Financial goals: 8 questions you must answer
Amar Pandit One of the movies that I recently saw had an interesting dialogue "Reel life main, aapko bahut takes milenge, par real life main sirf ek take". This was Akshay Kumar trying to charm Aishwarya Rai in the film Khaki. This dialogue is as relevant to our investing world as it is to several other aspects of our life. The key to success for any investor is to make as few mistakes as possible. This article will not show you how to pick the best fund or the best stock because there is no silver bullet. However what we attempt to cover in this article are some broad guidelines that one must understand. It is perhaps more important to ignore the stock market experts of today than what Aristotle did several thousand years ago refuting the 'world is flat' experts. I don't think it matters whether the earth is flat or round but what matters individually for most of us is the ability to go to work every morning, meet deadlines, educate our kids, grow in our careers and contribute our bit to the society. And somewhere in our busy schedule and life is the task of making smart and informed choices about one's money. And it does seem tough to make informed choices with a plethora of options, products, tax laws, market volatility and no time to study or understand the personal finance space. And on top of that there is the information overload from product companies, newspapers, magazines and the internet. The information overload can be extremely overwhelming at times. It can take away your focus from the critical but important decisions about your financial goals. That's why it's important to focus a little on key principles of financial planning. The success of any activity including investment strategy depends on how you focus on the right things and ignore things that do not matter. * Role of a <http://www.rediff.com/getahead/2007/feb/20planner.htm> financial planner: Optimise or maximise returns? Let us take a few conversations that we hear on business channels quite frequently these days. 1st Conversation Commentator: What do you think of the next level of the market? Technical Expert: If the market goes below 4,100, then it will go down to 3,900 and find support at that level. Or if the market closes above 4,200 today, then it might go to 4,350 and find resistance there. Commentator: Thank you so much for your insight? Now what insight did this convey to you and how is it important for achieving your financial goals. 2nd Conversation Commentator: What do you think of the next level of the market? Technical Expert: If the market goes below 4,100, then it will go down to 3,900 and find support at that level or if the market closes above 4,200 today, then it might go to 4,350 and find resistance there. Commentator: Thanks so much for your insight? Investor: I have bought shares of company X for Rs1,200 .I am afraid that the price might go down further. What should I do now? Expert: Well, I recommend that you book some profits (sell a part of the shares you own) or stay invested in this stock if you believe this stock will do well in the future. This is a promising stock and I have seen significant buying and this stock has the potential to go up. Scenario 1: The stock price goes up and the investor is very happy with the advice he received. Scenario 2: The stock price goes down, the investor panics, sells his shares at a loss. 'This expert as well as this channel is crap' is the investor's reaction. * Why stock tips <http://in.rediff.com/getahead/2005/aug/24stock.htm> are dangerous Interestingly, there is no lesson we learn from this episode and we lap up similar kind of ad hoc advice in future as well and commit a similar mistake again a few months later. The fact of the matter is no one has seen the future and analysts and experts can at best give you educated opinion or pure guesses. The media presenting these answers like facts further compounds the confusion of investors. Why don't these technical analysts or market gurus don't eat their own pudding? When they give their mandatory disclosures at the end of the show they say, "Well, I have no exposure in the stock". (Any analyst expressing her/his views on any stock/s on television or writing for newspapers has to inform the viewers/readers if s/he or her/his company owns the stock or has advised their clients to buy or sell the stock/s discussed; this is called as a disclosure and has been made mandatory by the market regulator the Securities and Exchange Board of India, SEBI). If the stocks were so lucrative, why are people busy giving stock tips rather than buying it. If you knew for sure that the share of company A is going to double in the next few months, what would you do? I am sure majority would beg, borrow or steal to get a piece of it. But what does the person in question do here "goes on television and tells everyone how to do it but himself stays out of it". What should one then focus on? One should focus on trying to find answers to the questions mentioned below. It is only these answers that will help you achieve your financial goals. Here are the 8 Key Questions you must ask yourself * How much should I save to achieve my financial goals? * What returns do I need to earn on my investments? * How much should I allocate to equity, debt, real estate, cash, gold and art? * How often should I change my allocation to stocks, bonds and cash? * How much insurance should I have? * What are the risks that my family and me are exposed to? * How should I maximise my post tax returns rather than investing for the sake of minimising taxes? * How would my wealth be transferred to my wife, children, parents or any of my nominee should something happen to me? Getting the answers to the above is the key solution to your financial needs. I am sure each one of you will have a different answer to the questions posed above. * Financial help <http://in.rediff.com/getahead/2006/dec/19couple.htm> for married couples The decision of identifying the vehicles (stocks, insurance, mutual fund, real estate, gold etc) comes next. F. Scott Fitzgerald once said "Genius is the ability to put into effect what is in your mind" and this principle is as true today as it was ages ago. Amar Pandit is a certified financial planner and runs the Mumbai-based firm <http://www.myfinad.com/> My Financial Advisor. <http://www.gaybombay.in> www.gaybombay.in <http://groups.yahoo.com/group/gay_bombay> http://groups.yahoo.com/group/gay_bombay <http://groups.google.com/group/Gaybombay> http://groups.google.com/group/Gaybombay Email: <mailto:[EMAIL PROTECTED]> [EMAIL PROTECTED]
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