Investing in Gold provides a sense of security as it is tangible unlike many other financial products which are intangible. Gold prices are purely determined by supply and demand and less likely to fluctuate wildly. There are many time tested advantages of having gold as an investment:

• Safety: In volatile and uncertain times (as seen recently due to recession) Gold provides safe haven as there is no default risk. Gold has its own intrinsic value.
• Brings diversification and stability to a portfolio: the forces acting on gold are different from those acting on other financial assets. Most of the time it is negatively correlated to stocks and bonds.
• Highly liquid and portable: Gold can easily be converted to cash and vice versa, prices are internationally determined.
• Tool against inflation: Irrespective of market cycles the purchasing power of Gold stays intact over a long period of time. It’s better to keep your cash in the form of gold.
• Less regulatory intervention: you don’t have elaborate disclosure norms for gold as it is for many other asset classes. Gold can be a very private investment.

Diwali is an auspicious time for buying Gold and it should be used wisely to invest. But there are many ways to invest and it can be a daunting task. Let us see the pros and cons of  the options you have:

Jewelry:  It is one of the oldest forms of investment which also has some amount of pride and honor attached in Indian families. It is something you can use and enjoy but at the same time it keeps appreciating in value. But the price of jewelry is usually marked by anywhere between 20 to 200% depending on the complexity of design. This makes it unattractive as an investment.

Gold bars and coins: Gold coins and bars are increasingly becoming popular not only as investments but also as gifts. But they have to be physically stored which can be a security nightmare. You might have to incur extra cost in renting a bank locker or insuring your possession. Moreover you have to be careful about adulterated and fake ones. There can be a substantial difference between buy and sell rate of gold coins and bars.

Electronically traded Funds: More popularly known as ETFs are open-ended mutual fund schemes that invest the money collected from investors in standard gold bullion (0.995 purity). The investor’s holding is denoted in units, which is listed on the stock exchange just like a share. It is expressed as NAV (Net Asset Value) which represents the price of one unit (equivalent to 1 gram gold) on that particular day.

These are many advantages of ETFs vis-à-vis physical gold when seen from an investment perspective:

a. No need to worry about the security and storage
b. No need to worry about quality of the gold
c. No need to worry about resale as the exchange provides comfortable liquidity (just like shares)
d. No making charges
e. You can invest very small amount of money (minimum 1 unit) which is not possible in case of jewelry and coins/bars.
f. No wealth tax. Long Term capital gains just after 1 year whereas it is 3 years in case of physical gold.

ETF is a tax smart investment as well.

1. Make your child understand the difference between needs and luxuries

Children need to understand that they can still go on without cool gadgets, designer accessories but not without essentials like ‘Roti, Kapda aur Makaan’. Hence they have to prioritise accordingly. Sit with your child and help him prioritize according to needs and luxury. Once this concept is clear your child will transform into a better decision maker.

2. Set a goal for your child and help him achieve this through a budget

Goal setting is easy enough in today’s materialistic word. Sports equipment, a gadget or an item of clothing, motivate your child by setting a goal and encourage him to earn this through household and other chores. Make him draw up a budget from what he earns every week and show him how to save from this. Definitely reward him with something extra (besides his goal) the first couple of times, so that he is geared up and excited about the next goal and starts planning – the secret mantra to financial happiness. This will also help your child become competitive in life and be focussed on goals.

3. Understand your child’s money personality

He could be a spender by nature. If so, you can guide him early on to curb this by encouraging him to not keep too much cash and ensuring that it is not easily accessible. If he keeps borrowing money from his friends then this could be a warning signal. Later on he could get into a debt trap. You can counsel him and also understand the source of his needs.

4. Involve your child in day to day financial activities

Entrust him with the responsibilities of paying bills i.e. going to the collection centres and paying the bills through cash or dropping a cheque. If he is not old enough than at least take him along when you are doing this exercise. It is a good way for him to learn that life is not just an ATM machine, you got to pay as well!

5. Open a bank account for your child and make him operate it

Buy your kid a piggy bank when he/she is very small and encourage saving for achieving his little goals. Open a bank account when he grows up. This the best way for him to understand how money grows, what interest is and how financial institution like banks work. You should opt for a joint account as it will give you the ability to oversee what your kid is doing. Step in whenever you think that he/she is going off track and try to rectify the situation by helping him with basic financial concepts mentioned above.

