16 Jan 09 Investing
As the current share market in India crashing and the interst rates falling down, no wonder that top question in most investors minds is “Where should I Invest” ?
Like discussed earlier, we all have to make it clear that when we are working hard for earning money let our money work for us too. So Investing is definitely a better option . But given the current scenario how many of us are willing to take risk ? It is pretty common that the people who dont want take risk feel that the safest way of investing money is to keep the money in a bank in form of fixed deposits. Yes ofcourse it might be safe definitely but are we not losing our potential to earn more ??? At the same time these kind of people would give a try on other kind of investments once they knew some people gained a good amount of money from them.(of course they expect the same if not similar returns.
let us see what are all the possible options of investing with good returns and less risk.
Mutual Funds:
Mutual funds is interesting option for the investors to in times like the current situation. One has to be careful in observing the interested company’s performance, share prices and the amount of money they expect in the given span of time before investing in mutal funds.
Income Funds:
Income funds invest in bonds, debentures, government securities and short-term instruments like commercial papers and repos. With the current interest rates scenario where the rates are falling make a good opportunity of investment in `Income Funds`.After analysing the rates one can go ahead put the amount in income funds .
Fixed Deposits:
Fixed deposits in bank could be an attractive option available for most of the people as banks give returns on their deposits without having to track their deposits with the banks. But with the inflation and taxes it is less likely that we may not get the same amount of returns we expect.
Equity Investment:
Equity investment is yet another important option for many of the investors. And ofcourse,investing in equities has a good amount of risk to get good rewards. Equity investing is well known for its risk part. Though equity investing is quite risky but the returns available in this option are good as compared to any other avenue. If you are planning to be invested for a longer period of time, then you can get yourself invested in equities, as equities are better known for long term investing.
Real Estate:
It is always and attractive option for most of the investors to invest in real estate as there are good chances of making money. However, the real estate prices have been moving northwards for last few months, so to purchase something in real estate would demand huge money, which could probably give good returns in the appropriate term. But in the days of higher inflation rates, slowing economy investing in real estate is a bit difficult task.
FThere are various avenues available for investment and one can very well earn money through your investments provided they are moving in the right direction. For short term period investments, bank fixed deposit can be the good option but for medium term, the mutual funds can be better option .On the other hand longer period of time investing, equity and real estate could be good options.
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16 Jan 09 Investing in Share Markets
Hi there !
With the current recession situation going on I felt like sharing my learnings on share market. The idea of investing in share markets is to make your money grow, but there are times when the stock market doesn’t cooperate. Regular market fluctuations are common and expected, but extended periods of decline can strike fear in even seasoned investors. These bear markets can last months or even years. So, what should you do when faced with a bear market?
Examine Your Investment Objective
The first thing anyone should do before making changes to their portfolio is to think about what the purpose of the investment is. Is it money for retirement? Home savings? A down payment on a house? Each of these investment goals have to be treated differently, and you need take into account what the money is going to be used for before you can decide if any changes need to be made.
The investment objective is important because it primarily deals with a specific time horizon. If you’re 35 years old and saving for retirement, you know that your money has a few decades left to grow. On the other hand, if you’re 35 and preparing to send your child off to college in 8 years, that is a completely different scenario.
Consider Your Risk Tolerance
Most people make changes to their investments because of losses. When you begin to see your account drop in value, it’s only natural to want to stop this from happening. Unfortunately, this type of behavior is reactionary, and it can often do more harm than good.
If the idea of seeing a loss on your statement has you feeling uneasy and ready to make changes, then chances are you’re taking on more risk than you should be. You should be allocating your investments in a way that minimizes risk, maximizes returns, and allows you to sleep at night regardless of what the market is doing. If you’re losing sleep because of a few bad days in the market, it’s time to reconsider how much risk you’re willing to take.
Don’t Chase the Market
You’ve probably heard the saying “buy low and sell high” many times, and we all know that’s how you make money, but the reality is that most people do just the opposite. The average investor will happily put more and more money into the market, and take on more risk when the market and economy is strong, and pull back or stop investing at all when the markets are heading south.
This is the opposite of what you want to do. If you’re only saving and investing when the markets are doing well, and investing little or selling stocks when the markets are down, you’re buying high and selling low, which is a very ineffective way to make money.
If you have a regular individual retirement accounts, keep those investments flowing through good times and bad. Because you’re investing on a regular and frequent interval, you’re buying stocks when they are up, down, and everywhere in-between. This is called dollar-cost averaging, and it is a great way to take some of the volatility out of your portfolio and maximize your overall returns.
Rebalance Your Portfolio
When the markets experience an extended period of growth or decline, it can throw your portfolio out of its original investment mix, or asset allocation. For example, if you’ve determined that a 70% stock and 30% bond portfolio is suitable for you and the stock market has taken a bit of a dive, you might find that after just six months, your investment mix might be at 60% stocks and 40% bonds, or even a 50% mix.
