1. I will give clear, and UNBIASED advice! After 30 years in the trenches of the financial services industry

history, ‘clearly worded full disclosure ‘, products are regulated by sebi / irda and so approved by them,…

‘I will put YOUR INTEREST before MINE

‘qouting historic return while talking of risk – relationship investing

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Planning for a secure financial future is a must! It can be done, and is not easy, but is not rocket science either.

Maybe you’re saving to buy your first home?
Perhaps starting your own business is a dream.
The costs of a college education have spiraled and you may wonder how you will pay for your child’s education.
You will probably live longer. Additional years after retirement WILL cost more than originally planned.
Your company pension plan may not be enough to maintain your standard of living after retirement. Worse, it may cancel the pension plan by the time you retire!
Complex financial marketplace and changing tax laws make it difficult to understand your financial picture.

Everyone needs to plan for tomorrow. At every income level, there are steps you can take to make more efficient use of your assets and to ensure a secure financial future. It makes sense to develop well-defined goals and to map out appropriate strategies to turn your dreams into reality. To help you get started, below are some frequently asked questions about personal financial planning.

What is personal financial planning?

Personal financial planning is a process, not a product. It is an organized, well-planned system of developing strategies for using your financial resources to achieve both short- and long-term goals. You may think of the process as helping you to answer three straightforward questions:

Where am I?
Where do I want to go?
How do I get there?

When should I start planning?

It is important to start planning as soon as you can. Time passes quickly – it is never too soon to start planning for tomorrow. Nor is it too late to start a plan.

Who should prepare my personal financial plan?

A well-qualified financial adviser should work with you to prepare your plan. A CA financial planner combines the objectivity and trust long associated with the CA profession and the years of experience and expertise in personal financial planning. However, if he does not do this for a profession (most of them do not), look for a financial planner who is a full time professional.

What should it include?

A comprehensive and complete financial plan – one that addresses your entire financial picture – should include a review of your net worth, goals and objectives, property and other assets, liabilities, cash flow, investments, retirement planning, estate planning, tax planning and insurance needs, as well as a plan for implementing your goals.

I don’t have a lot of money. Do I need a full-scale financial plan?

You may not. You can seek out different levels of financial planning advice, from counseling on a particular issue to comprehensive planning. Speak to the advisers you are considering and discuss with them your requirements. You should be able to find one who meets your needs.

What role does goal-setting play in financial planning?

It is important to list both short- and long-term financial goals on paper. You can then rank the importance of the goals. If you are saving toward something tangible, instead of just saving, it may be easier. These goals could include: available cash for emergencies, education for children, care for family members, retirement, a nest egg to permit a career change, acquiring or selling a business, estate planning, financial independence or personal objectives such as a special vacation or second home.

How do I know how much I am worth?

One of the first things that you should do in reviewing your financial situation is to determine your net worth. Many people are surprised to find out how much they are really worth. First, estimate the value of your assets. If you have owned your home for a number of years, you may be sitting on a nice nest egg. Several different real estate appraisals will help you determine its worth. Organize bank, mutual funds, insurance policies and brokerage statements and record their value. List your liabilities such as housing loan, car loans or credit card debt. Subtract your liabilities from your assets and you will have a good estimate of net worth.

How can I plan for tomorrow when I can barely pay for today?

Create a budget. Determine what you actually spend each month. It is easy to keep track of large expenses such as mortgage and car payments. The variable items such as food, clothing and entertainment are often what get away from us. Write your expenses in a diary or an excel sheet – it is far more efficient than the human memory. The human memory is selective in remembering. Excel and diary are not

How much should I be saving?

It is hard to apply a rule of thumb toward savings, because it varies with age and income level. Ten percent of CTC is a good start. If that amount is too high for you, do not let that deter you. You can start by putting a little money aside each month and slowly increasing it.  You should save as well as invest.

How does insurance fit in to the process?

Evaluating your insurance needs is part of personal financial planning. The insurance industry has changed a great deal over the past few years and there is a wide array of new products. Some of them may be better options than your current coverage.

