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Getting into the best performing stocks, commodities, futures & options or even FDs at the best rate of interest is the dream of most investors. Let's assume you get such an opportunity -- you invest in a stock which turns out to be the best performing one for the year and doubles your Rs 1-lakh during that period. What follows is the sense of satisfaction and déjà vu, even if it was by fluke. After the smart gains, probably some part will go towards an impulse purchase as an instant gratification, while some will take care of an outstanding (perceived or actual!) need.
But will this Rs 1-lakh profit be available to you six months later?
Unlikely. Will you be able to repeat this feat year-after-year? Unlikely. Will it contribute to something very important and long-term in your life like your child's education, your own home, a good standard of living after retirement? Again, the answer is unlikely.
So all that you have achieved is a bit of adrenaline flow and a momentary triumph. Often, much time and energy may have gone into spotting such an opportunity. Now, instead of spending your time and energies in looking for the best stocks or deals by going through all available information, or taking advice from a know all friend who claims to have made huge profits in the market, you may decide on having a long-term financial plan for yourself. There are several advantages.
Boring but effective
Careful long-term financial planning may not be as exciting as the adrenaline-flowing hot stocks picker or be a party stopper. And it may even be outright boring. It may involve you doing drudgeries like some mathematical calculations, crystal gazing and stuff like that, but it will definitely bear you fruits in the long term.
When your child's graduation arrives, you will not be running around emptying your provident fund. When you decide that it is time to go in for your own home, you will not have to keep postponing the plan because you do not have the funds for down payment or the capacity to pay the EMIs on the home loan.
Similarly, when you are 75, you will not have to keep lowering your standard of living year-after-year just because your pension or the pension corpus is losing the battle to the run-away inflation. So, long-term financial planning can be boring but effective.
Achieving financial goals
A financial plan would involve carefully jotting down the major future expenses of your life in the next 20, 30, 40 years. These are called the financial goals, which should generally not number more than 10-12. The same should be done for your anticipated money flows from salary, rents, interest income and others. And then you should try to roughly match the two. The next part is to decide on investments that can help you achieve these goals.
While deciding on investments, the general rule is that debt instruments are for the short term, or for building up the safe part of your investments, while equity-linked investments are for building up long term wealth. Real-estate, properly chosen and timed, is also an important part of portfolio but requires bulk investment, which can be built up through a long term equity portfolio along with carefully orchestrated home loans.
Never should tax-saving be the aim of investments. At best, it should be incidental to investing.
Review regularly
The financial plan thus made should be reviewed every two to three years to do mid-course corrections necessitated by your changes in priorities, circumstances, money flows and market conditions.
But can you do all this on your own? You can since it is not that tough. The tough part, however, is the yearly reviews of your financial plans, a review of your investments every two-three months and then realigning your investments as the markets and goals change. That is because it involves a bit of discipline, acquiring some financial knowledge and sticking to it as if your life depended on it.
However, all this could be worth the time and energy than a sense of despair when you have a financial need for something very dear to you, yet you cannot meet that need because you did not plan earlier. If you feel this is too much to handle, find a trusted financial planner who will do it all for you for a small fee.
The quantum of dividend shall be Rs 0.0389 per unit. The record date has been fixed as April 03, 2014.
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