Month: October 2014

Last week I read an article about the fact that nearly half of the Indian investors don’t know what they’re paying in mutual fund management fees.  My concern is that if they don’t know what they are paying, what else are they unsure about.

1- Investment Objective

The most important point to consider is the investment objective, first yours then that of the fund you are considering buying.  Are you looking for fixed income, growth, assets in the country, perhaps a balanced fund of global assets?  The possibilities are endless.  It is imperative that you start here.

2- Investment Strategy

Does the fund manager use a passive or active management technique?  Are transactions based on the security of capital or growth potential?  Perhaps the fund manager has restrictions or timing constraints that dictate his actions.

3- Fund Company

Do you have a preference for a certain fund company?  Personally, I believe that certain fund companies are better at managing certain assets.  Sometimes it’s the portfolio manager, at other times it is the company’s doing.  When looking at the fund company, you are looking for one whose net long-term assets are on the rise.  As long as the fund manager has more cash deposited that being withdrawn, he’ll be able to implement his magic.

4- Portfolio Manager

When evaluating a portfolio manager, go with independent assessments such as those provided by ValueResearchOnline.  What is the manager’s performance considering the risk associated with its holdings?  Does the fund manager take excessive risk, when compared to the index or similar funds, to generate the fund’s results.  How long have they been there, what other funds does he manage?  What are the assets under management?

5- Principal Risks

What are the inherent risks involved in the fund?  Is it the currency in which the fund is denominated?  Geography, sector, market, interest rate or diversification risk.

6- Performance Information

When looking at performance information, look for a fund that has consistently produced above average results over 1, 3, 5 and 10 year time periods.  How is this possible?  It is possible because funds are compared against their peers, other funds with like comparisons.

7- Fees & Management Expense Ratio

It is not a fluke that I left this towards the ends of the points to consider.  This is so because sometimes the most successful strategy and/or the best portfolio manager costs a little more.  Also important to know, the performance of a fund is net of fees, so performance rules!  This having been said, the lower the fees, the better the fund will do during difficult market conditions.

I am hoping that this article has served to answer some questions investors have about their investments, especially Mutual Funds.

What is it you were told about money when you were a child? Something about money not growing on trees or it’s the root of evil?

Well, how will you plan to succeed monetarily if you believe this?

Firstly, thinking money doesn’t grow is an illustration of what is called scarcity thinking. Our parents told us there wasn’t enough money to round, and that it was scarce. But really, our universe is very plentiful, and there’s lots of money for us all.

The key is to think you deserve to have cash, and that there’s a lot of it for you. Then you can begin to put it into life. That’s abundance thinking, and is a much better outlook than scarcity thinking.

What about believing “money is the mother of all evil”? Do you expect to be successful if you think money is bad? Unless you want to be evil, your subconscious won’t allow you to have money if you truly think it is the root of evil.

And also, that quote has changed over the years. It’s originally known as “the love of money is the root of all evil”. So it’s isn’t anything to do with actual money.

Now you understand, you can begin thinking money is actually good. You’re able to help out other people with money. You could help the economy with money. Even the most spiritual person, that believes they don’t have a need for money, must admit they could do their part to make our world a better place by using money rather than not.

And how about “all the rich folk are greedy”? This starts the “us against them” way of thinking, where you label all “them” greedy. You, then again, believe yourself to be very generous. That is why you have no cash, because you’re the opposite of greedy.

Of course, there are rich people who are greedy. However, there are greedy poor people as well. There are poor and rich who are very generous as well. The amount of cash you own has no bearing on these traits.

Actually, many rich people get success by being giving. If you have a giving mentality you’ll open a stream of money that brings more. You’ll find the same thing, give a little money happily, and see it come back to you in a different form. We needs its own balance of giving and taking, and being happy giving, and receiving will make sure that you go with the flow.

Changing your mentality from the teachings when you were younger to an improved outlook on money will let you achieve the financial success you’re worthy of.

Have you ever stopped to wonder why rich people get richer? Many believe it’s because of the greater leverage they hold on wealth with every new generation. An equally impressive number feel it due to rich parents passing on the financial skills they’ve learned to their children. These enhanced skills are then utilized with the new generation to create an ongoing snowballing increase in riches.