Do I need a will? – not sure, if you are SURE that you are NOT going to die, you do not

Everyone needs a will. Whether you are single or married, you need a will. No one but you knows how you want your estate divided after your death. It is especially important if you have children. If you do not have a will and both you and your spouse die, the court will appoint a guardian for your children. Maybe you would have chosen someone else.

How often should I update the plan?

It is good to review the plan when there is a significant life event such as marriage, birth, death or divorce. Any change in financial position should be evaluated as well. Many people have an annual update that reviews how the plan is being implemented. The review also considers changing goals and circumstances.

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1. What you do not understand, is not worth knowing: If a financial planner tells you ‘Sir, you do not understand this, I will explain it to you’ – please be IMPOLITE and ask him to …….. (unprintable!). NOBODY (repeat NOBODY) is interested in ‘teaching’ you. Normally it is in the interest of the oil skin salesman that you understand LESS, rarely more. Unless of course he is a professor. If he is a professor, he is not really interested in teaching you, so he will not attempt.

2. Be careful of what your broker can do for you: First of all have less expectation from your broker. Then meet him. Then lower your expectations to the right level. He is interested in getting you to fill some forms, buy some shares, mutual funds, unit linked pension plans, etc. YOU and YOU alone are interested in knowing what is good for you. Take inputs from your broker, use your OWN brain and then decide. If he pushes you for time, ask him to take a chill pill.

3. ANYBODY who has a secret way of earning more is telling you a LIE. A pure blatant lie. There are no secrets that people go around giving free to all and sundry. Sadly some such people go around the world -and they have a fantastic affinity to recent retirees sitting on Rs. 85 lakhs and wondering what to do with that money. Be damn careful.

4. Oil skin salesmen today have many qualifications, be careful. Once upon a time you could trust your banker – but like I said that was once upon a time! So in the alphabet soup of qualifications they pick up a few alphabets and threaten you with their lingo. See point 1. What you do not understand is NOT WORTH KNOWING especially once you have retired.

5. Do not be overconfident (It cannot happen to me syndrome): Remember that is what everybody thinks, till it actually happens. Be careful. Ask your kids, friends, neighbors,….but decide on your own.

6. THE MOST IMPORTANT one: know whom to trust. Not your brother, brother -in-law,…..boss, exboss, banker….remember finding the right person is not easy, but it is a MUST – and you should have 3-4 people with whom you can discuss. Choose such a person carefully.

Risks are worth taking, only if you understand them.

If you are sitting in a group where investment advice is being given FREE and you do not know who is paying the bill, boss it is you. You are sucker who is being had

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Brilliant advise. If you do not know what a portfolio manager does and what a financial planner does, you have right to talk like this. Also sit on panels to judge ‘who is the best aggregator for mutual funds’ and call him the best fund manager.

A good financial planner should:

- make you understand the importance of goals

- help you set them

-tell you what is practical and what is not

- help you create a portfolio

-ensure that your wife/dependents know and understand what you do

- help you make a will / nominate properly

For all this done well, HE SHOULD GET A FEE. To think he can create a portfolio that will beat the market is wrong. If you get good returns, it is because YOU TOOK THE RISK. If you do not get a good return, you do not get a good return.

Among the good financial planners that I have met – there are only 2 types- a) those who know that they are not portfolio managers and b) those who do not know.

Of course there are those who pretend that they are – and may even have a track record. As soon as they realise the role of luck, better for them.

If there are financial planners who agree to a profit sharing agreement, God bless the planner and the client.

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was a call that I handled this week.

I said:

Gee, frankly I do not know. It takes a great mind to say “I will charge you Rs. 24k, but honestly there is not much to do. And if you do your Rs. 250,000 per month SIP with me under my code, I will rebate the commission for the first year from the fee that you pay me. Take term insurance from the cheapest source on the net. Take your medical insurance from a government run organisation (internationally Ergo and Alliance are great claims payers – but I have no clue how they will behave in India where medical records have no legal sanctity).

