Pallavi Shevade Financial advisor Of Hamarijodi.com matrimonial website along with Prashant and Pratima Shevade the owners of the website shares their investment advice and ideas with MIB readers. They can be contacted via pratima@hamarijodi.com

Investing advice and ideas for a layman by a layman

The old adage ‘A penny saved is a penny earned’ still holds true for the average man. In simple terms investing is all about putting aside a something from your income without taking away the small luxuries life affords us today. We invest for a secure future, where we don’t have to depend on others to maintain our current standard of living.

Sounds easy enough? Is it?

It can be with some self restraint and some annual planning. I guess there are no simple answers but broadly there are four crucial areas of personal investment:

- I Monies for returns in the medium turn (3 -4 years)
- II Monies towards capital investment – (10 – 15 years or more)
- III Monies invested in getting adequate life insurance & permanent disability solutions.
- IV Monies for retirement. (15 years and above)
- V Monies invested for short periods towards large upcoming expenses and relatively expensive luxuries. (under one year)

Lets start at the bottom and work our way upwards.

V – Short term Investments: At the beginning of every year work out what are large emergencies you could be looking at. The fridge or a/c could breakdown? Home theatre system needs to be replaced? The carpeting is hanging on its last threads? Car needs to be replaced?

• Work out the costs involved.
• Then work out any luxuries you want to award yourself for working so hard.
• A five star holiday in Paris? A trip to the Olympics? A new kitchen? Five new designer outfits start from Milan? Again work out the costs and by when they would be required.
• Find a short term investment scheme with a local financial service provider. A local bank could have a deposit certificate scheme with a low entry and exit fee. Or there could be a post office deposit scheme. Something you could easily top up every month. If it comes with a small rate of return then that would be ideal.
• Finally work out how much you would have to deposit each month to get to the amount you need. For example: you need US$3,000 in July for a trip to Milan or for a down payment on a new car. US$3,000 over 6 months is exactly US$500 per month. Any interest you may earn will off set the cost of entry and exit making and should leave with you a small profit.

IV – Retirement fund. Everyone has to retire some day. Some people are lucky in that their companies work with them to ensure that they have an adequate pension when they retire. Others have to figure things out for themselves. Start with the basics.

• When do you want to retire? What does it cost to live a comfortable lifestyle today? Whats a good rate of inflation? Then work out how much you need in bank if you plan to live to be 110.
• Now find a good solid financial institution with a well-known track record and start paying premiums towards your retirement.

III – Life insurance. This is relatively easy.

• Figure out what you contribute towards the family at present and what large expenses they are likely to incur and would need help with. Son’s college education? Father’s knee replacement surgery?
• After you find that magical figure then find a well known life insurer who also offers permanent disability solutions.
• Read the fine print on their payout policies. if you find them reasonable, then go ahead and start paying premiums.

II – Long term investments. These can also be easily converted to liquid cash in case of emergencies because they will always bring in more than the price they were bought at. Or they could just be a buffer for unexpected expenses in your old age.

• Ideal investments could be pieces of land you know are bound to appreciate in the future or apartment blocks which could be rented etc.
• Other long term investment solutions could be provided by financial institutions.
• Antiques, art, jewellery are other long term investments which can easily be converted to cash.

I- Consistent medium term investing. A bit more complex than what we discussed above.

• Once you have worked out V, VI, III and II then add them up.
• Then add all possible regular monthly expenses. Build some cash for unexpected expenses and/or impulsive spending.
• Then deduct this amount from your monthly income.
• This should leave you with a small sum every month which can be invested in equities and mutual funds.
• A local financial institution should be able to help with your medium term investing. They should offer the services of a financial consultant who can advice on the movements of the markets and new fund offers on a regular basis. The trick with this kind of investing is to invest often and in varied types of products like equities, bonds or mutual funds etc.
• Evaluate everything every three years encashing anything which isn’t giving you a decent return.
• Again the monies received from after encashing should be invested in other products for another period of three years. Do lots of different things and keep what works.