is also important to choose a suitable asset allocation mix.  The herd mentality will only help keep the head down and give grass to gaze.

‘We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.’ – Warren Buffet


Building a financial plan for your child

When it comes to raising children, money is limited, and demands far exceed the supply. Your child, being the centre of your universe, is going to drive a lot of the financial decisions of your household.

From the moment your child is born and even before, if you consider the doctors visits and preparations for the arrival of the child it’s at least 20-25 years before your child can start earning, and is financially independent.

Bringing up a child takes more than can you imagine. Babies tend to outgrow things even before you buy them. As they grow older, peer pressure works not just on the kids but also on the parents. Isn’t it you who also want your kids to wear branded clothes or join a class that is popular? While it is laudable that you want the best for your child, it’s expensive too.

The cost of children’s education is one of the largest expenses that parents face so it’s crucial to start saving as soon as possible. Just the college years will cost you anywhere between Rs. 6-12 lacs depending on the course your child does and her/his   spending habits.

So on a rough estimate an upper middle class family would spend at least Rs.20 lacs on the child’s upbringing, education and to ‘settle the child’.

This estimate is at current levels of cost of living. We have not yet factored in the raging inflation.

Planning for your child’s education in the same way you would plan for other big life events will help enable you to secure your preferred education choices. While education can amount to one of the highest expenses you will incur for your child, it can provide the means for them to pursue a dream, prepare for future success and fulfil their potential.

Where to invest

Financial planning for children should start as early as possible.

There are various ways to save for your child

  • Savings accounts and fixed deposit accounts
  • Insurance plans for children
  • Mutual funds for children
  • Investing in the stock market for long term gains
  • Informal investments like chit funds, buying gold, property etc.

No matter which is your preferred avenue of investment, you need to ensure that you set goals and work steadily toward them.

This article first appeared in Moneylife magazine

Managing your credit card debt

Though widely used and immensely convenient, credit card can become your worse enemies if you are careless. One negative aspect of using credit cards instead of cash is that you don’t feel like you’re spending real money. The pleasant feelings you experience when you purchase the item are disconnected from the unpleasant or painful feelings of making the payment when you get the credit card statement.

Studies show that most people are much less likely to buy, or less willing to spend as much, when paying with cash as opposed to credit cards.

Falling in a debt trap

Falling in a debt trap is easy when you using your credit card. The problems start not when you use your credit card but when you do not pay the entire amount on the due date.

The bank will charge you an interest of 2.95% (atleast) on the pending amount.

And, this interest is charged on a monthly basis; per year, it works out to a whopping 35.4%.

If you have spent Rs.1,00,000 this month then the interest you pay works out to Rs.2,950/- if you have not repaid the entire amount that month.

Lets say you realise the folly of your ways and spend only Rs.10,000 the next month on the credit card.

Unfortunately, you are no longer enjoying the benefit of ‘free credit’.

This month your outstanding balance will be Rs.112950 + Rs.3332/- = Rs.116282/-

Earlier, you spent money through your credit card and paid up when the bill came at the end of the month.

From the time you spent the money till the time you paid the bill, you were enjoying free credit; when the bill came, you paid just what you spent.

Now that you owe the bank money, you don’t have the privilege of free credit anymore.

Also any the very convenient cash withdrawals are never interest free.

Now, until you clear your loan, every single payment you make using your card will be added to your loan amount and you will be charged interest on it.

This will go on till every single rupee has been repaid.

How to avoid Credit Card Debt

· Your credit card spending is a loan and make sure that you treat it like wise. Credit card companies agree to loan you money interest free for averagely 35-40 days. You can use this to your advantage as long as you pay off the “loan” by the due date each month.

· If you feel you need to carry plastic for emergencies, then try a debit card. It will ensure that you are spending only the money you actually have. Unlike the west, in India we have a vast support system that ensures that you can easily borrow emergency cash when you need it.

· If you do use credit card do try to make the payments in full. Incase you are unable to meet the entire payment then ensure that you set aside the entire money for it from your next paycheck and curtail the credit card usage till the balance is cleared. Remember that there is whopping 36% p.a. or more interest to be paid not only on the outstanding balance but also on any fresh purchases you make.

· Plan your purchases well. When you go out shopping make a list and stick to it as far as possible. Don’t be swept away by discounts on products you don’t need. Remember, retail stores are designed so that you spend more. Beware of marketing tactic that make you spend more.

· Avoid cash withdrawals and balance transfers from your credit card since they attract interest from day one.