Ideally, you want to maintain your portfolio so that it remains close to your target investment mix. By rebalancing to your target mix, you’re forced to sell some of the investments that have done well, and buy more of the investments that haven’t done as well. This is allowing you to buy low and sell high instead of the reverse.
Shore Up Your Short-Term Investments
Investing your short-term savings takes a different approach from investing for retirement or other long-term goals. The general idea here is not to generate as much money as possible, but instead it is more focused on safety of principal while making as much money as possible.
When the economy is struggling, it pays to have a well-funded emergency fund. A weak economy can put some uncertainty in the air in terms of job security and obtaining credit. This is where your savings can come in handy. If you have the cash on hand in the event of an emergency, you don’t have to worry about using credit cards .
So, when it comes to your savings, whether an emergency fund, money for a down payment on a house or a vehicle, or just the extra spending money you like to keep on hand, you want to make sure it’s safe and working as hard as it can for you. There are a number of places to safely keep your cash, so you’ll want to explore all the different options. It’s also a good idea to make sure your money is FDIC insured so that if times get really tough and your bank goes under, you’ll be protected.
courtesy: http://financialplan.about.com/od/personalfinance/a/BearInvesting.htm
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05 Jan 09 Finance Management (Cont..)
In the previous blog I shared the info on personal finance management. Iam posting the rest of my learnings in this post
Using Credit Wisely
To use credit intelligently, start by examining the terms of the card(s) you are currently using. Keeping track of your cards, their rates, and your current balances will help you to be aware of how you use credit cards. Increased competition in recent years has led some credit card companies to offer enticing features to attract new cardholders, including no annual fees and low interest rates for an introductory period. (And credit card companies sometimes will give their introductory rates to existing cardholders so that they won’t transfer their balances to another credit card company.)
Eliminating Credit Card Debt
If you think you may have too much credit card debt, begin to address it by honestly evaluating your spending habits. Examine your existing expenses to analyze how your money is spent. You will most likely be able to identify the problem areas where you are more likely to spend too much or too readily with credit cards. Then, based on your current spending practices, create a realistic budget to pay off your credit card debt in the shortest time possible while not adding any more debt to it. For assistance, you may want to turn to your financial advisor, who can help you to allocate your resources wisely to address your credit card debt.
The Role of Debt
Today, carrying installment debt is almost a fact of life. Mortgages, car loans, or small-business loans (to name a few) are part of almost everyone’s life. On the other hand, carrying credit card debt is usually not a good idea. At interest rates of 16% and up, it’s hard to justify keeping savings that could pay off that 18% department-store credit card in the bank at 2%.
Debt and credit play increasingly important roles in our lives. As the aging Baby Boomers get closer to their peak earning years, many are realizing the need to reduce debt and increase savings. Even though analyzing your spending habits and creating a budget to address your debt may seem a little overwhelming, the simplicity of the philosophy of the Depression era still stands: Never spend more than you earn. Once you have come to grips with this basic fact, managing your debt will become far easier and more rewarding.
Summary
- Installment debt means the loan is paid off in a specified period of time by making predetermined payments periodically.
- Revolving credit is a line of credit that is instantly available through use of a credit card (and sometimes a check).
- As you pay down your debt in a revolving line of credit, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay.
- Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.
Checklist
- Remove high-interest-rate credit cards from your wallet or purse to reduce the temptation to use them unnecessarily.
- Read the fine print on all account statements to understand how your fees and payment amounts are calculated.
- Prepare to transfer balances from accounts with temporary low interest rates that are scheduled to rise soon.
- Use the savings from your debt reduction initiatives to set more money aside for important short- and long-term financial goals.
Above information is taken from http://finance.yahoo.com/how-to-guide/personal-finance/18311#c1
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04 Jan 09 Finance Management
Hi there.
Wish you all a very happy new year. One of my new year’s resoultion was improving personal finance management (u got it right !!! ) and was going through different websites on the internet and found this article interestig ..thought it would be useful so sharing it here.
As we discussed earlier, avoiding extra expenditure we can save more and invest more. These days credit cards are becoming part of everyone’s life .With the increasing need of owning credit cards one needs to master in manging credit and debits.
First things first !!!
- Gather recent account statements from your credit cards and other debts.
- Review the interest rates and finance charges you currently pay on each account.
- Take a fresh look at your household budget (or spending habits if you don’t have a budget yet).
- Think about your ability to stop using credit on a regular basis and what changes you might be willing to make to improve your financial outlook.
Credit was once defined as “Man’s Confidence in Man.” But in fact, the definition of credit today is more like “Man’s Confidence in Himself.” Using credit today means you have confidence in your future ability to pay that debt. Forty years ago, your parents may have paid cash for their homes and their cars, a largely unheard-of event today. If they borrowed money at all, chances are it was from a relative or friend, and not a financial institution.
