8 Investment Myth...to be avoided

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 5-6  mutual funds. Having more than 20 stocks or 8-10 mutual funds  Schemes 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

Source: Online(Unknown) Personal Finance Website

Where Will You Park Your Idle Cash ? ?

Where Will You Park Your Idle Cash ? ?

Have you ever thought of an option where your money lying absolutely idle in your current account with 0 % interest or your savings a/c with 4-6 % interest could fetch you a return of anything between 7.00 % - 9% with liquidity absolutely your beck & call ?

Well, the answer lies in investing in Liquid / Liquid Plus Funds.

Let’s first define what are we talking about? Liquid funds come in the category of Debt Mutual Funds and as the name suggests invest in short term paper, typically of less than one year term like short term commercial papers, certificates of deposit and floating rate bonds.

There is a very low credit risk attached to these instruments. They are open ended schemes i.e. the entry & exit into these funds is always at the call of the investor and that too without paying any additional load (expense).  Liquid funds /Ultra Short Term fund therefore are considered to be safest due to the low credit risk and the feature of high liquidity.

But which should you choose—a liquid fund or an ultra ST fund (Earlier Liquid Plus Fund)?

While liquid funds invest in securities with residual maturity up to 90 days, ultra ST funds can invest in securities with maturity higher than 90 days. At present, the average maturities for liquid funds are around 45-60 days; for ultra ST funds, they are about 150 days or lower.

Corporates or individuals can easily identify the excess and unutilized amounts lying in their respective current or savings accounts at a given point of time and can consider certain exposure to Liquid funds for better returns.

Now, the big question: Why do you keep liquid cash?

The answer is simple – “At least in the case of most of people., we must set aside some money for any emergency like loss of job, sudden Death in family, Medical Emergency and so on.

Evey Individual Should Keep at least 3 to 6 times of their Monthly Net outflow  as Contingency Fund   Either by parking in Cash , Saving /current  Bank A/c or through Mutual Fund Liquid Fund

Better post-tax returns make liquid funds attractive despite savings rate deregulation:

The interest on savings bank account is, however, added to an individual's income ( If Saving  Bank  Interest Earned over and Above Rs 10,000, (Bank Interest up to  Rs 10,000/- is Tax Free as per Finance Bill 2012-13)  and taxed at the rate applicable to the individual. This means if you are in the higher tax bracket, you will pay a tax of 30.9% on your interest from savings bank account.

"The favorable tax treatment means the post-tax returns on liquid and liquid plus funds are likely to be higher than the interest earned on savings bank account,"

 Create Your 

"Emergency Fund "  Today..!! 

Contact Your Financial Planner For Setting up Your Emergency Fund.

Mehul Bheda ( B.Com, RFC, CFP)

(M) +91 9819592326

Asset Allocation

Is your portfolio like a cricket team with only batsman?

When the cricket selection committee met to select the team for the next match, they were in dilemma. Question that was going on the mind of each and every selector was what should be the composition of the team. How many batsmen, bowlers, and fielders should be included in the team? In the previous match batsman had played a pivotal role in winning the match. Therefore this time it made sense to have all 11 batsmen. Going by past performance and outcome of the match, that was the best option. In the next match team lost miserably. After winning the toss opposite team decided to bat first. Since team consisted of only batsmen, they could not bowl out the opposite team. Eventually the team lost the match.

In the next match, realizing the importance of bowlers, selection committee selected 11 bowlers. This decision also went against the team.

An ideal cricket team consists of batsmen, bowlers and players who are excellent fielders. Selection committee as well as captain may tweak the composition little bit here and there based on local circumstances like weather condition, type of pitch and strength of opposite team but there are never drastic changes.

Similarly our portfolio should never consist of only equity, only debt or only gold. A balanced portfolio is one which has combination of all three debt, equity and gold. Proportion of equity, gold, and debt should be decided based on our financial goals. Financial goals are our future financial responsibilities and dreams which will require funding.

For all those financial goals which are likely to occur within next 2/3 years choose debt as an asset class. For goals which are beyond 7/9 years choose equity as an asset class. For goals which are likely to occur between 3/7 years make combination of debt and equity. Apart from this gold should be part of everyone’s portfolio. At any given point in time, individuals/families will be saving for several financial goals. Firstly for each goal, choose an asset class as recommended above. Since we have multiple responsibilities and dreams, we will have overall portfolio consisting of debt, equity and gold.

In most cases our financial goals are not explicitly defined. Therefore instead of aligning our portfolio to our financial goals, we end up aligning our portfolio to market situations of recent past. If in recent past equity market would have performed well we would chase equity. If interest rates are on rise, we will run after fixed deposit or if there was rally in gold we will invest in gold. It is like choosing a cricket team based on situation of previous match. If past match was won due to large score, selectors choosing only batsmen in team and if past match was won because of bowlers, selection committee choosing only bowlers in the team.
While investing it is a well known fact that ‘winner’s rotate.’ Good performers of previous times may not necessarily remain best performers. Therefore making a portfolio based on past performance is like choosing a cricket team based on result of previous match.

Another well known fact is that ‘if part of our portfolio is not giving negative return, we are not diversified enough.’ It is like a cricket match, in each match some players will be super performers and some will play supporting role. The super performer will keep changing and hence it is important to have a balanced team. Similarly in long term wealth creation it is important to have a balanced portfolio

Sourec : Online Personal Finance Website