8 Investment Myths To Be Avoided

This article is a part of [Personal Finance Tips to master your own Finances]

8 Investment Myths To Be Avoided:

Today I am going to debunk a few investment myths. You will know ‘why individual investors are failing miserably and how you can avoid being one of them’.

1. I am too young to plan for retirement

Have you started planning for your retirement? You may be saying ‘who me? I am too young to be thinking about retirement”. It is not so! Rethink. You should have started thinking about it yesterday. Because time flies quickly.

If you were smart, and planned for retirement when you are young, your retirement years will be really those “Golden years”. If not you need to compromise and you need to work longer and retire later than others.

2. East or west FDs are safe and best

Nothing wrong in investing in FDs. FDs are really safe and it gives us fixed return. But there is no meaning in investing all your money in FD. The post tax return of an FD will hardly beat inflation. If your investments are not beating inflation, then your money is losing its purchasing power. FDs are safe but not always the best option.

3. I can never be as good as Warren Buffet or Rakesh Jhunjhunwala so why try?

In the words of Warren Buffet “Success in investing doesn’t correlate with IQ once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” You don’t need a super brain for making investment decisions. You only need common sense and discipline. If you don’t have enough time and expertise, then you can get assistance from professional financial planners.

4. Stock markets can earn me quick bucks

This is a common myth among investors. Stock market will reward the long term investors. Stock market is a system which transfers money from investors who are fearful and greedy to the investors who are balanced and rational.

You need to be calm, patient, disciplined, and rational. You don’t have to be smarter than the rest; you have to be more disciplined than the rest.

5. Timing the market is important

Investors often spend a lot of their time in trying to identify when the market is very low or high, and timing the purchase and sale of investments accordingly.
In other words, they want to time their exit when the market has reached its top and to time their entry when the market has reached a bottom. This not a practical idea because there are so many influencing factors to the stock market. Predicting all the factors and making investments is practically not possible. Instead of that stagger your investments through SIP, STP and stay invested for long term.

6. There is no such thing as too much diversification

Diversification is needed. A well diversified portfolio can be created with 10 stocks or 3 mutual funds. Having more than 20 stocks or 6 mutual funds can dilute your returns. The reason is you are not only investing in best stocks and funds, you are investing in above average and average stocks and funds. So your returns will come down. Instead of over diversification, you need to concentrate on a few stocks. It is possible to achieve the required diversification with a few stocks or funds.

7. The best way to make money is investing in what is hot

If you are investing in what is hot, then you are following the crowd. If you follow the crowd, you will get what others are getting. You will not get anything more. You need to be fearful when others are greedy and you need to be greedy when others are fearful. So don’t go by the market trend or the hot pick of the month. Think like a contrarian and follow value investing.

8. Saving tax is the only objective for me to Invest

Which group you are in? There is a group of people who invest just to save taxes. They will not bother to invest anything more than that. They will meet their objective of saving tax. There is another group which invests to save tax as well as to save for their other life goals like retirement, children’s future. They will meet the objective of saving tax and achieving other life goals. Kindly check you belong to which group.

You can be an assured successful investor if you could avoid these investment myths.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

5 Blunders To Avoid With Stock Market Fall And Viable Solutions

This article is a part of [Personal Finance Tips to master your own Finances]

Let’s Start Having A Look:

The present share market dip accompanied by a climate of pessimism in the share market calls for not just shrewdness in share dealing, but also for avoiding the 5 common blunders that I find most long term investors make during a share market fall. It is true that your precious savings needs to be protected and to grow, that makes me quote Ayn Rand, "Wealth is the product of man's capacity to think", so let us think and avoid those 5 common blunders.

Unveiling the 5 common blunders to avoid in stock market fall:

Being influenced with short term share market losses:

I have always advised young investors investing for long term capital gains to not panic if the value of their shares came down rapidly in just a year. It is not advisable to sell them to avoid further dips. A strong unchangable fact about the share market is that it is subject to ups and downs. The price of the shares would rise all of a sudden, and selling would only make it difficult to recoup your portfolio to meet your long term financial goals. The share market is like a voting machine in the short run and weighing machine in the long run, hence long term capital creation requires buying shares in an advantageous share market.

Short selling to make profits:

Short selling shares at a higher price, in the hopes to replace them by buying at a lower price proved risky for many investors. They all have soon realized that it was always better to have a cotton shirt on their back rather than aspire and fail in getting a silk shirt and have no shirt at all.