This article is dedicated to three major wealth concepts that you should consider passing on to your kids at an early age.

Concept 1 – Good and Bad Debt

These days thousands of people are drowning in bad debt, thousands more on the other hand manage to steer clear of its clutches. Debt is an important facet of our economy because it helps fund large complex projects. Therefore, the key here is to learn to differentiate between good and bad debt.

Concept 2 – Capital Appreciation and Cash Flow

For many these concepts are confusing. Generally, there are two kinds of financial instrument with varying hybrids between. The vast majority of financial instruments belong to the capital appreciation category of instruments. This means you sell an item when the price increases which makes money. Therefore the capital has increased hence the name “Capital Appreciation”.

There are instruments that give a cash flow, otherwise known as a share of profits. A few examples would be real estate investment and alternative mineral rights trusts such as oil trusts whereby you receive a share of the trust’s monthly income. These are fantastic instruments for making a large sum of money from your capital appreciation instruments when you leave a portion of your money in them. Teaching this to children at an early age gives them an excellent insight on how the free economy functions.

Concept 3 – Take Control of your money

Analysts and fund managers love to blow their own trumpets by telling you how they constantly over perform the market. Actually, they earn their money from managing your own money. For example they’ll charge management fees or selling charges whether your portfolio is profitable or not. Yes, that’s right they can manage your money poorly and still be paid handsomely for their services.

Recent studies have indicated that most fund managers may fare no better fortune in effective stock selection. Many have stated that some are in fact akin and achieve less than a team of monkeys throwing darts at random stock on a metaphorical dart board. It’s important that you instruct your children to learn about investing and to take charge of their own finances.

Summing up

In conclusion, the act of teaching your children about finances is vitally important. Some of the brightest and most successful fund managers of today speak of parents who would analyze stock in their presence as children. Teach your children about managing their own money and the workings of the modern economy and you’ll see them grow into better more able young adults who’re positioned to deal with the financial world.

We don’t have abilities to see the future or guess the hurdles ahead. This makes saving up an emergency fund vital for you financial security, this is because you’re never given a warning of an impending setback such as an accident that keeps you from working or a catastrophic vehicle failure. It also serves as the safety net with the ability to save you from bankruptcy.

Saving up a small rainy day balance should be the vital part of your financial goal. This is incredibly important if you don’t have funds readily available for covering and dealing with unanticipated occurrences. This will provide financial security since it gives you money fall back to when you’re struck down by illness, your partner loses a job or you incur the onset of an enormous medical bill. You don’t want to find yourself in the situation where you’ll have to buy necessities with a credit card and end up paying inflated interest rates of up to 18%.

Saving money in a small account for emergency purposes is the best alternative. If you open a loan account you’re faced with the added burden of paying large amounts of interest. Cashing your investments before maturity means you’ll lose the interest and also a portion of your original investment. This will no doubt set back your financial plans.

To successfully build emergency funds you’ll need to save money regularly and resist dipping into it for non emergencies. The best bet is to keep the money separate from your general saving account. You should invest a substantial percentage of this fund into low risk funding. This will ensure that the money is very liquid and that your investment will not lose value. You’ll be able to access it quickly if you desperately need to.

The size of this special account will ultimately depend on your situation. Many people like to keep a full 6 months of their salary in reserve. The best thing to do is decide the amount based on factors like the number of dependants you have and your fixed monthly outgoings.

If you’re single and have zero obligations with a reliable group of friends who could assist in an unforeseen financial crisis it’s possible you don’t need to stash such a substantial figure in the fund. The more people who rely on you for support though, the more important it is that you have a bigger reserve fund.

When you decide your emergency fund, you must take the difficulty you’d face when looking for new work into account. If you live in a two income household, the contributions of both people should be calculated into the fund.

You might not have the ability to get the emergency fund money at once. Just treat it like a financial goal, one that you add to over time. Should you receive a tax refund, place it in your fund account.

Many people base their financial decisions on their emotions. This can be dangerous.

In fact, one of the main causes of debt is self-esteem issues. Often, debt can’t be eliminated by only fixing the financial. The emotional must be addressed as well.

And it isn’t easy.