So I asked him more details about the financial planner. He had promised to

monitor the portfolio on a regular basis (I am still wondering what this means since I heard it 30 years ago),

will anticipate the changes and do a portfolio shuffling on a YEARLY BASIS (to me this was suicide),

choose a Pension Plan and a Child Plan (to me this was amusing)

choose a term plan and a medical insurance plan (he was choosing the MOST complicated company)

do a cash flow (what if analysis for 30 years including what would happen if he lost a hand, leg, heart, life, etc.)

do a cash flow projection for him during retirement (this guy is now 32 years old)

do an annual review for a fee of Rs. 5000

be available for 3 hours during the year for any discussion

The client had a choice of where he bought mutual funds from (he would be doing a 1 year SIP and at the end of the year decide whether to continue based on the performance), BUT the life insurance had to be bought through the financial planner.

Frankly from the clients point of view this was NOT  a good deal, nor was the client capable of doing it himself — he was damn too lazy.

I had no alternatives to suggest….last I know his wife was tugging his shirt collar saying “Yeh sirf gyaan deta hai….WE NEED TO DO SOME THING..so what if it is wrong, we are smart enough to handle adversities, are we not”.

God bless.

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Frankly I do not know whether a person needs a financial planner or not. A financial planner has so much of responsibility and work to do that he/she does not do it! In fact I do not know any financial planner who does all that which I think a client needs to do. Worse is when the client does not know what is crucial work and what is clerical work.

Many clients will go to a financial planner – and do what they want to do. If you appoint a coach you should listen to him. However many financial planners are nowhere near capable to do all the onerous tasks that they are supposed to do. So what does a client do?

Many financial planners are biased – the money in selling is still much much higher than in consulting. The odds are against the small investor who makes no attempt to learn many of these simple steps.

If you expect your planner to monitor your portfolio frequently, monitor markets, understand the political situation, anticipate changes in the market – and therefore realign your portfolio, track world markets, commodities, track interest rates, be able to help you in your loans taking, pricing, choosing the car (oops!), give advice on whether you should change your job, decide whether your kid should study in an International School ,etc. you could be in a rude shock.

If the planner is not from the same class as you are – or has no ability to understand your aspirations, he could suggest inappropriate products. If he is biased towards ANY product (many of them are tied life insurance agents), the chances are you should look hard. It is virtually impossible to be able to sell all insurance and pension products – so the sales will be of a product that he represents, right.

How is this a problem, you ask? Well last week one kid in our office bought a term plan from Aviva – because it was the cheapest for a 27 year old buying a 28 year policy. Now 6 months later if a 35 year old wants to buy a term plan for 22 years, – and if the cheapest plan is by Religare  she would buy it from there. If both of them had actually gone to a ‘planner cum agent’ – they may have ended up buying a Max New York life term (or worse, ULIP) because that is the AGENCY he had. Also it is (today) not possible to buy a policy ONLINE through an agent – that nixes many good intention in the bud!

A good set of  questions to ask your potential financial planner is:

- Do you yourself have a planner?

- why not?

- where are your written goals? show it to me NOW…

- which plans have YOU invested in?

—can give you a dozen more after you have asked these basic questions…:-)

also read this:

http://www.subramoney.com/2008/01/financial-planner-do-you-need-one-at-all/

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I do not think there is a pattern to their financial behaviour – each person is so different that the ‘convenient’ clubbing that financial planners, bloggers, TV anchors do (or rather have to do!) sounds illogical. However there is no choice – programs / blogs/ articles have to address groups and cannot really be custom made for each person.

Some of the stand out characteristics of kids born in the 1980s (not including even 1979 – clearly 80s ONLY) are nice to see:

a. They are confident: clearly kids born in a free economy (no socialism baggage, except hand me downs from parents – largely born in the 50s, 60s).

b. Job is my birthright: ‘If I lose my job in the 4th floor of a building, I may just have to go to the 3rd’ – is what one of those kids told me.

c. Brand loyalty / craze: obviously as peer pressure there is tremendous willingness to pay a huge premium for branded goods.

d. No brand intimidation: Having said that they are brand loyal, many of them will happily chuck a job in TCS for a job in Mukesh Trading and Brokerage if they think they will be better off there. No worry of chucking well paying big brand jobs. This attitude they seem to have applied to their college choice too – they need a BE or a MBA – immaterial as to where they have got it from. Very few kids born even in the 1970s have this attitude.