People believe that investment experts and large stock broking houses will be able to predict the market. If we watch and follow them we will be able to make quick bucks in short selling and F&O trading. Is that so? If there are investment experts who will be able to correctly predict the market they will not be writing or giving interviews about it in the media. They will be silently investing and making money without revealing their secret.
Most of the big names in the stock broking sector were opening more new branches in the upcountry side during the second half of 2007 (when the market was moving closer to 20,000 levels), expecting the market to go up further and hence their businesses will grow. But within six months, market had collapsed.
In the second half of the 2008 these companies decided to wind up their newer branches in the upcountry as they were expecting further downside. But again within next six months market started their recovery.

Never enter into shorting deals during a share market fall, but to hold on and invest more if you can make good returns in future.

Buying Penny Stocks of unknown companies in place of shares of reputed companies:

Market has fallen. You can invest now. Many investors fall prey for the idea of investing in penny stocks. You may think that you will get more number of shares when you buy penny stocks. Because you will get a very few stocks for the same amount if you choose to invest in large or midcap companies.

It is a universal advice that investing in thriving longstanding companies rather than, a less known company would guarantee you a good return in the long run. You should avoid investing a large sum in unknown penny stocks. It is always advisable to take calculated risks and not blind risks. By investing in a penny stock you are taking a blind risk which all successful investors avoid consciously.

Waiting for shares prices to fall further before buying:

When the market falls, that is a perfect time to start investing. Don’t wait for the markets to bottom out. It is difficult to identify the bottom and invest. By the time you recognize, that is the bottom level, the market could have bounced back.

Share market commentaries in the media always confuse us. When the market was at 20000 levels during Dec 2007, everyone in the media is predicting and analyzing the possibility of the market reaching 30,000 levels. But markets crashed subsequently. When they came down to 8600 level during Nov 2008 , everyone in the media is predicting analyzing the possibility of market going down further to 3,000 levels. But markets bounced back.

The prudent and smart investors understood this and started investing when the markets started falling. They have staggered their investments over a period of time. They followed simple strategies like systematic investment plan and systematic transfer plan.

I wanted high returns, but cannot see my capital fluctuating:

Some young and middle aged investors invest in high return portfolios with a lot of midcap exposure, and realize that their portfolios have fallen 15 to 20% with a share market fall in just 3 to 4 months. Their panic and decision to sell their shares for reinvesting the same in fixed return investments like Bank deposits or company deposits is wrong, and I would have advised them to just wait. Their present loss and reinvesting in fixed deposits would take them longer to recoup the capital and make sizable returns. The solution lies in sticking on to the share portfolio and be intelligent to buy more shares for long term wealth creation.

The final word:

My final word of advice for long term investors is to never allow emotions or short term fluctuations to alter their investment decision, and to always buy in a falling share market. I am sure a rational decision accompanied by safe dealings can make your long term financial goals a reality.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

All About Investing & Not Investing In The Stock Market

This article is a part of [Personal Finance Tips to master your own Finances]

Do’s and Don’ts in the Stock Market:

Let’s introduce do’s and don’ts of investing:

Most of us have our own perception of investment based on our experiences, but also tend to be confused with the opinions given by others. Knowing the do’s and don’ts of the stock market would help us turn really as a smart investor.

The do’s and don’ts in the stock market are:

Slow, steady, and boring wins the race:

It is best not to panic over information about stocks on the media. Being slow and steady with looking at the activities that your money is to be used for would ensure that you invest in ventures that are good, useful and profitable.

Reading good books on personal finance will help you in taking right financial and investment decision. In addition, finding good financial advisors would help you get advice regarding stocks and mutual funds, along with entrusting the custody and management of your funds to them.

All this may seem too boring and time consuming, but it is better to be cautious than bitten too hard.

Don’t give any weight to market forecasts. All opinion pro and con is already built into the price of equities today:

Market forecasts on the media has got good entertainment value but doesn’t have any investment value. It is just enough for long-term investors to invest in good stocks, and mutual funds that would appreciate in the long run.

It is best to understand that market forecasts only show you the expected direction in which the market is heading based on the available information. This forecast is only a forecast and need not become reality.

