Six basic questions that every Investor should ask himself !
1. Why Save & invest at all?
We do not earn just to meet our daily expenses. We earn so that we can lead a relaxed life & are not financially dependent on others. The amount that we SAVE after meeting our daily expenses needs to be invested judiciously so that we can meet our future expenses. Again, all of us have some kind of financial goals, may it be buying a house, corpus for our retirement, funding children’s higher education & marriage, maintaining & upgrading our standard of living etc. We need to INVEST to help us achieve our financial goals. Do you already have enough and do not feel the need to save. Well, I hope you have taken inflation into account. Assuming inflation at an avg. rate of 8% pa, your Rs. 1 crore today would be worth approx. Rs. 29 Lacs, 19 lacs & Rs. 13 lacs respectively at the end of 15 Yrs, 20 Yrs & 25 Yrs from today.
2. Why should I insure myself?
Even before you start investing, I would suggest that you buy insurance from your savings and only then think of investing. The reason is not far to seek. We all are well capable of taking good care of our family while we are there for them. But what if something happens to us? Have we made adequate financial provision to ensure that our family is not in trouble financially in our absence? INSURANCE comes to our rescue in such an eventuality.
3. Where to Invest & how long should I remain invested?
A million dollar question indeed. Where to invest is a function of your age, your risk taking capacity, liquidity position, your financial goals etc. However, there is one thing you should never do and that is to invest in a haphazard manner. Fortunately for all of us, there is a no. of investment products available in the market today to suit all pockets and profile. The trick is to “prepare the shopping list first & then go out shopping & not do the other way round”. We should normally remain invested till the time we have not achieved our financial goals.
4. What type of Insurance should I buy?
A billion dollar question. Two types of insurance are a must for most of us. First is Life Insurance & the 2nd is Medical Insurance (or Mediclaim). Pure risk cover Term Plans are the best & the cheapest form of life insurance. A floater mediclaim policy if you are married is a must. Take separate cover for dependent parents.
5. Whom should I go to for investment advice?
If investing is such an important activity in our lives, why leave it to chance or in the hands of a not so well informed agent. And with such a wide variety of financial products available in the market today, it is becoming more and more difficult to choose the right product. In such a scenario the role of a financial planner, who is an expert on all matters of investing & insurance, cannot be over emphasized.
6. How to choose the right financial advisor?
Never fail to check out your advisor’s credentials before you trust him with your hard earned money. First and foremost, check out his qualification & work experience. Then, find out how he is going to benefit from you ie; his method of charging you. Is it purely commission-based or is he going to charge you a fee. Remember, it would be extremely difficult for your advisor to be unbiased if major portion of his earnings is coming from commissions. Do not hesitate to enquire about his family background if need be.
7. Is this the right time to even talk about Investing?
Yes I know the title says six questions only. But is not our mind pre-occupied with this question right now? NEVER even attempt to TIME the market because it is a thankless job. NOW is the best time to invest. And considering the discounted prices at which blue chip Indian companies are available in the market today, the downside seems limited with considerable upside.
This article recently appeared in the Times Of India
(Mr. Nirav Panchmatia is a Financial Planner practicing under his firm “AUM Financial Advisors”. He is a Chartered Accountant (CA) & MBA Finance from Narsee Monjee, Mumbai and has worked for the past 8 years in leading financial institutions like Citigroup (Investment Banking), ICICI (SR. Manager – Subsidiary Business) & IRIS (Analyst) etc.