Ten Steps to Financial Success

The Ten Steps to Financial Success


Some people dream of success...while others wake up and work hard at it.

"If you've tried to do something and failed you are much better off, than, if you tried to do nothing and succeeded.”

Well now is a great time of the year to reflect on past happenings and plan ahead for 2005. Some points to "kick off"...

The Ten Step Plan to Financial Independance and perhaps even Wealth.

1. Accept that you can achieve financial success and make a COMMITMENT to yourself to attain it. It is within your grasp. If you really want it. Really BELIEVE it - that is the most important step. Only then will the incredible power of the human mind work out a means of achieving it. Reject the idea that work is simply something you have to do until the age of retirement.

2. Ask yourself this: Where do you want to be in 2, 5, 10 years time? Set goals that excite you. If you could do absolutely anything with your life, what would you do? If you had unlimited money or found out you only had a month to live, what would you do? Write your answers down.

3. Establish your current financial position. What is the cash inflow and outflow. Horrors! Which areas can be improved upon? Everything!

4. Develop your NEW plans. Decide what action you are going to take that will move you closer to the achievement of your goals? All goals should be specific and have a time constraint.

5. Closely monitor the performance of your investments and your rate of savings.

6. Try to put extra savings into investment (it could be your own business).

7. Review and reward yourself annually if your targets are met.

8. Pursue your personal goals and business ideas with all you've got - with real PASSION and PURPOSE. If you really BELIEVE In them, they are far more likely to be achieved.

9. Still try to live a BALANCED life... or as balanced as you can make it. Money doesn't buy happiness; yet I'd rather be unhappy in comfort!

10. The highest cost of all is the cost of waiting to TAKE ACTION to change your current circumstances in life (as 94% of the population apparently is dissatisfied with their situations). It is up to you to do things differently. So take ACTION now - to change course. You get only one shot at life, so make the most of it.



© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

Something to Remember....

Something to Remember....


True prosperity is created from within. All prosperity is created in the mind. You are only as wealthy, happy or as prosperous, as WHAT YOU FEEL... and what you make up your mind to be. And money is not everything. For me, health and happiness are far more important considerations.

Aim high, dream high. If you aim for the tree tops, you might not get off the ground... so why not aim for the stars, perhaps even a crore of rupees!

Good luck.


Believe in yourself and in your dream,
Though impossible things may seem
Someday, somehow you'll get through
To the goal you have in view.
Mountains fall and seas divide,
Before the one who in his stride
Takes a hard road by day
Sweeping obstacles away
Believe in yourself and in your plan
Say not - I cannot - I can
The prizes of life we fail to win
Because we doubt the power within.

---- Anonymous

Why Women Should Invest Differently?

Why Women Should Invest Differently?


Marketers of financial products often seem to think that their offerings for women should fund jewellery purchases or get you discounts on beauty salon bills. But woman probably need a complete, customised financial plan to take care of their special investment needs. Yes, it is difficult to reduce financial planning for women to a few investment "tips" that apply equally to everyone.
But we hope this checklist will help women put more thought into your savings and investment decisions.

Make Every Rupee Count

Women may need to take more, and not less, care with their savings and investment decisions than men. Statistical studies conducted overseas indicate that women tend to earn less than their male counterparts with similar qualifications, because of the career choices they make; are more likely to take a mid-career break; are more likely opt to retire early; and have a higher life expectancy than men.

Obviously financial planning for a woman can be quite tricky. Women probably have fewer working years in which to build a nest egg, to see them through retirement. Yet you need to build up a larger sum to take care of a mid-career break and a longer retired life. This means three things for women's finances. They may need to:

> Put away a larger portion of current earnings as savings, than what the partner or parent would, so that they have a larger sum when they quit work.
> Minimise idle funds, so that every rupee is put to best use.
> Choose investment conservatively, as they would not like to risk a big part of their capital.

Front-end your Investments / Loans

Most people count on a pay cheque that rises steadily through their career, when they make their financial plan. It may, however, be desirable for women to front-end their investments to the initial part of their career. This would put them in a better position to handle mid-career breaks or early retirement. What to do:

Develop the habit of systematic investing as soon as starting the career, so that a reasonable sum is saved up even after three-four working years. Get into the habit of sweeping the rising bank balance into better return-yielding investments from time to time. Opt for a single premium term insurance or pension plan, where forking out a one-time lumpsum in return for a benefit that will last you in later years; and Opt to repay a larger portion of loan in initial years, through higher installments or pre-payments.

Plan for a Career Break

Though this is no longer a certainty, women are more likely to take a mid-career break than men to raise a family. They may, therefore, like to save up some money which will help them tide over the hiatus in your career. What to do:
Allocate a significant portion of savings to fixed term investments, such as fixed deposits maturing in three-four years, so that cash is at hand at the time of the mid-career break.
Park these in low-risk investments that are unlikely to dent capital, and have an emergency fund that can help you meet at least six-seven months of monthly expenses, just in case that mid-career break happens suddenly. This should typically be in liquid investments such as liquid mutual funds or short-term bank deposits.

Plan for a Long Life

Statistics show that women tend to have a longer life expectancy than men. This means that you may have to plan for a lengthier retirement. Also plan for years when finances have to be managed in the absence of the partner. What to do:

Start saving for retirement early in career. The compounding effect will multiply the savings. Put as much as possible into government or company-managed provident funds. Invest in privately managed pension products such as those from insurance companies. Or create pension by investing regularly in a mutual fund.

Opting for insurance, choose a policy that offers cover for a longer tenure. Insurance premium are usually more sensitive to age of entry than to the term cover. A 25-year term plan costs only a few hundred rupees more than a 15-year term plan.

If there are any loan outstanding, including in the name of spouse, make sure both are insured. This will ensure that one is not over-burdened by repayment in case the other person dies.

Be Wary of “Women's” Products

For insurance to bank accounts, most marketers now have a product or two for women. But do not get taken in by their attractive packaging. Instead evaluate such products on their merits and see how they stack up when compared to other plain alternatives. Remember, most marketers have just one or two products marked out for women, but their basket may offer scores of choices for others. What to do:

If it is a "woman's" credit card, evaluate if it is really needed. Two cards will mean two sets of annual fees and more paperwork to keep track of payments. If it is a bank account, check for genuine benefits such as better access, lower minimum balance requirements and lower charges on operating the account. If it is a loan product, check out how the service charges, repayment terms and interest rates compare with personal and other generic loans offered to all customers.

Quite a few "women's" products seem to throw in add-ons such as discounts on shopping bills, grocery purchases and beauty treatments. Check if these really are useful add-ons that will be used regularly. Remember, most financial products entail some recurring charges, which will drain finances. Do not end up buying a product just for the occasional discount that it may fetch when indulging in a shopping binge.



© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

Your Worst Enemy

Your Worst Enemy to Successful Investing - The Media


How do you make your investment decisions and where do you get your information? If you're like most of the people I know, you look to the experts.

That's fine, however it's important to be aware that for every expert, there's an opinion and for every opinion there's an expert. I had read that opinions are like noses: everyone has one but you wouldn't live in anyone else's nose!

Around the first of the year, along with the New Year's resolutions, come the New Year predictions for what will be hot and what will not. As if that isn't enough to produce a massive case of information indigestion, now we have the financial shows on TV channels with pretty much the opinion of the hour!

What this is producing is a frenzy of buy and sell activity for stocks in general, and now for mutual funds as well. I don't think this approach serves either the investors in particular or the funds in general.

The big problem with this for mutual fund investors is that all the experts are recommending different funds. It might be one thing if experts had a solid basis for their perspective. If they did, then you would think their recommendations would line up and they'd all be touting the same thing.

But they don't and they aren't. Oh sure, each one of them can make a good case for their pick. But so can the next "expert." And usually both of them won't be right (if either of them is). So, where's the value in this for you?

Another problem with this approach is that many experts recommend different funds at different times, and, in an effort to be in the hot fund, investors keep moving from fund to fund.

In the same breath, the experts are telling us to invest for the long term. Well, I can't figure out how to do both: be in the latest hot fund, and hold what I've got for the long haul.

The downside of all of this for the funds is that sometimes a fund touted as the hot one to be in attracts so much investment attention (i.e., money) that it grows beyond its original intention. At that point, it loses its direction and the very thing that made it strong is sacrificed. And guess what happens to the performance?

So, in the midst of all the hawking and hype for this fund or that, what's an investor to do to make intelligent choices?

For myself and my clients I use a trend tracking methodology, which identifies long-term trends in various markets. I research funds for stability and reliability as well as current performance. Then, when our trend indicator signals a Buy, we select our mutual funds based on momentum figures for various time periods to arrive at the most promising fund(s) to use for this cycle.

This gives us a head start and sometimes, weeks after we've bought a fund, I see it written up in financial papers as being one of the best performers.

Does this approach always put us in the number one fund? Maybe not. But we are almost always in funds that are doing very, very well. And do we get in at the bottom and out at the very top? Again, maybe not.

Is this approach for you? It depends on how much adrenaline rush you like when you watch your investments. Personally, I fulfill my thrill quotient with other things in life and enjoy sleeping at night when it comes to my investments.




© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

Prospering with Mutual Funds

Prospering with Mutual Funds:
How anyone can “Afford” an Investment Advisor


Once a client and I were working out some casual matters, he mentioned in passing that “most people can’t afford an investment advisor.” While that wasn’t the time or place for me to discuss this, I realized that many people might have a similar misconception. Had conditions allowed, I would have pointed out the following to him.

There are only two ways an individual can invest in mutual funds: Selecting and investing themselves or using outside help. If they use outside help they’ll have a couple of choices again: A commissioned salesperson (broker, financial planner or Registered Representative) or a fee-based investment advisor. Most people don’t know the difference and often start with a broker who charges about some commission off the top to purchase a mutual fund. The fund is usually from a limited selection of fund families the broker has a relationship with. He, of course, would never recommend a no load fund or an exchange traded fund (ETF), since it is not in his best interest -- although it might be in yours.

Having a fee-based investment professional handling your portfolio will get you as close as possible to receiving advice that is based on nothing but the advisor’s best knowledge and evaluation of the market. They advise only what they consider top performing funds since sales commission is not a consideration and does not create any conflict of interest for them. But, how can you "afford" an advisor?

First off, the advisor's fee is usually in the range of 1% to 2.25% per year depending on portfolio size. This amount is billed in advance on a pro-rated basis and charged directly to your investment account. This creates an initial savings right off the bat.

Most fee-based advisors offer complete service as far as your portfolio is concerned. That means that they don’t simply “sell” you a mutual fund and disappear until you call again. Since investors evaluate advisors based on the performance of their portfolio, advisors are keenly interested in maximizing your bottom line. In the long run, your gain should outweigh their fee.

Many advisors utilize an investment discipline or methodology that keeps you not only invested during upswings in the market, but also in the appropriate funds for the current economic environment. For example, at one time, tech funds were hot. Now, generally, they're not. An advisor watching market trends could have been able to assist you in avoiding the bursting bubble. (In fact, my clients were advised to pull out of the market and into the safety of other avenues in October, 2000, just before the market plummeted. What they didn't lose because of this will more than cover my fees for the rest of their lives!)

The advisor never has access to your money because he is affiliated with a custodian who handles the money; the regular statements fulfill the proper legal reporting requirements. With this arrangement an advisor can actually save you money. How?

The advisor will use only no load funds. Because of his affiliation with a custodian (often a major Asset Management Company), he’ll have access to a large number of mutual funds, not just to one or two fund families. This allows him to pick the best available, which potentially means a higher return for his clients.

Keep in mind that markets fluctuate and starting with an advisor in the middle of a downturn will not likely yield high profits at first. However, over time, an advisor will most likely produce results better than what you would reasonably expect yourself to do, even with the advisor's modest fee.

Choosing the right advisor and watching how your portfolio performs with their advice will almost always prove that it doesn't cost you to have an investment advisor, it pays.



© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

No Load Mutual Funds or Exchange Traded Funds (ETFs)?

No Load Mutual Funds or Exchange Traded Funds (ETFs)?


If you are fed up with early redemption charges and ever increasing mutual fund management fees on top of bad-performing fund managers, read on. There is a quiet revolution going on in the no-load mutual fund industry and you, the individual investor, may benefit from it greatly.

I am referring to Exchange Traded Funds (ETFs), which have been around for some years, but have grown tremendously since their inception. There are currently various choices with substantial amount in assets.

In a nutshell, an ETF is a specific kind of no-entry load mutual fund that you might consider to be a basket of stocks. ETFs are diversified like mutual funds, only they trade like stocks. They are cheap to trade and don’t hit you with any short-term redemption fees. And they offer investing opportunities across the board.

In addition to inexpensive trades and no short-term redemption fees, how else can ETFs save you money vs. no load mutual funds? One way is on their annual management fees.

So, if these ETFs are so great, why hasn’t your broker or financial planner recommended them to you? Simple! Brokers, and those advisors working on commissions, don’t make money on ETFs; no commissions up front or hidden on the back end. It's simply not in their interest to promote them.

With all the positives for the investor, there is one disadvantage, which may not be applicable to you unless you are a hot shot, no load mutual fund picker. It is that in any given economic environment really super performing mutual funds can outperform the indexes, but an ETF can never outperform the index it’s tied to. You would need to look at your own investment record to know whether this is a downside for you.

If you’re fortunate enough to make a superior selection you will outperform an ETF. Of course, that presumes you picked a very successful fund as compared to only a moderately successful ETF.