e. Riskless..well er..so we think: Any financial planner would want kids of this age group to have upwards of 90% in equities – but I see them REBALANCING even now into ‘bank fixed deposits’ or ‘psu run elss schemes’ – as a risk reduction strategy (will do a separate post too!).

f. They are young, earn well (even inflation adjusted, salaries have gone up over the past 30 years for sure), lead a glamorous life (lets do a Barista or a CCD is the norm), have an excessively debt oriented portfolio, and most importantly live on a day to day basis.

g. One thing common surely is ALL of them are broke! Whether it is because they are paying the EMI on a car gifted to ‘Dad’ on his 50th birthday, or co-paying a housing loan, or buying a top end motorcycle, ‘doing a Barista regularly’ – the reasons could be many, but yes, most of them – Boy or Girl – cannot afford to remain unemployed EXCEPT with help from the ATM at home named POP or MOM.

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Investment in turbulent times!

The market has gone nowhere in the past 4 years. When your financial planner / relationship manager / advisor told you that equities are for the long run he/she also said ‘long run’ means more than one year, correct? Well you invested when the index was 20000 and after that the market has just gone down. First it went all the way to 9000 and then it came up to 20000, but now is at 17000.

Far more importantly the shares that you bought and the mutual funds in which you invested have fallen by almost 40%.

Your advisor has started some other business, and is now not taking your calls. Your wife is screaming at you for putting HER money into direct equity – and she is not able to withdraw it for her sister’s wedding. She had promised her dad she would pay Rs. 100,000 for the same, but the shares are worth only Rs. 62,000! You are at your wits end.

What is to be done?

Just go back in time. Rewind to Diwali 2005. All the bulls including die-hard bulls said the market would have done great if it ended Diwali of 2006 at the same index as Diwali 2005. No expert was willing to brave even a 9000 call.

What actually happened? Just go back to your older files, and refresh. The market made these bulls look ordinary. January, February, March…. the markets cross 11,000 then April sees 12,000. Then, we celebrated. We made 12,000 stickers and stuck it all over the place. We made T-shirts, mugs and celebrated 12,000.

We assumed that the market is a place where there is no downward risk!

Let us rewind even further, say 1993 to 1999. The year 1993 was perhaps the worst year in the equity market and was a virtual bloodbath. Markets lost 46% in the financial year ending March, 1993. The returns for the years from 1993 to 1999 are as follows:

-46, +65, -13, 3, 0, 15, and -3.

An arithmetic mean is 3 of these numbers is 3. So we assume that if you had put Rs 10,000 in 1993, you would have got back 10,300 in the year 1999, correct?

Well let us see what would have actually happened:
1993 you would have got  -46  and your corpus would have reached Rs. 5400.
1994  ——-do—————-65 —–do———————————–8910
1995 ———do——            -13 ———-do—————————-7751
1996 ————-do——–     3 —————-do——————— 7984
1997——————-d0 —- 0 % ———–do————————–7984
1998 ———-d0————–15%—-do———————————9181
1999   you would have got     -3% and your corpus would have reached     8906

Over the years this is what would have happened to your Rs. 10,000 – now include 2% amc charges…and that would be even worse

Well it would have been worth Rs. 8906, and not 10,300.

The year 2000 was a good year and gave a return of 33% – so yes you would have RECOVERED your capital. In the national savings certificate it would have doubled.

The key takeaway, ‘The market will do what the market will do. You have to do what you have to do’.
Markets will be volatile. You will see a sensex of 15,000, 18000, 20000 and even perhaps 25,000 in a 12-month period. As a rule everybody loves a bull market. So the FM, the SEBI Chairman and everyone else will look worried and will try to talk up the market.
Keep in mind – for 3 years we have believed that markets cannot come down, and interest rates cannot go up. That might be about to change. We believed that a 2-day fall would be followed by a rise. We believed that the market is fairly valued at 3000, 5000, 8000, 10000 and 12000. We may rethink. We believed that you could go to the terminal in the morning and come back richer at the end of the day with Rs 5,000 or Rs 50,000 simply by buying. The bigger you bet, the greater was the gain. We may rethink on that. We believed that we could build our own portfolio and save the asset management charges that mutual funds charged. We may rethink on that.