Use this Children’s Day as an opportunity to gift financial literacy to your child. In the long run this will be more valuable than anything else.

Financial planning is a process of setting goals (For example buying a house/car, child’s education/marriage, retirement corpus etc), assessing income, assets, investments, expenditure and liabilities, estimating future financial needs, and making plans to achieve them. There are many elements which are involved in financial planning, including budgeting, investments, Taxes, estates, retirement, insurance etc.

Financial planning plays a crucial role in helping individuals get the most out of their money. A good plan can help in creating long term wealth and provide considerable immunity against fluctuating economy. It also provides protection against the unexpected events like loss of income or major illness. Financial Planning is different for different people and depends highly on income level, age, risk appetite, responsibilities etc. What suits one person may not be suitable for another. However there are some components which remain common across plans.

Investment planning:

Planning, creating and managing capital accumulation to generate future capital and cash flows for achieving pre-determined goals and spending

Insurance Planning:

Managing cash flow risks through risk management and insurance products

Retirement Planning:

Planning to ensure financial independence at retirement including PPF,EPF and other pension plans

Tax Planning:

Planning for the reduction of tax liabilities and the freeing-up of cash flows for other purposes

Estate Planning:

Planning for the creation, accumulation, conservation and distribution of assets

Liability Management:

Maintaining and enhancing personal cash flows through debt and lifestyle management

Many individuals choose to use the services of financial planners to help them reach their goals. A qualified planner can help you navigate through the whole process by virtue of his training and experience. Before you use the services of a financial advisor go through this article: Do you have the right financial advisor. A basic financial plan can also be created by referring to self help books and online resources.

People often delay planning for the future. In good times the value of a plan is not realized but it seems so logical when some unfortunate event happens. Do not procrastinate something as important as this. Start with creating a budget. Prepare a budget and track your monthly expenditure. It will help you find ways to trim or even eliminate unnecessary or out-of-control expenditures.

Start now!

Today marks the 10th anniversary of the day when my portfolio had breached the negative 50% mark. In next 30 days it went further red to negative 77%.

What did I learn from this carnage in my portfolio:

1. Never invest in an IPO

I had “invested” in most of the IPO between 2005 to 2007. I lost money in almost all of them. I was in my first year of MBA. All the companies vanished from the placement season. I saw 23-24 year old people cry when they missed out on the 1-2 companies that did come. It gave me so much perspective in my life

Lesson: Invest in businesses and management who have a proven track record. Managing a company when it is private vs when it is public are 2 different things.

2. Always watch for beta

I caught Jai Corp before it hit 33 straight upper circuits. I had Unitech before it had split 3 times. I had SESA Goa at cheap valuations. I made a killing in RPL and RNRL. I lost everything in March of 2008 and then in Sep 2008.

Lesson: Today I follow the beta of my stock like it is a laxman rekha.

3. Return of capital is more important than return on the capital

I wanted returns and fast. Market gave me both. And then took away everything.

Lesson: Risk management is way more important than return management.

4. Equity is not everything

Every building must be built on a strong and rock solid foundation. I was 100% in equity because they told me young people should invest in equities (I was 23yrs old).

Lesson: Today my target is more to find a decent fixed income product over an exciting stock. PPF, Bank FD, and NCD – I want them to be my base.

5. PE sucks

High PE means the market is giving a premium to the future earning

Lesson: Never ever look at a PE ratio. It is for suckers.

6. Profit is the key. I want to see the bottom line

I always looked at the Year-on-Year Sales growth and profit growth. If this number beats the estimate, it is a buy.

Lesson: I bought the book by Damodaran. Learnt valuation. Learnt financial statement. And most importantly learnt how to read the notes. I attend almost all the analyst calls. I talk to store managers at grocery shops on sales. I talk to moms and cooks of what they like to use in kitchen and why (this is how I got into TTK in 2011). Never watch CNBC TV18.

7. What is the most important thing in a company?

Profit? Cash flow? Business model? Market share? Valuation? I was told it is something on these lines

Lesson: The most important thing is management. Ethical, honest, smart and hard working management beats every other metrics by a mile. Find a company with good management and you are set on your retirement.