A word of caution! Just because ETFs are cheap and easy to buy doesn’t mean they will guarantee you a profit. You can lose money with them just as easily as you do with no-load mutual funds. You still need to make sure you have a disciplined methodology in place to help you get into and out of the market. If you don’t, you’re gambling no matter what you invest in.

Hopefully these insights into ETFs will broaden your perspective on ways you can prosper in your investments.



© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

How to find an Investment Advisor

How to find an Investment Advisor

Do you think you need an Investment Advisor? Hold on before you answer because this is sort of a trick question. Also, I am definitely biased because I am an Investment Advisor. Nonetheless, I think I can assist you in looking at this issue in a way that will serve you.

Working with a fair number of investors over the last few years, I have observed that while most are intelligent people, and many are fairly knowledgeable about the market, they are, as a group, not terribly successful with their investing.

Why should they be? More likely than not they have made their living doing something other than investing, so why would they think they can do what a professional does better than a professional? (After all, they go to professionals for health care or for legal matters when needed!)

Most investors-even some professionals-tend to be "off" in their timing: they buy things when they are hot, not when they are cold. But for the greatest benefit, it should be the opposite. The media doesn't help much when it comes to this buying approach, and let's face it; greed and fear play a large part in most peoples' investment decisions.

I truly believe the majority of people would be better of (that is, they would end up with more money at the end of the day) if they used professional money managers to advise them on their investing. Specifically I am referring to professional Investment Advisors with proven track records of performance in investing in stocks, bonds, mutual funds, insurance, etc.

Let me burst one myth right off the bat: You don't have to be a millionaire to engage the services of a good advisor. Some people think you need to start an account with Rs. 50,000 or more to get a really good advisor. Well, you may have more choices if you're at that level, however you can find a good Investment Advisor who will render services for an investment as little as Rs. 5,000.

There are literally thousands of Investment Advisors in the country. Just what do they do-what service do they provide you? They do the legwork; the research and analysis. Maybe more importantly, they keep their primary focus on the markets, and specifically on their specialty area like individual stocks, mutual funds, bonds, insurance, etc..

Because they spend the bulk of their time and energy researching, considering, and analyzing, they naturally have a greater sense of the market and its movements than those of us who don't put this kind of attention into it. So, with the right advisor, you can keep your focus on what you want-like your business or your retirement or whatever-and still get the information you want and need to invest wisely.

How Do You Find The Advisor for You?

Since there are good Investment Advisors and bad ones, how do you find the former and avoid the latter? Good question, and there are some keys.

You can always subscribe to one of the numerous database services that include information, and sometimes rankings, on Investment Advisors. These services tend to be fairly pricey, though, so they may not be your best choice. Another option is to find articles (yes, like this one) written by Investment Advisors. If you find one or several that make sense to you, meet the Investment Advisor and see if there's chemistry between you.

When checking out advisors, here are some things to keep in
mind:

1. Verify their record -- look over their past performance;

2. Consider their system. Do they have proper back-office systems in place?

3. Do they provide regular updates and informative materials?

4. Do you know some of their other clients?

5. Equally important as doing your due diligence is making sure there is good communication between you and your advisor, and that you trust this person with your money choices.

Another quick free way to scan through a select database and find a wide variety of candidates is with various websites of Mutual Fund, Insurance companies. I'm registered myself as an advisor with a few such websites and know that the concerned authority did a background check regarding qualifications, registrations and regulatory issues.

An important question to ask is the how the advisor gets compensated. You want to stay away from commission junkies or salesmen disguised as advisors. I believe that you will get the best unbiased advice from someone who is paid a management fee based on the value of the assets that you entrust them with.

To take it one step further, ask if the advisor invests his own money in the same methodology that he recommends for his clients. If he doesn't, ask why. If you don't like the answer, close your cheque book and run as fast as you can!

Choosing an Investment Advisor can yield long-term high profit benefits. I encourage you to consider it if you haven't before. However, as with any relationship, make sure there's a fit before you jump into it.

 

 

 

 

© N.M. Finserv ---- www.nmcomp.com/finserv

December 2004

 

 

 

 

Systematic Investing Plan

 

Systematic Investment Plans

A big advantage with pension schemes is that they offer tax incentives. Another investing option you can make use of is what is known as a Systematic Investment Plan (SIP) of open-ended schemes of mutual funds. To compensate for tax breaks, an SIP offers more flexibility and helps you identify funds that suit your risk-return profile. For instance, while saving for pension, an investor in the 25-30 age group could go in for an SIP of an open-ended growth fund. As he approaches retirement, he could shift to an open-ended debt fund. And finally, on retiring, he could choose systematic withdrawal plans.   The advantage that SIPs offer over pension schemes is that the asset allocation keeps pace with your changing risk-return profile. Besides, investing this way offers instant liquidity whenever you require it (on a no-load basis after a certain period) as well as benefits under Sections 54EA and 54EB, which are not available with pension schemes.   Investing in mutual funds through systematic investment plans is much easier and efficient. Investor recommends it as one of the best ways to grow your investment over time.   Will an SIP suit you?   Systematic investing is especially valuable for the investor who wants to get his investments going, but doesn't have a large sum of money to invest. Systematic investing works particularly well if you fear that you might buy a mutual fund at its peak, just before the stock market and your fund's shares head into a slump. It offers a disciplined way to invest a portion of your income at regular intervals without trying to second-guess the market, thereby also protecting you from extreme fluctuations in the market. And, its effect on your investment's growth over time can be nothing short of amazing. This concept is called rupee cost averaging. In addition to helping you organise the process of investing, the SIP offers several important advantages that may boost your chances of achieving your important goals.   You "pay yourself first"   Because it's systematic, an SIP ensures that you attend to your long-term goals before you're tempted to spend the money on a fancy new sound system. An SIP gives investing for your future the same importance as your other periodic payments -- your monthly bills, for example. As a result, you're much more likely to stick with your plan until you reach your goal. It's a great way to both save for three years towards a down payment on a house, or for thirty years for your retirement.   You could reduce your average cost of investing   When you invest the same amount in a fund at regular intervals over time, you buy more units when the price is lower. Thus, you may reduce your average cost per share over time. This strategy, called 'rupee cost averaging', helps make market fluctuations work for you, and reduces the risk that you'll invest all your money just before a market downturn.   Rupee cost averaging offers its greatest benefit with investments that tend to regularly fluctuate in price, which is why systematic investment plans can be especially effective when used in buying equity funds. The NAVs (net asset value) of these funds can vary widely, but, through rupee cost averaging, an SIP can make this volatility work for you.   However, rupee cost averaging may not work well if the market rises continuously. Also, it is of little use if you are buying units of a debt or money market fund. Keep in mind that rupee cost averaging cannot guarantee a profit or protect you against a loss in a declining market. So, choose an amount you feel comfortable investing under all market conditions.   Do not put off investing   It's easy to delay investing until you believe the time is 'right'. But putting it off means you're not utilising one of the most potent benefits available to long-term investors: the Power of Compounding. When you reinvest your dividends and capital gains, they can add considerably to the growth potential of your investment over time. And the longer you invest, the greater the effect of compounding.   Depending on your risk profile and keeping your goals in mind, identify a few (not more than four) funds that would act as a vehicle for accumulation of wealth. Choose between an SIP of an equity fund and an SIP of a debt fund.           © N.M. Finserv ---- www.nmcomp.com/finserv December 2004

Personal Fianance Worries?