The first thing you have to learn is that you must use credit wisely. You might be using it to boost your self esteem, but it often works the other way. Instead of helping you emotionally, it will drain you. P.T. Barnum said that debt robs a man of his self-respect.

Just think about how you feel when the credit card bill comes in. Think how you feel seconds after signing the receipt for a truly frivolous purchase. Your spirits might be temporarily lifted, but then the regret and shame sets in.

You can avoid this by simply not turning to your credit cards. Start learning how to live within your means.

When families become stressed by financial difficulties, they tend to fall apart. There can be yelling, fighting and stress between partners. Credit cards can lead to lying about shopping, lying about usage and lying about what bills are and aren’t paid on time.

When you are in debt, your whole life can begin to feel as if it is falling apart. Taking steps to get out of it will help you get not only your finances in order, but your family as well.

You will also find that there is more pleasure in seeing a large amount of savings than there is in seeing a large spending bill. Start a consistent savings plan. Watch it grow. The more it grows, the more you will want to contribute.

The greatest lesson to learn from debt is in learning from your mistakes. Experience is a great teacher. Make it your mantra not to repeat your financial mistakes. But you should also take the time to invest a little in educating yourself. Read articles, go to counseling and talk with your friends about their experiences.

It will take time, hard work and sacrifice. But the emotional rewards are far better than the material.

Start with sitting down with your partner and discussing the situation, both emotional and financial. If you become heated in the discussion, walk away for a time. Don’t try to hash it all out at once, do it only one hour at a time. This keeps you fresher and less emotional.

Separate your spending from your feelings of worth. Ask yourself why you spend. I know that I overspend frequently partly because I’m afraid I won’t have the things I need. I grew up without much money and am afraid of returning there. I didn’t see that the spending was putting me in that situation, not removing me from it.

It isn’t complicated. Usually the emotional reasons are just below the surface. You need to bring them up, get rid of them and move on. Your finances depend on it.

When our parents and grandparents were young, planning for the financial future was largely unnecessary. Many people in these earlier generations were able to go to school, get an education and work for a single employer for their entire working lives. After those 20 or 30 years were up, there was a secure retirement and a solid financial future to look forward to in retirement.

Anyone who has been paying attention to the financial landscape knows just how radically things have changed. These days, the secure defined benefit pension is very much an exception to the rule, and most employees find themselves being asked to take charge of their own financial future by investing their own money in a 401(k), 403(b) or IRA plan. While this do it yourself financial approach can have a number of advantages, it can be a daunting task as well. This approach to financial matters provides a greater level of control than does a traditional pension plan, but it also introduces an element of risk to the equation.

To make matters worse, most employers will not provide financial advice to their 401(k) or 403(b) plan participants because they are worried about liability issues should the financial investment not work out favorably. It is up to each plan participant, therefore, to take control of his or her own financial future and to learn as much about financial matters as possible.

There are many places to seek out financial advice, including relatives, friends and professional financial advisors. Many people prefer to start locally, seeking out advice from their more financially successful friends and relatives. Professional financial advisors can also be a good choice, but it is important to study their track record carefully to make sure they are really qualified to hand out that financial advice.

Taking charge of your financial future may not be easy, but it is important. It I important to start planning for a secure financial future as soon as possible, since the power of time can help your money grow and make your financial future much more secure. There are many ways to save and invest for a more secure future, from Individual Retirement Accounts (IRAs) and 401(k) plans to mutual funds, stock market investments and bond funds. How you invest, how much you invest and how early you get started will have a significant impact on your future happiness and security, so it makes sense to get started as quickly as possible.

The roots of asset allocation may be traced to the 1950s when a University of Chicago graduate student in economics was in search of a dissertation topic. The student, Harry Markowitz (we’re not making them up, folks), ran into a stockbroker (no injuries were reported) who suggested to Harry that he study the stock market.

Markowitz took that advice and developed the theory that became a foundation for financial economics. Harry later earned, along with William Sharpe and Merton Miller, the 1990 Nobel Prize in Economics, following work by the two of them that pioneered the Modern Portfolio Theory.