The lessons are very simple.
1.    Asset prices fluctuate and they are inversely related to the interest rates. Markets are but an asset class. If it goes up, it will come down.
2.    Individual investors will come, conquer, panic and leave. FIIs will do similar things. You need to act sane. Nothing changes in the economic situation. The solution lies in having an investor mindset rather than a trader mindset.
3.    If you have money for the long run (I mean 4-5 years at least) you should be in the market. If you need to pay your EMI by selling shares, you should be praying in a temple.
4.    If you have an advisor who says 1 year is long term, get another adviser. If your CA says 1 year is long term – he means the Income tax act, not the equity markets.
5.    If you think you understand arithmetic mean, please go back and learn geometric mean, harmonic mean, standard deviation, median and mode.
6.    Equity markets have returned about 22% over long periods of time – with reinvestment of dividend, but please note all calculations ignore taxes and fund management costs. If you include that the final result is not so rosy.
7.    It can take the market say 10 years to touch the previous high. In markets like Japan, it only made new lows!
8.    Be patient do a SIP in a good big fund from a good fund house. If you are worried about fund manager risk, just put it in an index.

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Let me enumerate (Ripley’s should not use it in their Believe it or Not, please)

1. Money invested for 80C benefit, but not mentioned in the Return of Income.

2. Money kept in a company fixed deposit, interest stopped coming (FD matured) not claimed FOR 3 YEARS. Of course company made no attempt for 2 and a half years, then sent one letter…so effectively after 32 months!!

3. Rs. 3 lakhs lying in the current account, Rs. 1500 credit card bill not paid for 2 years. Same bank. Obviously bank did not inform (accounts are connected, but current account is operated jointly and credit card is in the husband’s name )

4. Salary not credited to bank account for 3 months. DID NOT REALISE THAT SALARY WAS NOT CREDITED.

5. Bought life insurance paid 2 years premium, did not pay 3rd premium EVEN THOUGH SHE HAD ENOUGH MONEY in the bank, because she heard ULIPs are bad. Premium already paid Rs. 150,000.

6. Did business with brothers, invested with them, bought insurance with brother as nominee. Died at age 36. Wife and daughter penniless, being supported by HER father. Some chance that brothers will pay her something, but NOTHING BY RIGHT….maybe a pittance as a FAVOR….

can go on and on…

I have been stunned. If they get a financial planner who charged them Rs. 55,000/- p.a. but SAVED Rs. 300,000 in some simple mistakes being AVOIDED…should the client crib about 55K paid or be thrilled that he saved Rs. 245,000? L O L

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Well if I were to write a book on financial planning, I could write a few chapters on this topic. One thing however he MUST do is ask you a lot of questions – some painful. For example when I talk to a new, unknown person who wants some kind of help in planning, some of the questions they find difficult to answer are:

How do you feel about begging? (Yuck!).

If you wiped out your portfolio whom would you turn to for food? Will you be able to ask?

If you have enough money why are you working?

If your wife wants more time with you, will you quit your job? And let the trip to Switzerland vanish? What is more important – your wife’s ‘public posture of wanting time with you’ or her real stand of ‘a holiday in the Alps’?

When you know that you are not disciplined to control your spending, why do you go to a mall with your credit cards?

If you were to ‘help’ somebody, and that person took the money to spend on something YOU THOUGHT was frivolous, how would you react?

Have you ever stolen as a child? Did you confess to your parents? If not, can you do it now?

Do you have much more money at age 55 than you thought you will have at age 22? If so why are you working?

Because you can afford a few more THINGs than your father (perhaps) do you consider yourself more successful or lucky to have been in a higher growth rate economy?

..why so many questions?

Because answer to all this SHAPE your attitude towards money. Not just what you have in the bank. Money to me is a commodity – and lets you buy what you THINK you need at a point in time.

Too bad it never asks you 30 minutes later whether what you did was sensible or not

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