Personal Finance Worries?


Are you nervous about your personal finances? The irrational exuberance of the 90s that led to double-digit gains for almost any investment portfolio is over. Add investment worry to the regular personal finance worries of meeting your monthly budget, slaying the debt dragon, and starting/building that elusive emergency fund. Will your savings and investments be able to meet your retirement, children’s higher education funds, and other goals? Although no one can see the future, there are things that you can do to reduce your worries.

Knowledge Is Power

Learn and become more skilled in financial matters. The best way to improve your financial education is to read personal-finance magazines, books, and even newspapers. The educational materials sent out by mutual-fund companies and brokerages are also valuable. You may come across conflicting information and advice, but if you read widely, you will eventually get a better idea of how to manage your money.

Do-it-yourselfers are not the only people who can benefit from learning more. If you use a financial planner and yet are knowledgeable about investments, insurance, etc., you are more likely to end up with a solid financial plan. If you find yourself teamed up with an inadequate or unethical adviser, and you have a good understanding of investing, you are more likely to recognize bad advice.

Fear Creates Worry

"Greed is good!" says Gordon Gecko (Michael Douglas) in the film Wall Street. Recent investment losses, corporate scandals, equity scams and a stagnant economy refute that statement. Instead, a warning is emerging in personal finance forums as we search and hope for indications that relief is in sight. Fear is bad! Fear has driven many investors either to dump stocks and load up on bonds, fixed deposits and other conservative investments or, even worse, to stop saving and investing. This creates new problems. People will be incapable of achieving their long-term financial goals because their portfolio may now be so conservative that it won't deliver the returns needed to retire in comfort, or they are simply saving too little. Faced with this fear and uncertainty, financial knowledge is more important than ever. Instead of reacting to the market’s ups and downs, learn more about the characteristics of stocks, bonds, insurance and other investments; as well as the broad array of personal finance and money management topics.




© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

How To Do A Family Financial Assessment

How To Do A Family Financial Assessment


Not starting a business with enough cash, known technically as being "undercapitalized", is probably second only to not researching your business concept as a major cause of small business failure. This outcome is usually the result of inadequate advance planning during the pre-launch phase. First and foremost you must estimate what your family expenses are and how you will assure that your business income is sufficient to pay them. You should sit down with your family and honestly discuss the minimum amount of money the household must have each month to provide security. Ask each member of the family to offer one or two areas where some expense can be reduced.

In addition to knowing your living costs, you must also be brutally honest about your current debt situation. During the 1990's many families found themselves taking on increased debt in order to just get by. If your family is one of them, you should be realistic about your ability to take on more financial responsibility. New businesses almost always require more money to keep them running than the new owners estimate before starting. Remember: every rupee you must pay each month for credit card payments is a rupee not available to invest in marketing your new company.

To help you calculate your current family financial situation you should create a worksheet, which I call: “My Current Financial Situation”. Listed below are the categories to include. Some research among your household financial records may be required.

> Family Budget
Break your household expenses down into two groups:-

Fixed Expenses.
These are recurring expenses that don't change in amount from month to month, such as your home loan installment payments or car loan installment payments. You may also be investing a fixed amount each month into insurance cum savings plan.

Variable Expenses.
All the rest of your monthly household expenses, which change some in amount from month to month, such as entertainment, phone expenses, and groceries.

You may need to do some research.

To reveal these expenses may require going through your records. We suggest that you review your cancelled cheque book for the past three months. Make a worksheet with the primary expense descriptions. List the amount from each cheque under one of the headings. Similarly, examine your past three months of statements from each credit card account you use to pay household expenses.

> Family Balance Sheet
This part of the Current Financial Situation worksheet shows two additional aspects of your family financial situation:-
What you owe (debts or liabilities) E.g. Your outstanding home loan balance.
What you own (assets) E.g. Your house, vehicles, furniture, etc.

Be honest. If you kid yourself about your monthly debt payments before you launch your business, the cold, hard reality will only add to your psychological stress later.

> The Business Burden
When you look at your monthly family income, you should consider what will happen financially if you quit your job to pursue your business full-time.

Your expenses will not decrease much, but your income sure will. The difference between the family expenses and the family income other than yours can be called the "business burden." What this means is that unless you want your family's lifestyle to change dramatically, you must produce enough revenue from the business to cover the shortfall between expenses and the other household income.

Every month that you do not produce enough sales to cover this amount, you must borrow to keep the family going. This is why I call this the "business burden".



© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

Five Steps for Proper Investing

Five Steps for Proper Investing


Tip 1: Diversity
Most successful investors divide their money among different asset categories or put their money in funds that invest in more than one category.Diversification increases the chance that a temporary poor performance by one asset category will be counter-balanced by good performance in another. Diversification can improve your earnings potential while controlling the amount of risk you take.

Tip 2: Think Long-Term
Most successful investors have a long-term plan. By investing money regularly over a long period of time, you’ll get to take advantage of the downs as well as the ups of the market. (When values are down, your contributions will buy you more.) Plus, by holding investments for the long term, you give them time to grow and potentially overcome short-term volatility.

Tip 3: Review Your Needs and Circumstances Regularly
While investing for the long term is important, it’s also important to update your investments as you get older and your financial circumstances or goals change. Most successful investors go after higher potential earnings more aggressively in their early years of saving and investing. Then as they approach the time they’ll need a withdrawal, they gradually shift to a more conservative mix.

Tip 4: Avoid Trying to "Time" the Market
Contrary to what you might expect, most successful investors do not anxiously watch the markets. Nor do they constantly move their money in and out of different investments.The odds are against your being able to predict when the market is going to go up or down. Even the pros do not have a very good record of buying "low" and selling "high".

Tip 5: Stay Cool
Remember your long-term plan.It can be risky to make rash changes. For instance, you would be locking in a loss if you pulled out of a fund that lost value before it had a chance to rebound. Doing this could turn a temporary market condition into a permanent one for you.