Today, Modern Portfolio Theory is called asset allocation. Read on to find out how this concept could help pad your portfolio, if not win you the Nobel Prize. Here are a few of the highlights of asset allocation:

1. Asset allocation is essentially the notion that you can minimize your overall investment risk and increase your potential for gain by spreading your investment dollars across various types of investments.
2. Carefully consider what you hope to achieve through investing before you choose the make-up of your portfolio.
3. Are you a thrill seeker, or a nervous Ned or Nancy? Gauge your emotional tolerances for risk before you invest.
4. As you shop for investments, consider how an investment is classified, its performance history and what the experts are predicting about its performance.
5. Things in life constantly change. Keep on top of your portfolio’s contents — and shake things up once in a while.

The word “annuity” doesn’t exactly roll off the tongue, does it. Why do financial terms have to be so bizarre? That’s an excellent question–one we can’t answer without first teaching you a secret handshake. Despite the strange term, annuities are a popular retirement tools today. You may want to gain a better understanding of how you could use them in your overall retirement plan.

Think of an annuity as one of the tools in the retirement shed. It may not be the sharpest tool in the shed, and you can get by without it–if you’ve got other tools that serve a similar purpose. An annuity has many features, but it’s generally not the first tool you show off when bragging about your tool shed. And you probably won’t use the annuity tool for awhile, but when the time comes you’ll be glad you have it.

OK, enough with this metaphor. Is there such a thing as a genuine tool shed anymore? Maybe everyone gets one when they retire. There we go again.

Annuities may be just the tool for you because:

• They can supplement monthly retirement income from IRAs and 401(k) plans or other employer-sponsored retirement plans. Annuities can be a good way to arrange for a monthly income during retirement (or you can collect a lump sum). Some annuities will even guarantee a monthly pay-out for as long as you live, no matter how long you live.
• You don’t pay income taxes on the accrued interest until you withdraw money from the annuity. However, the contributions themselves–your non-qualified annuity premiums–are not deductible at the time of contribution.
• Pay-outs can begin immediately after you open the annuity or can be deferred until a later time when you need income.
• With some annuities, you can pass on death benefits to your beneficiaries.

Whether you chalk it up to human nature or some freakish financial force, it seems that inertia, phobia, disgust, denial, confusion or simple neglect keep us from the two things that are at the root of all good financial planning:

1) knowing what we’re currently spending; and 2) having a spending plan we can live with.

Ignorance is truly bliss when it comes to spending. It’s a pretty neat trick to never know what your bank balance is. When that is the case, you don’t have to face the reality of not having enough moola to buy a candy bar, much less the fancy dinner you fooled yourself into popping for last night on your credit card. But ultimately, you reach a point where you say enough is enough. Your chronic avoidance of budgeting and sensible spending is wreaking havoc on your life in ways that go beyond just money. You’re wasting time, increasing your anxiety and giving yourself little to no chance of reaching goals that are important to your happiness.

Well, you’ve come to the right place because we’re going to help you overcome those hurdles. The key will be to keep your plan simple and your expectations realistic. And just like a financial plan, budgeting is not something you do once and then forget about it. As your life circumstances change, so must your spending plan change to keep you from falling back into bad habits or falling behind on your goals.

And if the thought of a budget has left you feeling a little queasy, we’ll give you some “Budget Tips,” which allows you to skip the whole budgetary process while still making some progress with your spending habits.

Most of us have been in the position where we have had to ask someone for money. It’s not a fun feeling. Well, how about being on the other side of the coin? Bonds are a form of investing that can generate earnings through what basically amounts to you loaning money to a company or government agency. One of the oldest ways to invest, a bond certifies that the issuer has borrowed a specific sum of money and needs to repay the principal and interest to the bondholder by a certain date.

So What’s The Attraction?
Bonds tend to be more predictable than other securities because many of the financial variables associated with them are known at the time they are issued. Many investors include bonds in their portfolios, therefore, to provide diversification and balance. The main attraction of bonds is that they can provide a source of fixed income for a defined period of time (assuming a bond is not “called,” or paid off by the issuer).

Certain types of bonds may offer less risk than many stocks. Of course, that generally means they offer lower rates of return. Then again, there are also types of bonds — junk bonds, for example–that are more risky than many stocks. If you want to add balance to a portfolio full of stocks, diversify your investments, or you like the idea of being a moneylender, you may want to consider what bonds can do for you. Learn as much as you can, because bonds are not that simple at face value (no pun intended).