Today debt and instant credit are part of our everyday lives. The convenience of instant credit, however, has taken its toll. Many individuals use credit cards to spend more than they earn, and a few of these people actually build themselves a debt prison from which some never emerge. On the other hand, those who never use credit can be denied a loan or credit when they have a justifiable need or use for it. Using credit establishes a history of financial responsibility: Until you establish a credit history, your chances of qualifying for an important loan, such as a mortgage, are greatly reduced.
Installment Debt
Debt comes in many forms, and most types help us in our daily lives — when used responsibly. Most people cannot buy a home without some financial help, and many cannot buy a car (especially a new one) without some sort of financing. The money borrowed to purchase large-ticket items is called installment debt: The debtor pays a portion of the total at regular intervals over a specified period of time. At the end of that time period, the loan with interest is paid off.
Installment debt allows you to purchase items at a competitive interest rate: for example, 5% to 7% for a 30-year home mortgage and 8% or 9% for a car loan. The loan is paid back on an amortizing schedule, monthly payments of a fixed amount that remain constant over the life of the loan. At first, most of the monthly payment consists of interest. In later years, principal begins to be paid down.
Installment debt is easily budgeted and the debt is eliminated on a predetermined date. Even for those who may actually have the cash to purchase the desired item, installment debt can make financial sense if you can earn a higher return (after taxes) on your investment of cash than you must pay on your installment debt.
Revolving Credit
A revolving line of credit, also called “open-ended credit,” is made available to you for use at any time. Examples of revolving credit are credit cards such as Visa, Mastercard, and department store cards. When you apply for one of these cards, you receive a credit limit based on your credit payment history and income. When you use the credit line, you must make monthly minimum payments based on the total balance outstanding that month. Some lines of credit will also have an annual account fee.
While revolving credit is a convenient way to borrow, it can also become an endless pit of minimum payments that barely cover the interest due. Many cards charge annual rates of interest of 18% or higher. As you pay off your debt, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay. Paying just the minimum due on a $2,000 credit card loan could mean making monthly interest payments for 10 or more years!
Revolving credit, in addition to being convenient, eliminates the need to carry a lot of cash and can help establish you as a creditworthy risk for future loans. The itemized monthly statements also can help you track your expenses. But some people can easily yield to the temptation that the convenience of credit cards offers. Impulse buying, failing to compare costs, and purchasing large items you can’t afford are all downfalls brought on by always available purchasing power. Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide
In the next post we shall see the other ways of managing the credit cards
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13 May 08 It is all about Money
Hi there!
I know most of you know the importance of money in our daily life.It is not only important but also essential.So when it is so important dont you think we also need to have a good knowledge about managing it besides having it ?… yes I know the answer would be definitely ‘YES’. I am exploring the various ways of earning the money,investing it and also managing it (obviously !!!) In this process, as I learn different things about money, this blog would be the platform to share knowledge I gained. hope that’s interesting. Well, I think thats enough about the intro 
… with out wasting much time let us explore !!!
As I was going through internet I found the following pieces of information appealing .. I was inspired and want to share them with you all..
2. Save smart
Saving money should be part of our money management but it should not be considered as ‘THE ONLY’ way to manage our finances. We should strike the right balance between saving and earning.
3. Observe Economy patterns !!!
Many of us invest in shares and with the curreent trend of economy going down we should be careful about our investments. Economy and share market goes up and down and everytime it fluctuates people start thinking ”it’s different” Dont panic if the economy is down !!! Just stay calm and you can observe a pattern in the share market and finally you end up in being good shape ..
4. Stay focussed.
The secret of most of the people who acheived their goals is to stay focussed. There could be so many distractions, but at the same time there are so many good things that one can do. Instead of losing your energy which yields less creatively investing in something which has huge returns would always be beneficial
5. Take risks when you can.
Take calculated risks. Do everything reasonable you can to minimize the risk, but don’t be afraid to take a risk. It is okay to make mistakes. Human beings are designed for this. Life is just too dang boring without them.
6. To excel at something, immerse yourself.
Dabbling in somethings doesn’t make you an expert. In order to become truly great at something, you have to live, breath, think, and dream it. Find every book you can read about the subject, start doing what they say, and teach others about it. You retain the highest percentage of what you learn when you share it with others.
7. Making money work !!!
Most of us are working hard to earn money,but keeping the money idle does not yield us anythi\ng. We should make our money work harder for you while we are working hard for earning it !!!
8. Don’t follow the crowd.
It is not always safe in doing what everyone else was doing. Follow your own instincts and intution.
You might be wondering that why I missed number ‘1′ in the list.. its precise and most effective in managing our personal finances . here it is..
1.Spend less than you earn
The simple rule of finance management is: spend less than you earn.
Well thats all for this now. I will share my other learnings in the next blog
-V
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