I bet you have asked yourself these questions many times over, what is the best thing I can do with my money? What is the best investment avenue available today? What is the best stock or mutual fund to buy? Quite rightly so these are valid questions and your everyday concern.
Like I have always said that financial management is a beautiful subject as there are always clear cut answers to your questions but this is provided you ask the right question in the first place. In the above questions, you are basically asking what is the best product to buy? Now the above questions have many answers depending on who you are talking to.
But suppose you were to ask, what is the best strategy for me? You can be sure you will receive probably no answer. That's because most financial advisors are not trained and geared to answer this, they are trained on products. Their product manufacturers tell them that their product is the best and give them a story to prove this. The advisors believe so and hence act more as marketing men than real advisors. It is not their fault but you will have to wait while things change over time.
But there lies the dilemma; you cannot wait till times change. You have to act now. What should you do? The Generic rule is to stop buying products, asking for product demonstrations & features. Look for strategy.
In the absence of strategy providing advisors, you have no choice but to create your own strategy. How should you go about doing this? Count all your money wherever you have it, whether bank or into some instruments. Wherever applicable take the current market value. The total you get is what you have.
Now I understand that you cannot make a strategic financial plan on your own however you can do the next best thing which is prepare a strategic investment plan in a manner geared to generate wealth over years. Thereafter whenever you get a financial plan done by qualified experts it would be a rearrangement of your investments towards your life's financial goals all goals viz., short term (less than 1 year), medium terms (1 to 4 years) and long term (4 years or more).
Here is a glimpse of what a strategic investment plan may look like. Naturally the strategy would depend and differ from one individual to another. Please note this is not a standard strategy. It is just an example.
- About 5% of money as liquid cash in a bank account or fixed deposit as you prefer.
- About 10% in bullion gold, silver, platinum, palladium etc.
- About 5% of money towards insurance premiums any more is not a productive use of money.
- About 10% of money in fixed interest bearing instruments the ones that gives you a real rate of return of atleast 3 to 4%. Real rate of return is the return actually earned minus the inflation rate.
- About 55% of money into equity and equity related instruments both domestic and international.
- About 15% in alternative wealth instruments such as land & property both domestic and international, precious stones, numismatics, art, collectibles etc. if you don't want to follow this point 6 or don't have enough to actually do this you can allocate this 15% to point 5 above.
This strategy above can produce a minimum rate of return of 12.25% per annum over blocks of every three to five years. The beauty of this strategy is that almost 70 to 75% of your money is liquid or near liquid at any time. This gives you great flexibility to take advantage of prospective opportunities.
Did I forget something? Risk management is what you are perhaps thinking. In my view, risk management today is presented and used by most advisors as a marketing concept more than a financial concept. Most people don't understand risk and how it is to be managed. If you as a consumer say balanced risk you are saying this from an immediate perspective, as you are scared and feel that atleast half my money is very safe. But for example, if you decide to invest in an diversified mutual fund for the next ten years, it is almost certain that you will make money and far more money than what you would make in a FD (fixed deposit) or PPF (Public Provident Fund) or similar. So where is the risk then? As a consumer, if you plan to build long term wealth, you do not need to decide and worry on risk levels. It is the advisor who must control risk in the deployment of your funds over time. Even that is part of strategy.
Kartik Jhaveri, an expert at Financial Planning, is a Certified Financial Planner and a Chartered Wealth Manager. He may be reached at kartik.jhaveri@transcend-india.com
Disclaimer:
The contents of the above articles are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decision.
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