© N.M. Finserv ---- www.nmcomp.com/finserv
December

Corporate Lesson

Corporate Lesson

A man is getting into the shower just as his wife is finishing up her shower when the doorbell rings. After a few seconds of arguing over which one should go and answer the doorbell, the wife gives up, quickly wraps herself up in a towel and runs downstairs. When she opens the door, there stands Bob, the next door neighbour. Before she says a word, Bob says,"I'll give you 800 dollars to drop that towel that you have on." After thinking for a moment, the woman drops her towel and stands naked in front of Bob. After a few seconds, Bob hands her 800 dollars and leaves. Confused, but excited about her good fortune, the woman wraps back up in the towel and goes back upstairs.
When she gets back to the bathroom, her husband asks from the shower "Who was that?" "It was Bob the next door neighbour," she replies. "Great," the husband says, "did he say anything about the 800 dollars he owes me?"

Moral of the story:
If you share critical information pertaining to credit and risk in time with your stakeholders, you may be in a position to prevent avoidable Exposure!



© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

Plan Your Future

Plan Your Future: Identify Your Goals and Make a Budget

What are your goals for 5 years, 10 years, 20 years from now: To buy your own home? Send a child to higher education? It's important to define your goals, and when you want to reach them.

Develop a Game Plan
In order to reach your goals, you need a plan. This plan is called a budget. Don't be put off by the name. A budget is just a tool to help you get the most from your money. It can be as simple or detailed as you like. Most people do not factor in their major financial goals when developing their budget. Instead they begin by writing down their monthly income, subtracting their monthly spending and then deciding how to save or spend what's left over.
It might actually be smarter to first determine your goals and what it would take to meet them, and then integrate those goals into your budget.

Here's how to get started.

Determine Your Goals
Write down your top three major financial goals. These may include paying down debt or saving for a house or your children's higher education.
Next, write down the expected total cost and time frame. Divide the cost by the total number of months. This is how much you'll need to set aside each month to reach your goals. (If the set-asides seem too big, you may want to extend your time frame.)
To reach your goals, you'll need to set aside a certain amount each month. One good method for doing this is to set aside your goal money first, then cut back spending accordingly.
How much spending will you need to cut? Where will you cut? Or how much additional income, if any, will you need to earn each month? The best way to answer these questions is to do a budget.

Look at the Numbers
Now that you have determined your goals and the money you'll need to set aside each month to meet them, as well as your monthly take-home income, you can calculate the absolute maximum that you can afford to spend.

Plan Your Monthly Spending
This is where the magic happens. Once you begin to see your financial picture more clearly, you'll begin to discover new and exciting solutions.

Stay on Track (By Following Your Budget)
Once you've made a budget, write down your spending each month to see if you're on track. If you accidentally go over budget in one area, don't panic. Instead, try to cut back in other areas so you can still come out on target.
Staying on top of your budget takes only a few hours a month. It may seem awkward at first, but the more you do it the easier it gets. Rewards soon follow. As your debts go down, your savings will increase. Best of all, you'll live better by getting the most from your money.

Money-Saving Tip
Avoid short-term cuts that make your long-term situation worse. For example, do not cancel your medical insurance; seek less expensive coverage instead. And don't put off necessary medical and dental work; delay can make these problems more expensive or even life threatening.

Estimate Your Future Spending
Once you know how much you spend, you can use this information to estimate your monthly expenses. First, put in your fixed bills, such as your monthly installments payment or rent, car loan installment and all loan and credit card payments. Then fill in the rest, estimating as best as you can. Make sure you include all the hidden costs of driving a car (insurance, fuel, repairs) and owning a home (maintenance, repairs). Even if you don't have to make an insurance payment next month, include one-twelfth of your yearly insurance bills. When planning your budget, be realistic about spending items. The more accurate you are, the better you'll see the current state of your finances and the better you'll be able to make decisions.

Total Your Spending, and Compare
If your total monthly spending is more than your maximum spending limit, go back and look for areas to trim. Keep cutting until your monthly spending falls below the maximum, so there is money left over.

Set up an Emergency Fund
What you do with the small amount you have left over at the end of each month will have an enormous impact on your finances. This is the only money, other than the amount you've set aside for your goal, which you can use to improve your financial situation. Consider using this money to improve your financial situation by paying down your credit card and outstanding loan balances, or setting it aside for an emergency fund.
Some of the money in your budget won't actually be spent every month. This includes money you've budgeted for future car repairs, house repairs, insurance, property taxes and medical and dental bills. Don't spend it. When those big bills finally arrive, you won't be caught short.



© N.M. Finserv ---- www.nmcomp.com/finservDecember 2004

Traits of Investing Success

18 Traits and Practices that Lead to Investing Success


All true investors exhibit certain traits, beliefs and characteristics. This is a compilation of those attributes I call the investor's manifesto. Not only the investor's manifesto help you make the most of your money, they'll help you enjoy your life.
1.) I am not afraid to take risks.
2.) My family and friends are more important than my portfolio.
3.) I refuse to be a victim. If my company will not promote me, I will work, save, and invest to make my own pay-raise.
4.) I understand the difference between price and value. Price is what you pay. Value is what you get.
5.) I don't own a piece of stock - I own part of a business
6.) I understand the limitations of financial advisers - if they were always right they wouldn't still be working.
7.) I put money away on a regular basis, whether it is every week, month, or quarter.
8.) I invest in myself. Every day, I learn something new. It can be taking classes at the local college, studying art, or learning a new job skill. I am my most valuable investment.
9.) I understand that the most important part of the wealth equation is time. Rs. 100 invested tomorrow is not worth nearly as much as Rs. 100 invested today.
10.) I don't feel the need to brag about my wealth.
11.) In my mind "short-term" is at least five years.
12.) I understand that checking the price of my investments on an hourly or daily basis is unnecessary and a waste of my time. As long as the fundamentals of the company have not changed, the day to day fluctuations in price do not bother me.
13.) My time is one of the most valuable assets I have. Therefore I use it wisely.
14.) Every year, I read the annual report of each company I have invested in.
15.) I never put money into a company without first knowing what the stock is really worth [not what the current market price is] and my reasons for buying it.
16.) I know that investing without research is gambling.
17.) I understand that over time, those who choose the buy-and-hold method outperform those who frequently trade.
18.) I always reinvest my dividends.




© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

The Asset Allocation Process

The Asset Allocation Process


The process of spreading your investments across the major asset classes of stocks, bonds and cash is called asset allocation.
According to most financial experts, your asset allocation decisions are the most important determinant of your investment returns. Trying to "time" the market on the way up and down is a much riskier way to boost returns.
Asset allocation helps you to diversify your investments. Diversification results in either a higher rate of return for a given amount of risk, or a lower amount of risk for a given rate of return.
Asset allocation is a fairly simple process. After you make your initial allocation, you generally only need to rebalance your portfolio from time to time to achieve your financial goals. Financial planners often suggest that you rebalance once a year or so, or after a major life event such as a birth or death in the family. Rebalancing also lets you take advantage of changes in interest rates and investment valuations to adjust the composition of your portfolio.

