My answer is normally yes. That is because for most of the people I meet – whether they be Relationship Managers in banks, employees of some engineering company, employees of a fund house or a life insurance company, the connect to equity is at best remote. They are never in the thick of equity. Normally they all have the following problems:

1. Not enough capital to create a portfolio: To create a sensible portfolio today it will cost you at least Rs. 10 lakhs. If you start out with Rs. 20,000 to invest, you can achieve really little.

2. No knowledge of portfolio construction: Buying just a bunch of shares will not (sorry may not) create wealth in the long run. You need to construct a portfolio consisting of value stocks, growth stocks, large cap, growth cap, across business houses, across geographies, etc. this is not easy.

3. No time commitment: For heavens sake do not treat direct investing in equities as a part-time activity. It takes a lot of reading, talking to people in the market, trying to figure out the economic indicators, – if you are not ready for the effort, go to a mutual fund or a unit linked plan.

4. Confusing between trading and investing: If your long term portfolio is all your short term decisions gone wrong, man your portfolio is in trouble!

keep reading…also see why people lose money in equities..

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So many people in their late 20s and early 30s KNOW that they have to save, invest, etc for their own lives and their children’s lives. They read up good websites, magazines, etc. and know how to mouth platitudes but DO NOTHING. All their moneys will lie in a savings account, and sometimes, sometimes in a FD. Here again they may or may not pay taxes on the same – ‘i have kept only 50,000 in one bank so there is no TDS’. One girl who told me this is an MBA finance working in a private sector bank. She has sales targets too, but I doubt whether she achieves them!!

I guess it is just my personality which makes them come up to me and say the following:

-I am planning to start a SIP in an equity fund…………..which is the best fund?

-How much do you think I should save for my retirement? I have no clue how much I will need!

-I will come to you one day, I need to ask you for some advice regarding my father’s (change it to somebody!) retirement / investments….etc.

-I have opened a brokerage account and did a trade yesterday, I made Rs. 540 after paying for the brokerage, taxes, etc. I am thrilled, this is not bad. If I can make say 500 about 2-3 times a week, that will be nice.

Sadly what you THINK does not lead to results. What you DO does.

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My answer to both the questions …is NO. NO in capitals.

Both the yo-yo and the roller coaster have a predictable movement. You know the yo-yo will go down and up in exactly the same time. It will not stay down for 3 years and then be up for 22 days.

Similarly in a roller coaster the speed, the rate of rise, descent, the time taken, the number of gyrations is all fixed. You know that the whole ride will take “20 minutes” or “40 minutes” – and in a worst case scenario all you need to do is close your eyes! Once it stops you can get down.

If you close your eyes to your equity portfolio, you could wake up holding DSQ, Silverline, Lml, Patheja forging, Shaan Interval, Indiana dairy…etc. because you did not see what happened to the promoters of these companies.

PS: even on google you cannot find some of these companies – when some of them died they were burnt, and then their ashes were buried, hoping they do not rise again!!

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1. if i have money what am I going to do with that?

2. what is wrong in paying for a kid’s education?

3. will YOU not pay for your daughter’s higher education?

4. is aspiring for higher education wrong?

5. is higher education not an insurance against a mediocre life? Is it not a passport to good quality life?

Honestly I do not have answers to ALL these questions. However, let me try.

If you have a tremendous amount of surplus OVER and ABOVE your own needs for retirement, you could  of course pay for their education. The assumption of course is that they deserve it, and you do not BUY it for them.

Nothing wrong paying for a kid’s education. In fact you MUST pay for a good school and college education. However once the basic education has been paid for, it is for the kids to decide how to fund the higher education.

I have no doubt that if my daughter were to study for a conventional degree – Accountancy, Engineering, Medicine, Law – what I understand, I will pay. I am still searching for an answer whether I will pay US $ 150,000 for a course in dress designing or hair designing – simply because it is beyond my comprehension. I may, I may not. Or I may be willing to pay say 100,000 but not more than that. Honest to God I have no clue.

Nothing wrong to aspire for higher education, but if you think a big brand education will help, I have my doubts. If a person actually interested in liberal arts is forced TO do her MBA or CA, these kids DO NOT MAKE it in life. I know too many well qualified men/ women act like rebels.

I do not think higher education is a passport to a great quality of life. ONLY competence is.