8. The best trade advice will come from real people, not experts

Never underestimate the knowledge a simple store owner can give you. I was shopping for my underwears in Delhi. I asked the owner why Hanes stock is kept behind and jockey in front. He told me “sabko jockey hi chaiye”. I had no idea Jockey’s parent was listed. I bought page industries just because I had a chat with this shop owner in 2016.

Lesson: I prefer to shop from a small shop and not from big stores. Small shop owners open up to the ideas that are selling in the market.

Have these lessons helped me ace the markets?

No. I have under-performed the index for straight 3yrs now. I still buy garbage. My portfolio is not even close to perfection. But I now respect the market. I don’t ever think it will give me return because Indian economy is growing. I am an eternal student now.

Some books I recommend to those who have been in similar situations are listed below.

1.Principles: Life and Work
2. Zero to One: Note on Start Ups, or How to Build the Future
3. The Intelligent Investor (English) Paperback – 2013

Many a time people ask me why would you only recommend 3 to 4 funds when there are so many on the offer! Questions like are you mad? Why can’t I add further 4 to 5 funds after all I am trying to do is to diversify/ spread my risk? Well, diversification to say is good to have but diversification beyond a point is actually bad for your portfolio.

Let me narrate you a short incident that you will be able to relate well. Recently, I had been to my friends’ marriage ceremony. They are a business class people so the occasion was bound to be a grand one. When I approached the eating counter with one of my friend we were amazed to find around 50 plus different vegetarian menus on the block and a further 20 such delicacies in the non vegetarian section. I can’t even remember their names well and most of the dishes were quite alien to me since I had never tasted most of them. This triggered a sense of exploration for my friend. He got ecstatic and wanted to taste most of the dishes on the offer – so in the end he had around 10 to 15 such dishes on his plate. He tried hard to enjoy them all. But, all that my friend could do was he wasted most of the food items as all of them got so mixed up that he could not relish any of the dishes well.

Reason is simple –  he over-diversified his plate and therefore could not enjoy the food well. This is what most investors do. They try to buy most of the funds in order to get the most out of it. But hang on are you really doing it right. It is actually a matter of diversification. Adding multiple funds in the idea of diversification can actually dilute your performance and overall returns. Keeping things simple is really important – your tax calculation, your interest rate calculations etc. Plus having more funds like 8 to 10 in your kitty will be quite an uphill task for you to track and manage your portfolio performance well.

Would you be really interested to repeat such mistakes in your portfolio? In the end all we want is returns and an easy to manage portfolio just like a plate of few delightful foods that we can savor and enjoy to the maximum.

I have always been choosy so I just picked those dishes which could satiate my hunger buds and gleefully enjoyed the dishes to the most. The investor needs to understand that in order to derive the maximum returns from your portfolio all you need is simplicity. So the next time when you hear the story of a new fund launch or a fund that has recently started SIPs etc. Think about it for a second are you really buying it for the sake of spreading your risk or is it otherwise. So don’t go overboard in the name of diversification. Till then Happy Investing.

Recently I drove past a couple of young men who were standing beside their car, which was parked in a right-turn lane near a gas station. They’d placed a red plastic gas can on the car’s roof, and they called out to passersby, asking for help.

Amazingly enough, those very same gentlemen were in the exact spot two days later. What an amazing streak of bad luck, hmmm?

Ahem.

I’m usually a fan of trusting your gut, but our guts are a little too naïve when it comes to con artists. “Con” is short for “confidence,” because these scamsters are experts at winning yours—at overcoming your suspicions, quieting your fears and giving you reasons to believe in them.

Here are four easy ways to avoid being their next victim:

1. Don’t click on links in emails. Emails purporting to be from your bank, your credit card company, PayPal, eBay, your best friend or any other source could be from con artists hoping to crack your computer—or your bank accounts. If you receive any kind of email alert that seems to require action on your part, open a new browser window and type in the address of the site yourself, or call the company on its toll-free line. Install, update and run antivirus and anti-spyware programs to prevent your computer from being taken over by others.

2. Don’t wire money to strangers. There are countless variations on counterfeit check scams, but they usually involve your depositing a legitimate-looking check and then wiring some of the money back to the scam artists. The bank will credit your deposit at first, before discovering it’s a fake, and then will take the money back out of your account—even if you’ve already spent it. Any transactions that bounce will be your responsibility; the bank owes you nothing.