To begin the asset allocation process, you should have some idea of the following:
· Risk Tolerance. Risk tolerance is your willingness to accept risk in exchange for a higher rate of return. Investors may have a low or high risk tolerance. In many cases, their risk tolerance falls somewhere in between. We'll see later how your risk tolerance affects the types of investments you make.
· Investment Horizon. Investment horizon is the length of time, measured in years, which you have to save before you need to start using some or all of your investment funds. The longer you can invest, the larger your investment is likely to grow to, particularly if you invest in assets that have higher volatility.
· Investment Categories. Several categories of investments exist within each asset class. For example, bonds include corporate and government categories. Investment categories often have unique risks that require a better understanding of each investment's characteristics.
· Portfolio Approach to Investing. If you manage your investments as a portfolio, you stand to benefit the most from diversification. When you diversify across asset classes, you reduce the volatility in returns that may occur if you, say, invest entirely in growth stocks.
· Risk-Return Trade-Off. Over longer periods, stocks have historically earned a higher rate of return than bonds or cash. However, stocks also exhibit more volatility in year-to-year returns. This phenomenon of higher returns associated with greater risks is called the risk-return trade-off.
· Tax-Advantaged Accounts. If you use a tax-advantaged account such as an PPF to invest, you defer income taxes up to a certain level. As a result, a tax-advantaged account benefits more from compounding than a taxable account. Tax-advantaged accounts are aimed at encouraging savings for retirement. As a result, you will likely owe an early-withdrawal penalty if you take money out of a tax-advantaged account too soon.


In making well-informed asset allocation decisions, you also need to make reasonable assumptions about:
· Financial Goals. How much you want to save -- and in what time frame you want to save it -- is an example of a financial goal. Most of us have several financial goals. These goals often include retirement, buying a home or paying for a child's higher education.
· Contributions. Your contributions -- how much and how often -- have some bearing on your asset allocation decisions. For example, if you're not contributing fast enough to save for retirement, you're likely to need to invest more aggressively in order to achieve your goal.
· Life Expectancy. While the average lifespan in India for men and women is somewhere in the low- to mid-60s, many financial planners suggest you plan to live to age 70 or 75. As you get older, your chances to live to a ripe age increase. That means stretching your investment portfolio to last longer.
· Expectations for Interest Rates, Inflation and Returns. Be realistic about your expectations for investment returns. The stock market salad days of 30% annual returns in the late-1990s are over, say many financial experts. Single-digit returns are a more realistic planning assumption. Your outlook for inflation and interest rates will also influence your asset allocation decisions.





© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

Measuring Your Risk Tolerance

Measuring Your Risk Tolerance


Risk tolerance is a measure of your willingness to accept investment risk in exchange for higher potential returns. Risk is the uncertainty of earning your investment returns and is measured by the volatility of investment returns.

For example, if you're an aggressive investor, you're likely willing to accept the risk of losing some of your investment capital (that means a negative rate of return) in exchange for earning higher potential returns. Aggressive investors invest in growth stocks and growth funds, which are mutual funds that invest in growth stocks.

A conservative investor, on the other hand, is less willing to accept risk, even for higher potential returns. Capital preservation is a top priority for conservative investors. As a result, they tend to favor conservative investments such as certificates of deposit, money market accounts and government bonds.

Stocks have averaged yearly returns of about 12% over the last 50 years or so, according to data from publishers such as Center for Research in Security Prices at the University of Chicago. If an investor sought annual returns of 15%, they would have to invest in securities that have greater risk in hopes of achieving their desired return. They might consider investing in aggressive growth stocks or aggressive-stock funds.

To get an idea of your risk tolerance, take a few minutes to complete the following risk tolerance quiz. As you answer each question, keep track of the cumulative number of points:


Questions:

1. I plan on using the money I am investing:
A] Within 6 months.
B] Within the next 3 years.
C] Between 3 and 6 years.
D] No sooner than 7 years from now.

2. My investments make up this share of assets (excluding home):
A] More than 75%.
B] 50% or more but less than 75%.
C] 25% or more but less than 50%.
D] Less than 25%.

3. I expect my future income to:
A] Decrease.
B] Remain the same or grow slowly.
C] Grow faster than the rate of inflation.
D] Grow quickly.

4. I have emergency savings:
A] No.
B] --
C] Yes, but less than I'd like to have.
D] Yes.

5. I would risk this share in exchange for the same probability of doubling my money:
A] Zero.
B] 50%.
C] 25%.
D] 10%.

6. I have invested in stocks and stock mutual funds:
A] No, and I don't wish to.
B] Yes, but I was uneasy about it.
C] No, but I look forward to it.
D] Yes, and I was comfortable with it.

7. My most important investment goal is to:
A] Preserve my original investment.
B] Receive some growth and provide income.
C] Grow faster than inflation but still provide some income.
D] Grow as fast as possible. Income is not important today.

For each and every question, option A has 1 point, option B has 2 points, option C has 3 points and option D has 4 points. Calculate your score by adding your points for all the questions.

What is your cumulative number of points for all seven questions? If your total score is 30 or more points, this quiz suggests you are a Very Aggressive investor. If you score between 25 and 29 points, consider yourself an Aggressive investor.

If you score between 20 and 24 points, you have a risk tolerance that is Above Average. If you score between 15 and 19 points, consider yourself a Moderate investor. A moderate investor is one who is willing to accept some risk in exchange for a potential higher rate of return. Most investors likely fall in this category.

If you score fewer than 15 points, consider yourself a Conservative investor. If you have fewer than 10 points, consider yourself a Very Conservative investor.

A risk tolerance quiz helps you to estimate your risk tolerance. You will find that risk tolerance quizzes abound so it's good to take a few different ones at financial Web sites to get a consistent profile of your risk tolerance. Finally, for specific investment advice, you should consult a financial adviser.





© N.M. Finserv ---- www.nmcomp.com/finservDecember 2004

The Three Golden Rules of Investing

The Three Golden Rules of Investing

Perhaps you have recently been walking in the forest. Or maybe you went on a picnic. Or even went swimming; all wonderful, refreshing activities. In each case, however, you have to know what you are doing. Otherwise you could walk into a patch of poison ivy, get swept by the current, or even get seriously injured.
The same applies to the marketplace. If you treat it in a casual way without proper planning and preparation, you could get hurt. Financially, not physically. Of course, the marketplace is not something natural like a forest or an ocean. Quite the opposite—it is an extreme example of something structured by humans. Nevertheless, there is an important similarity. It is so huge and complex, with so many facets and nuances that, just like nature, no single individual can fully understand it.
When it comes to walking in a forest or swimming in a river, we have grown up with simple rules such as ‘stay on the path’ or ‘don’t swim beyond your depth.’ As we become more experienced, we may strike off into the trees or swim across a river. Even here, there are rules or principles, and it is these that I want to examine to see if they can help us in the marketplace.
First of all you need to know your capabilities. For example, how far can you walk—or swim? You don’t start on 20 kilometer hike if you have never walked more than a kilometer or two. So my first golden rule is:

First Golden Rule of Investing: Know who you are before you start investing in assets that have risk—don’t use the marketplace to find out.
Some questions you can ask yourself include: Do I like to work things out for myself or do I prefer to rely on other people? Do I like getting information by talking to people or by reading? What type of information do I prefer, technical or expository? What is my risk tolerance? How would I feel if stock I bought for Rs. 20 went to Rs. 12 overnight? What if it stayed there for a week? a month? a year?
Coming back to walking and swimming, you don’t want to find yourself halfway across a one-kilometer lake and then start asking yourself why are you there. Yet the same thing happens repeatedly with investors. They buy a particular stock but don’t have any clear reason for doing so. Their brother-in-law said it was a sure thing. Or they read something in the financial magazines and periodicals. Or the stock had a low P/E ratio, or a high return on equity. In the right context, each one of these might be a perfectly good reason for making a purchase. However, frequently it is the case that people buy a stock because of a vague combination of a whole lot of reasons such as these. Then, when the market conditions change, they have no framework for deciding what to do next because they are not sure why they made the purchase in the first place.
When you know why you bought Infosys, for example, you will have a stronger basis for knowing what to do when its price goes up, or down, or even stays the same. For instance, if Infosys starts to go down in price and you bought it as a momentum play, then you will probably want to sell as quickly as possible. But if you bought it as an undervalued stock, and if the fundamentals have not changed, then you might want to buy more.
This brings me to my second golden rule.

Second Golden Rule of Investing: Know why you are buying a particular stock—don’t wait until its price goes up or down to think about it.
In my opinion I tell people how to analyze companies and then make a two-minute presentation to the whole group on their suitability as a stock purchase. This helps them to focus on substantial issues regarding these companies and gives a sound basis for making a buy/pass decision. They are also encouraged to maintain a stock book in which they list the pros and cons of each stock they are interested in.
Warren Buffett said that when he looked back over his investments in his early partnerships, the larger investments always did better than his smaller ones. He attributed this to a "threshold of examination and criticism and knowledge that has to be overcome or reached in making a big decision that you can get sloppy about on small decisions."
Finally, we know that to enjoy nature we shouldn’t be in a rush. This is also very true with the marketplace. So my final golden rule is:

Third Golden Rule of Investing: Take your time—you are investing for the rest of your life.
Buffett said recently that he doesn’t get paid for activity, just for being right. "As to how long we’ll wait," he continued, "we’ll wait indefinitely." No one makes you buy a stock. If you know what type of investor you are, and why you would buy a particular stock, then you will be better able to determine a reasonable price to pay for it. Then you can quietly wait until Mr. Market offers it to you at your price.


Wishing you happy and successful investing!





© N.M. Finserv ---- www.nmcomp.com/finservDecember 2004

What are Mutual Funds?

What are Mutual Funds?

What they are and how they can make you money
The brain-child of Wall Street, mutual funds are perhaps the easiest and least stressful way to invest in the market. In fact, more new money has been introduced into funds during the past few years than ever before - leaving the managers scrambling for new investment ideas.
Before you jump in the pool and select a Mutual Fund to invest through, you should know exactly what they are and how they work.

What is a mutual fund?
Put simply, a mutual fund is a group of individual people, companies, and other organizations who pool their money together to invest. A "Fund Manager" is hired and paid to invest the cash that the investors have raised. The goal of these managers is to beat the Sensex or the Nifty in a fiscal year.

What are the benefits of investing through a mutual fund?
Mutual funds are actively managed by a professional money manager who constantly monitors the stocks and bonds in the fund's portfolio. Because this is his or her only job, they can devote considerably more time to financial planning than you as an individual investor ever could. This allows the peace of mind that comes with informed investing without the stress of analyzing your positions yourself. In other words: You don't have to worry about picking stocks and bonds. In theory, you just keep investing in the fund and let the manager choose which companies to buy and which companies to sell.

How do I know which fund to select?
Most funds have a particular strategy they focus on when investing. For instance, some invest only in Blue Chip companies that are more established and are relatively low risk. On the other hand, some focus on high-risk start up companies that have the potential for double and triple digit growth. Finding a mutual fund that fits your investment criteria and style is absolutely vital - if you don't know anything about biotechnology, you probably have no business investing in a biotech fund.
After you've decided which type of fund you want to invest in, it is time you look at their rankings. Funds are ranked based upon their performance as a whole and performance against their peers. A general rule of thumb is the higher the rank, the higher the quality of the fund you are investing in.

How do I begin investing in a fund?
You can visit the fund's web page or call them and request information and an application. Most funds have a minimum initial investment which can range anywhere from Rs. 1,000 – Rs. 1,00,00,000+ with most in the Rs. 1,000 – Rs. 5,000 range. Once you have an account (folio) open with a Fund, you can send checks to it and they will purchase additional units for you.




© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

Guaranteed Easy Ways To Gaining Financial Freedom

Guaranteed Easy Ways To Gaining Financial Freedom


Does not having to worry about monthly expenses anymore just a fantasy to you? Do you wonder sometimes how it will be a peace of mind if money matters didn't matter? Wouldn't it be great if at this very moment your financial situation were in order? The answers to all these questions, my friends, are closer to reality than you think. Stepping forward ahead by using simple strategies will make a major difference in your personal finances just as it has for me. Financial success is an easy and simple process once you decide mentally that you must take immediate action!

For me, at first, the thought about having financial success was not easy and simple! The reason was because no one told me how to go through the process. Everyone told me how nice it was to have "extra money" just laying around, but didn't explain to me how to go about taking action. But once I was finally told how to easily apply just 3 steps, my success in my personal finances was just a "hop, skip and a jump away." Just like it can be for you!

The 3 Easy Steps And How To Apply Them To Your Everyday Life

Stop Daily Procrastination And Start Now

So many individuals never start the process to financial freedom because they never decide to start today! For these very same people, tomorrow is when they decide to start. But when the next day comes, the decision to start is put off until the next day. Don't be one of those people! I'll admit financial success will take commitment, discipline plus patience. However the best way to accomplishing these tasks is by first believing in yourself. Determine in your mind that you must get your finances in order! By telling and reminding yourself this constantly each and every moment, the process of financial freedom will naturally become easier and easier. But you must first decide to act now. Do not wait until the next day or until you make more money to put things in order; DO IT NOW!

Take A Moment To Determine Which Side Your Money Is On

Take an honest look at where your money going. Where are you at financially? You can start your look by making a list of all your assets and your liabilities. Assets are those items that you own and can make money for you. Liabilities are those items you owe on. If your liabilities are more than your assets then develop a plan to reduce your liabilities. Make another list of the creditors and bills you owe on, and decide what amount you will pay each month to reduce the debt. Do this by paying more than the minimum balance due each and every month! Remember, it takes commitment and discipline to accomplish this important step to financial success.