In addition, market fluctuations are the very nature of share markets and should mean nothing to long tem investors. Making accurate market forecasts is tough, as they are influenced by various factors like the outcome of political elections, the direction of the economy, interest rates and world events. It is also wise to know that these fluctuations are incorporated in the price of the share, stock or mutual fund.

Do make your own analysis of the stocks, shares and mutual funds:

It is unadvisable to place your full faith on analysis of others regarding stock, shares and mutual funds. No wise man would always tell you all about his market beating strategy. Making ones own analysis keeping your financial goals in view and framing a strategy would help.

This involves studying the performance of top performing stocks and mutual funds over 5 years and existing mutual funds over a period of 3 months to decide on which stock to maintain and which to dispose off. All this would ensure that you are investment smart.

Don’t think you can successfully engage in short-term market timing:

As a long- term investor you should never contemplate taking advantage of short-term market dealings and speculations. Playing with shares and mutual funds in the short-term market may give you a profit in a few transactions but will not give you profits forever. So you can’t have an investment strategy which gives profit inconsistently. We need a strategy which can bring profits consistently so as to be a successful investor in the long run.

It is true that playing in the share market is neither entertainment nor fun. It is also futile to borrow or work on short-term margins to make money.

Don’t assume that if anyone were genius enough to devise a market-beating strategy he would be stupid enough to share it with anyone:

Stock tips are good to learn, but not to act on for speculations. It could prove dangerous to act on speculation tips given by one and all, as they may not be correct. In addition, everyone has his or her own perception of investment, with other not having full knowledge or skills.

You need to take time to think over each tip and analyze if it contributes to your long-term objective of capital appreciation. Similarly it is not advisable to subject your money to risk with investing in investment fads that may or may not earn you huge profits.

The final advice:

You need to make a calculated decision considering the pros and cons whenever you make an investment. In addition abstain from trading often in the stock and mutual funds market. Always think in terms of long term investing.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial planner of Holistic Investment Planners, a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

How Should you invest in stock market after your retirement

This article is a part of [Personal Finance Tips to master your own Finances]

How and Why Should you invest in Stock Markets Even After Your Retirement?

Inflation and Retirement:

Most Retirees feel great getting a bulk sum as provident fund and gratuity, and wish they knew a magician, who could spin their money 2 to 3 times in just 5 years, in addition to ensuring a regular return for their day to day expenses. It is true we all want it to keep up with the inflation rate in the market. I know of no such magicians, and it is practically not possible to multiply your money 2 to 3 times in just 5 years. But I definitely know of smart investment planning and investment advisors that could help you to beat inflation.

A step by step look at your considerations to come out with smart calculated investment decisions:

• Post-retirement, you know that you would no longer earn a regular income and would have to stay on your savings, provident fund, gratuity, and other benefits that have been given to you. You would definitely want more good returns on your investments, but your appetite for risk is low, for you would not want to lose your precious savings. So you would prefer to shift your portfolio of investment from risky ones to safer ones like fixed deposits in banks and good rated companies.

• However, your need for more income, capital gains to keep up with inflation, and rates of interest on fixed deposits decreasing each year may make you puzzled about coping up with the increased financial needs. You, as a senior citizen are lucky to be getting additional interest, however taxes leave you with not much more. However you are not prepared to subject your savings to the volatile bullish and bearish trends of the share market of over-confidence and pessimism.


• You retire at 60, considering 5% is the rate of inflation annually, with life span as 85, and spending Rs.20000 per month, you would require a retirement corpus of Rs.42,00,000 if the return rate was 8%, while you would require Rs.47,00,000 if the return rate was only 7%. I am sure you would invest smart, reducing your retirement corpus by 10.5% by just investing for 1% more return.

• It is true that stocks and shares gave an annual compounded return of 17 to 18% in the last 15 years, with long term stocks giving a compounded returns of about 15 to 18% annually. However, you have not appetite for risky and volatile investments, and may want to play safe with low or moderate risk to capital and in not putting all your eggs in one basket or to divide your risk.

• After your retirement you would do best to follow the advice of financial experts and invest no more than 10 to 20% of your retirement corpus in shares and stocks. A novice to the share market, or lack of time, inclination or shrewdness may not prove right to deal in the share market, and most financial advisors advice senior citizens to invest in mutual funds. These companies have experienced fund managers and researchers with in-depth knowledge of various industries and valuation principles and also offer diversified investment options in shares in companies, debt instruments and government securities.