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Let me first define best advice:

• if you hear it in 2000, 2010 or 2020 it should sound correct
• the regulator should not find it offensive
• it should not talk about any one particular company or sector
• if it is N S E you should talk Nifty…and if it is BSE …Sensex
• it should not offend anybody
• it should not be scandalous

is it easy? Well initially I thought of this as difficult…but here are a few tips on what to say :

• Equity investments are for the long term
• Stay invested for long term – when the market turns upward, you will benefit
• Keep investing in the short run and long run, you will benefit
• Buy only good shares
• Do your fundamental research and analysis before you invest
• Do not invest in a small company unless you are sure about the promoters
• If you had invested Rs. 10000  in 1980 in Wipro today it would be worth more than Rs. 300 crores
• Read the prospectus before you invest
• ……………and many more…………..

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Let me give you a few examples:

Mr. M an executive was buying a house and needed Rs. 1 million as down payment. He approached his uncle for a loan. His uncle, a childless retired man obliged with a Rs. 500,000 loan. This was supposed to carry interest at Rs. 13%p.a. and the loan itself was repayable over a 5 year period in bullets of Rs. 1 L each. Fair deal, right?

Well Mr. M is paying the interest on the dot – twice a year. In the past 5 years he has not paid a penny of the total loan amount. This has not got the uncle worried – he is happy to get 13% return on his principal.

Mr. M has the cash to repay, but is not repaying……when I probed, the truth came out. Mr. M is hoping that on the death of his uncle and aunt, NOBODY will know / remember the loan.

Second:

When Mr. A’s son finished his studies I suggested a heart to heart talk with his son about finances. Obviously it never happened. One day a classmate of his got him to sign a bank guarantee of Rs. 25,00,000 for his younger brother’s education. Now there is no clue as to how long that boy is going to take to repay the loan. However when Mr. A’s son went for a bank loan for his OWN education, that guarantee played spoil sport.

Just 2 cases out of the zillions that I come across….

So how does one give a loan?

Simple keep it in writing. It should contain the request, the reason for the loan, the fact that the borrower is unable to fund it himself, the amount of the loan, the interest payment (let it be 2% p.a. but not be zero), the repayment terms, GUARANTOR – let the borrower’s son, father, wife, girlfriend, ….somebody be involved, cheque number, post dated cheques for repayment,  – do it like a perfect business deal.

This does one good thing – signing on a stamp paper puts a lot of burden on the common man. He/she thinks it is a legal document (which it is), and so he is far far more careful.

I have a friend who is in the businss of money lending – ONLY own corpus of Rs.8 crores – but his documentation, securitization, margin calculation, etc are so perfect that in the past 30 years he has had no BAD DEBTS.

Worth creating documentation! sigh! really…..

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Unless they are at least 37-38 years of age, they have no clue as to how much they need for retirement. Once they see the figure (let us say Rs. 4 crores) they get into a DENIAL mode. Immediate reaction is to say “my father did not need this much amount” or “my expenses will reduce after retirement” or “my children will take care of me”.

Once they cool down, they sit and work out how it can be put together.

What most people do not realise is that the figure looks very big because we are seeing it from a very long tunnel. If I were to tell you that YES you do require Rs. 4 crores to retire, 30 years from now. HOWEVER if you were to invest just Rs. 100 a day for 30 years in a SIP which gave a SENSEX rate of return, you will have Rs. 4 crores in your retirement kitty.

So the important lessons in retirement planning are simple – make an estimate of your needs, adjust them for time value, compute the amount that you need to invest on a monthly basis, THEN START TODAY. Do not let the power of compounding go away – harness it when you can. Simple

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If you are an employee and got a big refund it is time you complained about your companies HR / Accounts who have DEDUCTED MORE tax than what was necessary for them to have deducted. It is possible that you showed them the proof late, or they made a mathematical mistake. Both are issues which can / should be addressed.

YOU SHOULD pay just enough tax as to cover your liability – nothing so much more that you get a ‘big’ refund.

When you get a refund – say your ctc is Rs. 200,000 a month and you get Rs. 48,000 as a refund (50%  of your take home pay!) how do you react?

1. are you so excited that you go and blow the whole amount?

2. upgrade your mobile?

3. buy the new television that you always wanted to buy?

4. invest the amount?

5. just let it lie in your bank account and not really bother about it?

Well, the human mind has various ‘pockets’ in which to keep the money. So if you earn your salary you think it is hard earned. If you are an occasional trader in shares, you think that profit is ‘undeserved’ and free money.

Similarly if you get an Income tax refund your mind thinks it is ‘found money’ – as if it was found on the ground. YOU KNOW IT IS WRONG, but go along with the mind.

So if you do get a refund split it into 3 parts – put one part into your pension fund, one part let it remain in the emergency fund and one part blow it on a party or upgrading your phone.