Look For Ways To Constantly Increase Your Assets

Again, assets are those items that you own and can make money for you. Here are some simple ways to increase your assets to help you have more money:

Invest Monthly in Mutual Funds- Just a small amount each month (you decide how much) will help you to make your money work for you instead of working harder to make more money.

Invest in your Provident Fund account. Most jobs offer it too. Plus they offer financial records showing how much you have saved.

Buy National Saving Certificates - they can be purchased through your post office. Saving Certificates can be bought starting with just Rs. 100. With guaranteed profits assured, this is a good place to start.

Establish an Emergency Fund - An emergency fund can handle life's unexpected financial challenges. Put small amounts of money away until you have enough cash on hand to handle at least 2 to 3 months of living expenses. A helpful tip is to start a savings account to gain more money with interest.

Continue To Educate Yourself - College students go to school to learn more so they can earn more. So can you! Make it a habit to attend seminars on topics such as investing and personal finance. Most cities, towns and communities offer free seminars on these and other topics. Check your local newspaper for information to when and where these classes take place.

Remember, it takes patience. Gaining financial freedom won't happen overnight. In fact, most of the richest people in the world didn't just become rich overnight. But having a determined mind, total commitment, mind discipline and a positive attitude will help enormously to getting your financial situation in order. Take a good look of where you are at financially by determining how much you owe and finding ways to reduce those liabilities. Focus on increasing your assets, if only a little at a time, so you'll always have extra money aside you can rely on in case of emergencies. Stop daily procrastination and start getting your money matters in order now. The key to your financial success begins with YOU!




© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

Traits of Investing Success

18 Traits and Practices that Lead to Investing Success


All true investors exhibit certain traits, beliefs and characteristics. This is a compilation of those attributes I call the investor's manifesto. Not only the investor's manifesto help you make the most of your money, they'll help you enjoy your life.
1.) I am not afraid to take risks.
2.) My family and friends are more important than my portfolio.
3.) I refuse to be a victim. If my company will not promote me, I will work, save, and invest to make my own pay-raise.
4.) I understand the difference between price and value. Price is what you pay. Value is what you get.
5.) I don't own a piece of stock - I own part of a business
6.) I understand the limitations of financial advisers - if they were always right they wouldn't still be working.
7.) I put money away on a regular basis, whether it is every week, month, or quarter.
8.) I invest in myself. Every day, I learn something new. It can be taking classes at the local college, studying art, or learning a new job skill. I am my most valuable investment.
9.) I understand that the most important part of the wealth equation is time. Rs. 100 invested tomorrow is not worth nearly as much as Rs. 100 invested today.
10.) I don't feel the need to brag about my wealth.
11.) In my mind "short-term" is at least five years.
12.) I understand that checking the price of my investments on an hourly or daily basis is unnecessary and a waste of my time. As long as the fundamentals of the company have not changed, the day to day fluctuations in price do not bother me.
13.) My time is one of the most valuable assets I have. Therefore I use it wisely.
14.) Every year, I read the annual report of each company I have invested in.
15.) I never put money into a company without first knowing what the stock is really worth [not what the current market price is] and my reasons for buying it.
16.) I know that investing without research is gambling.
17.) I understand that over time, those who choose the buy-and-hold method outperform those who frequently trade.
18.) I always reinvest my dividends.




© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

An Emergency Fund: Your First Line Of Defense


Downsizing, rightsizing, forced retirement, layoffs, firings, outsourcing, and being made redundant.

All could mean the same thing to you: financial catastrophe.

No, you may not have to declare bankruptcy or move back in with your parents, but losing your job could put a big dent in your financial goals and even set you back several years. You may need to live on your savings or liquidate some of your investments.

If you have no savings or investments you may have to rely on credit cards and could rack up significant credit card debt. Then when you find a new job, your expenses may have increased because of the additional credit card payments.

And the job you eventually find may not pay as much as the one you lost. So you are now forced to live on less while your expenses have either continued at the same level or even gone up.

Studies show that the average worker will have six career changes in his or her lifetime. Not just job changes, but career changes.

So how can you prepare for your own financial "downtime"?
An emergency fund.

An emergency fund is really just savings. But it is not savings for a particular item or even an investment for your future or your retirement. It is your "rainy-day" fund. But unlike insurance where once you pay your premium, the money is out of your hands, your emergency fund is yours to keep.

So how much do you need? How can you build your emergency fund? And where should you keep the money?

The easiest way to figure out how large your emergency fund should be is to take your current income and multiply it by the number of months you could be out of work. If you make Rs. 3,000 each month and you want to be prepared for a 6 month "vacation", you will need Rs. 18,000.

But obviously saving Rs. 18,000 will take some time. How quickly you want to build your emergency fund depends on how concerned you may be about your current and future employment prospects.

Saving Rs. 100 each month will take you 180 months or 15 years. Saving more each month means you will be protected sooner. Also consider that during the next 15 years your income may increase and your expenses usually rise to match your income.

Also consider inflation. (If you own your home, your house payment may not rise. If you are renting, your rent probably will.) The cost of food, utilities and taxes also rise over the years. At a 3% inflation rate after 15 years your Rs. 18,000 will only buy Rs. 11,400 worth of goods.

A good rule of thumb for saving is to try to save enough each year to supply you with one month's income. This means you are saving 1/12 or 8.3% of your monthly income.

This will allow you to build your emergency fund by one month every year. After only six years you will have a six-month supply of emergency cash. Then you can continue to extend your "coverage-period" or you can divert the monthly payment into other savings or investments.

Most people find that "billing" themselves for savings and investments, is a good way to put your savings on auto-pilot. If an amount is taken automatically from your bank account each month, it is easier to handle than if you wait until the end of the month and try to save from what you have left over. (How often do you have anything left over?)

So where is the best place to keep your emergency fund? Probably not a place where you can have easy access to it - too tempting. Definitely not as cash in the cookie jar - too unsafe (and no interest). And probably not in 5 year deposits - too restrictive. You may want to avoid deposits altogether so that you are not charged an early withdrawal penalty when you can least afford it.

Savings accounts are OK, but usually pay very little interest. If a savings account is your choice, open one at a bank that you don't regularly use. Also don't get a current account to avoid the temptation to spend "just a little" bit here and there.

Set up an auto-withdrawal from your regular account or direct deposit amount from your pay cheque right into this new account. Adjust your budget to accommodate having less money each month and forget about it.

You can also give your emergency fund a boost now and then by putting "windfall" money into to it. You know "free-money"; birthday gifts, inheritances, insurance maturities, rebates, tax refunds, etc.

Your emergency fund becomes your own financial insurance policy. And if you never use it you will have that much more money to play with when you retire. Or even retire early with the extra money you have saved.



© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004

The Smart Investor

The Smart Investor