Vijaibabu's Blog - Personal Finance Guide for Financial Freedom

There's more to successful portfolio building than picking good investments.Putting together a portfolio of investments is like building a home. Even if a house is filled with beautiful rooms that may not be enough: All those rooms need to work together to form a pleasing and useful whole. Investment portfolios work the same way. 1)   Have a blueprint. Just as building a home begins with a blueprint, you need a pattern for your portfolio. The blueprint tells the builder to build a structure of a particular size and shape, with specific features, to suit the needs of its future owners. Similarly, your portfolio should suit your needs and specifications. The best starting point is to think about why you're investing in the first place. Maybe you're investing for retirement, for your child's education or marriage, or for the down payment of a home. Get specific. How much money will you need for each goal? How much time do you have? Whatever your goal, it gives y

Regular review and rebalancing allow investors to identify gaps, pin down the under performers and position portfolio in such a way that financial goals can be achieved in the desired time frame or earlier. Constructing a financial plan involves a process which considers various factors of an individual like income, expenses, savings, future goals and risk appetite of an investor. However, it must be noted that these factors are dynamic in nature and change over a period of time. When a significant change happens in one of the factors, it can impact the future course of your investments.  Regular reviewing and rebalancing of the portfolio would make sure that these changes are well adjusted in the portfolio and investments continue to give better returns throughout. Below are some benefits of reviewing and rebalancing the portfolio  1) Lifestyle Changes  Over a period of time an individual faces a lot of changes in his financial life. For instance, a salaried employee would exper

Starting early would ensure that your salaried clients are able to build a sizeable nest egg for their retirement. Unlike self-employed individuals or entrepreneurs who have the flexibility of deciding their retirement on their own, salaried individuals need to plan their retirement more diligently. The first step in retirement planning is identifying the corpus required for retirement. Advisors say that least 10% of annual income should be set aside to build a nest egg for retirement. If the income keeps increasing, it is advisable to increase savings as your clients may desire to maintain the same lifestyle during retirement. Financial advisors suggest that one should ideally plan their retirement in their 30s. Starting early would ensure that your clients are able to build a sizeable retirement kitty. “Retirement planning is not a priority for many. They are more focused on meeting their short term goals like buying house, car, foreign tour, etc. Salaried individuals s

Debt Mutual funds invest in fixed-income instruments like bonds, but that doesn't mean they are immune to ups and downs. Debt funds are a type of mutual funds that generate returns by investing in bonds or deposits of various kinds. This means that they lend money and earn interest on it. The interest that they earn determines the basis for the returns that they generate for investors. A bond is like a certificate of deposit that is issued by the borrower to the lender. Even individual investors do something similar when they do something as simple as make a fixed deposit in a bank. When you make an FD with a bank, you are basically lending money to the bank. One, they are able to invest in many types of bonds that are not available to individuals. For example, the Government of India issues bonds. It is in fact, by far the largest borrower (and thus bond-issuer) in the country. Individuals cannot buy government bonds. Bonds are also issued by many large and medium sized

1) Re-balance the Portfolio The most important step is re-balancing of the portfolio. You may have started the year with a 60% allocation to equities, 30% to debt and 10% to gold. But, equities shot up 30-40% in 2014-15, while debt went up by 9% and gold fell by 5%. So your portfolio is now 65% in equities, 26% in debt and 9.5% in gold. To return to the allocation preferred by you, sell some of your equity investments and invest the proceeds in debt and gold. It is a fact that investors who periodically rebalance their portfolios get the best returns 2) Review Progress of Goals Along with rebalancing, you also need to review your financial goals. If some investments have not done as well as estimated, there would be a shortfall in the target amount set for that goal. You need to make additional investments to cover that gap. In some cases, the target itself may have moved up. For instance, if the surge in the dollar has pushed up the cost of your child's foreign education, yo

i. Avoid unnecessary debt   Carrying large credit card balances and other consumption debts is a sign that our lifestyle exceeds our income. Such consumption borrowings come with very high interest and they hurt one’s financial wellness. Unlike a home loan which creates an asset i.e. real estate property, the interest paid on consumer debts is totally forfeited. Getting rid of high interest consumption's debts, at the earliest possible, is the first step towards being financially self-sustainable. Once free, keep off them as much as possible. ii. Pay yourself first   Saving could be viewed as the practice of paying oneself first. Traditionally savings applied to whatever is left of income after the long list of expenses. However to be financially independent that equation needs to be turned around – Expenses = Income – Savings!  We ought to decide how much is to be saved and then limit our spending to what remains. The habit of paying yourself first will go a lo

Saving for retirement has a very long-term investment horizon and equity-based assets are an excellent choice. As a long-term savings project, accumulating savings for retirement is no different from any other long-term savings. However, if you talk to conventional financial advisors, you will probably discover that this is a contrarian view. For some reason, there is a school of thought that believes that because one should not take risks with one's retirement savings, one should not invest them in equity. The logic is that older people are not earning any more so they can't afford to take any risks. The value of their money must never decline, even if it grows slowly. Once you accept this logic, then the only type of investments that are acceptable are those that offer guaranteed fixed-income returns. Curiously enough, this view extends not just to investments that actual retirees make, but also to investments that even younger savers make for retirement. These experts