Keeping a pattern makes it easier.

Even better make sure that you calculate your tax correctly.

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If you need bypass surgery, you should find the most qualified surgeon available. If you’re getting sued, you should hire the best defense lawyer in town.These 2 are fairly obvious and I do not think you can do your own root canal surgery, brain surgery or heart surgery. Come to think of it, it is so inconvenient, is it not!Likewise, some people argue that if you’re planning to live well in retirement, you should hire the most expensive financial advisor you can find.

To me this causes a twitch!

I do sessions on financial planning and these sessions are reasonably well attended. Mostly at the end of the session the participants are unable to decide whether they can do their own financial planning or they need an outsider.And while people ask me questions on everything from momentum investing, auditor integrity, mutual fund loads, broker integrity, insider buying, etc. one question uppermost on people’s mind is

Can I do my own financial planning?

And

Can I do my own investing?

If you’re an investor who is seeking long-term capital gains, it’s crazy to pay a lot of money for a high-priced financial advisor who gives you an economic outlook and short-term market forecast with all sorts of commission-based solutions attached. To the best of my knowledge there are only a few (so few you cannot spot them) pure financial planners.Nor do investors generally need a “personal investment plan” based on their individual circumstances…

There’s Only One Objective for Long-Term Investors

A growth portfolio is designed to keep you from outliving your money. It should give satisfactory returns for a 25-year-old just beginning an investment plan, as well as a 55-year-old who may live three decades or more.

To quote Sir John Templeton, “For all long-term investors, there is only one objective – maximum total return after taxes.”

Of course, some advisors take generic advice and selling it as customized plans. For that reason, whenever I hear an investment advisor tell a client that he is drawing up a long-term growth portfolio based on that client’s “unique profile,” I’m invariably reminded of the Head of HR who tells his audience, “Never forget that you’re special… just like everyone else.

But, as is fondly said, “It’s 97% of investment advisors that give the other 3% of us a bad name.”

In the Indian context the commission structure is too badly designed – it is a design fault rather than a sales fault. But there is no body who really wishes to complain. After all in a bull run the manufacturer (called Mutual funds, Life insurance companies, PMS providers) need sales guys who go and get them money from the “client” for these guys to manage.So if it is a 70% upfront commission in a unit linked plan or the 6% asset management charges or the 2.4% amc in a debt fund, well there is no one to protest!

So you may need a financial planner (whose functions are so comprehensive) that I shudder to think why would somebody want to be a financial planner on a just fee basis.

Frankly if you wish to create wealth in the long term put your money in the cheapest index fund, buy the cheapest term life insurance, and go fishing.

Leave your mobile, TV, broker…in the city and play with nature.You will return fresher and richer.

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Some of my observations:

1. Clients love activity, and banks can provide that: Most clients like to do something on a regular basis – but may not be too keen to do a SIP. This means regularly they have a big balance built up in their bank accounts. The RM approaches them and converts this into a product.

2. Most people invest without a goal: A person normally has a few goals – children related, retirement related, asset acquisition related, etc. The bank RM says ‘Sir this fund is doing well please invests….and the client invests’. Sadly many customers buy products because forms are thrust at them, not because it is suitable.

3. Most customers can rationalize anything: ‘It is only Rs. 400,000′ or ‘That girl had to meet her target’ – literally anything so they do not feel that they have done anything wrong.

4. Sheer lack of application of mind: the bank that never sleeps had sold an income fund (yielding 5-6% p.a.) and sold him a personal loan too (at 16%). The client continues to bank with them, DESPITE being shown this loot. Later on he bought a Rs. 300,000 per annum ULIP from the same bank. When these are pointed out clients feel bad that they are being exposed in the presence of their spouses (till then the men have been strutting showing off their investing skills). Now the anger towards the bank is actually anger TOWARDS THE IFA who pointed out these things. LOL. Many IFAs are still to learn that man is NOT NOT NOT a rational animal, but an emotional animal who has been described in point no. 3.

5. Sheer technological convenience: creating a maze of accounts (savings account, fixed deposit account, demat account, mutual fund transaction account) the bank holds the client like an octopus. I am still to meet a client who understands all the bank statement.

6. The RM has a job to call the client regularly and ask (nay pester) for business. Clients relent.

7. Clients feel obliged because the RM runs errands like kyc etc. – and rub it into the client and make him feel guilty if he does his business elsewhere. The RM will keep saying ‘Sir you did …..with some other person….please give us also’…IFAs with self respect will NOT do this EVEN if they know. In most cases they will not know.

……more later……

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