3. Don’t open your door to a stranger. The risks to you are simply too great, and you could lose more than money. If there’s a true emergency, call 911 while the stranger waits outside. If they’re selling something, you’re not interested. (And by the way, if you don’t know them by sight, they’re strangers—even if they say they live in the neighborhood, or even next door.)

4. Don’t feel bad saying no. There’s no way for you to tell if a desperate stranger is just that, or a con artist. If you want to help people down on your luck, you can give money to legitimate charities.

Many people have come to a time in their lives where debt is lingering. It may seem that there’s no way out of the vicious circle of accumulating debt, but this is not true. Debt trouble is a temporary situation that any person can get out if with the correct technique. The following tips are great for reducing or eliminating creditor bills.

1. Close the Revolving Door

The biggest problem with revolving accounts such as credit cards and store cards is that once you pay them back, the credit returns. A huge mistake that people make with these types of accounts is using the card for the next purchase. This must stop immediately. Once you pay the balance on a credit card, leave it alone for a while.

2. Make Larger Payments

Tiny payment does nothing to bring down the balance of a line of credit. When you make tiny payments, you are only covering the interest and finance charges. In order to make a dent in your balance, you must make a healthy payment every time. As a rule, pay ten percent of the purchase price, plus an additional $20. For example, if the item you purchased on credit is equal to $100, make a $30 payment.

3. Consolidate Your Accounts

A simple debt consolidation can do wonders for your financial situation. If you have more than five open accounts, you may want to consider applying for a debt consolidation loan. The loan will pay off your existing accounts so that you will only have one monthly payment to take care of. Your APR will most likely be less also.

4. Choose a Cheaper Place to Live

If your family is small, you can toy with the idea of moving into a smaller unit. Smaller square footage means smaller rent, and less electricity/water/gas is perfect for cutting costs. Also, if you live in the country, choose a residence that has well water. There is no water bill associated with well water. You can use the savings to pay down your debt.

5. Purchase a Beater

A beater is an automobile that runs great but does not have all the bells and whistles. Go for a reliable car instead of high priced financed vehicle. Pay cash for it. That way the only monthly payment you will have is the insurance premium.

6. Negotiate with Creditors

If you are having difficulty paying your creditors, it cannot hurt you to pick up the phone and talk to them. Sometimes creditors have hardship plans. You might be able to get a lower payment or have some of the finance charges knocked off the bill. Make the telephone your friend and your mouth your tool. Negotiation works. Feel free to obtain a copy of your credit report and dispute all suspicious accounts. The bureau will remove any accounts that the creditor is not able to verify.

7. Develop a Budget

Writing down what you have to spend each month will help you to keep your finances in line and keep your eyes on the prize. Update your budget every two weeks and if you’re coming up short, brainstorm ways to cut costs.

8. Earn Extra Cash

Working odd jobs and side jobs will help you to earn extra money to pay your debt. Use your imagination. Babysitting, lawn mowing, article writing, and house cleaning are some fine ideas – and tax-free.

If you could reach just one goal in 2019, which one would it be? How much of a difference in your life would it make if you reached it?

Will 2019 be just another ho-hum year that started with good intentions? Or will it be YOUR Year! Your year to lose that weight you’re tired of carrying…start that business you’ve been talking about…get out of debt for good. Are you tired of being stuck in the same gear?

It’s a well known fact that the biggest reason most people fail to achieve any real success in their life is… they never plan to. They want to. They dream about it and fantasize about it. They talk about success. Maybe they even read success books, listen to success tapes and attend success seminars.

However, the sad fact is that unless a person has some incredible luck (like winning the lottery), their chances of succeeding without a plan are almost nil. But suppose you could spend a few hours over the next few weeks and easily and totally plan the kind of year you’re going to have in 2019.

What kind of year would you plan? Would you: Double or even triple your income. Start your own business. Build the dream home you’ve always talked about. Eliminate all your consumer debt. Marry the person of your dreams. Get in the best shape of your life. Take the vacation of a lifetime.

Sound too good to be true? Well, it is if you don’t have the right plan. Think about it. 2019 will be the best year ever for some people. They will achieve at levels they never thought possible just a few years ago. First, they will have a good plan built on solid principles. But they’ll also have something else. The critical difference. They’ll have a system of follow up and accountability that will help them put their plan into action (and keep taking action).