• The choice of retirees should be to invest in big cap funds, funds investing in huge paid-up capital companies, while mid cap funds suit those who do not mind medium risk-taking. However small cap funds, invested mostly in start-up companies are to be avoided, being highly volatile in nature.

• Time plays a vital role in investment in mutual funds, and a good investment advisor would advice you appropriately. The best option for senior citizens would be to first invest a lump sum in a debt based funds that promise good, safe and regular return. This could be followed up by a systematic investment/transfer plan of investing or transferring through ECS regularly a fixed amount for units of a mutual fund. This definitely proves beneficial to take advantage of the volatility of the market, as buying different number of units each month helps to spread the risk also.

A Final Thought:

However your smart calculated investment choice of mutual funds requires evaluating every 3 to 6 months. This would help switching between mutual funds at the right time. My last but most important advice again especially to senior citizens is never go in for stock trading in a big way without proper knowledge and inclination and lose due to volatility of stock and share market.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners, a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

Top Ten Tips For Long Term Investors

Long-term investors wishing for capital gains have to follow a few principles and learn the 10 great tips for long-term investment to safeguarded against heavy losses.

10 Great Tips For Long Term Investors

Decide your investment strategy and stick to it:

You know what is best for you and this applies to deciding with foresight the ideal investment strategy for you. Once the strategy is set, do not fluctuate in your decision each time you decide to invest. This would only mean losses instead of profits. However in certain cases when you realize a certain sector is doing badly, you may have to revise your investment strategy.

Conduct your own research on stocks:

It is not advisable to just depend on hear say and decisions of your neighbor, friend, or relative and invest in stocks. It may seem easy but could amount to gamble. Being an informed investor investing your hard-earned money needs you to ensure if the investment would meet your financial goal. This could be done through research from various sources.

Learn to overlook short term fluctuations:

A long-term investor like you need to understand that it is futile to be affected by short-term fluctuations of the stock market. Investing in good and reputed portfolio ensures good quality of your investment and capital appreciation in the long run. The short-term volatility of the share market has got nothing to do with this financial goal.

Resist investing in penny stocks:

Some investors have a common misconception that it is better to invest in penny stock than in high value stocks. This is wrong as whether you buy stock at Rs.5 a unit or Rs100 a unit you will lose all your money in case of losses. However a company with higher net asset value stock would prove less risk considering the regulations put on it.

Discard the losers and pamper the winners:

There is a tendency for long-term investors to sell off appreciated stock and to hold on to depreciated stock in the hope that it would rise. It is wrong, as it is possible that big value stock could appreciate further and you could become a high net value person and small value stocks could fall further and you could make losses. It is better to acknowledge you went wrong, swallow your pride and discard the loser stocks and lessen your losses. Your decision lies in deciding to suffer a one-time loss for future long-term gains.

Never emphasize overly the price earnings (PE) ratio:

Investors have a tendency to place excess importance on the price earnings ratio. However this could be misleading, and it is better to take other ratios and analytical processes to decide on long-term investments.

Adopt an open-minded investment strategy:

It may be advisable to consider investing in good companies, however it is wrong to overlook the point that small start-up companies would make losses. Even such companies with good strategies and growth plans could contribute to long-term capital appreciation.

Base your investment strategy on the future:

Investment decisions based on past happenings may not always be right. It is better to consider the happenings, but give more importance to the present and future prospects of the investment. An informed decision based on the fundamentals and mission of the company helps in long-term wealth creation.

Consider tax friendly investments:

Making investment decisions based on tax considerations may prove counter-productive. You would have poor long-term capital appreciation. However minimizing taxes and maximizing returns after taxation would help.

Adopt a long-term perspective:

Adopting a long term prospective is advisable for a long-term investor. Only stock traders with time, financial resources and specialized skills like education and expertise could benefit from volatility of the stock market.

Which of these tips do you think are absolutely critical to succeed as a long term investor? Do you think there are more tips a long-term investor should follow, do share with us.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners, a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.
Website: www.holisticinvestment.in

Indian Stock markets BSE and NSE starting early at 9 AM from tomorrow (4th jan 2010 )

Indian Stock markets BSE ( Bombay Stock Exchange ) and NSE ( National Stock Exchange ) starting early at 9 AM from 4th jan 2010. The market regulator SEBI agreed to this change of timing. Now the trading will start 55 minutes before the current start timing of 9:55 AM.