In the month of January, people normally take various resolutions may it be reducing weight, quitting smoking, watching less TV, reducing anger or just about anything one can think off.
Being a financial planner, let me dare to suggest a few Investing resolutions for the common man. If the retail investor sticks to the below mentioned resolution, he will soon create WEALTH for himself and his family.
So, without much ado, let me mention some New Year investing resolutions for one and all.
7 Investing resolutions for 2011
1. I shall buy a decent Term Insurance Plan for myself and other earning members of my family
2. I shall buy a decent Mediclaim cover for each member of my family
3. I shall start systematic Investment Plan (SIP) in well chosen Mutual Fund schemes
4. I shall pay off my personal loan & credit card out standings at the earliest
5. I shall not trade in shares without doing adequate research
6. I shall not buy ULIPs
7. I shall consult a Financial Planner to help me plan my financial affairs
Let us go in further detail:
Resolution 1: I shall buy a decent Term Insurance Plan for myself and other earning members of my family
The first & the only necessary Insurance plan that every earning member should buy is a basic, TERM Insurance Plan that insures ones family against untimely death of the bread winner which can cause immense loss to the family. This is the CHEAPEST form of insurance money can buy but protects your family against the sudden and untimely death of the main bread earner of the family.
Resolution 2: I shall buy a decent Mediclaim cover for each member of my family
Anybody can fall ill or meet with an accident in our family. Whereas Life Insurance is to be taken only for the earning member of the family, medical insurance is to be taken for all the members of the family. Medical costs are increasing by the day and if you are not covered by a proper medical plan, sudden sickness or accident in the family has the potential to eat life’s savings.
Resolution 3: I shall start systematic Investment plan (SIP) in well chosen Mutual Fund schemes
After the abolition of entry loads on Mutual Funds from Aug 1, 2009, Mutual Funds have become the best, most economical form of Investment vehicle available to a retail investor. Consider this. Over the last decade, well chosen mutual fund schemes have given a compounded average return of 24 to 28% per annum. And that to tax free. How many businesses give this kind of return? Just one caveat, consult a Mutual Fund expert and let him create a dedicated mutual fund portfolio for you after understanding your needs.
Resolution 4: I shall pay off my personal loan & credit card out standings at the earliest
Personal loan & credit cards are the costliest form of loans that banks and NBFC’s give to the unsuspecting layman. One pays a whopping interest rate of 18% to 24% per annum on personal loans & 36% pa to 50% per annum on credit cards. Avoid these two at all cost.
Resolution 5: I shall not trade in shares without doing adequate research
Most people approach the stock market as a place to make fast money in shortest possible time. They buy stocks on tips but make mistake on when to sell and eventually lose money unless you are lucky enough to exit at the right time. But one cannot be lucky all the time. So invest in stocks but only after thorough research.
Resolution 6: I shall not buy ULIPs
The most undesirable, costly, and illiquid financial product in India is Unit Linked Insurance Plan (ULIP). Whereas in mutual funds you pay no commissions today, one pays commissions and expenses, together, as high as 25 % to 40% in the first year itself* to your insurance agent. ULIPs are the most miss-sold product in the history of Indian financial services history. Avoid ULIPs at all cost. (* Post Sep 2010, after New ULIP guidelines have come, the commn & expenses are now staggered over a 5 year period)
Resolution 7: I shall consult a Financial Planner to help me plan my financial affairs
When one falls ill, one consults a doctor who then writes a prescription and then one goes to the medicine shop and buys the medicine prescribed by the doctor. Why not follow the same path while taking your financial decisions. Go to the financial planner who after understanding your specific needs, your financial goals & risk profile, helps you create a dedicated investment portfolio. It is worth paying fees of a financial planner or a mutual fund expert and buy peace of mind then paying very high commissions to the commission agents and have sleepless nights.
HAPPY Investing in 2011.