An advertisement for a well known travel company is currently making waves in the ad world because of the wonderful way in which it taps into human emotion.

The core of the advert is that while 150 people on a plane might be flying to the same destination, there may well be 150 different reasons for going there. A young man may be travelling home to be with his wife during the birth of their first child. A woman may be travelling to make the biggest corporate presentation of her career. Someone else may be travelling for solitude away from personal and career stress. Another person may be travelling to try out an adventure sport for the first time. The action of travelling is the same; the reasons for doing so are individual and very personal.

In an identical and parallel fashion, everybody invests.
If you're reading this article, or any article on any personal finance website, chances are you're an investor. And you are investing for the same over-arching reason that we all invest - you want to amass wealth.

But that's where the similarity between you and a million other investors ends. And the uniqueness of your own individual goals comes in.

Answer these few questions about yourself:
 

1. How old are you?
    
2. Are you married?
    
3. If so, do you have kids? How many and how old are they?
    
4. Would it be your dream to have your son become an engineer or your daughter a scientist? Or perhaps a civil lawyer, an economist, an investment banker or a doctor?
    
5. Do you live on rent or do you own a home?
    
6. If you own a home, do you have a home loan?
    
7. At what age do you want to retire from the rat race and take it easy (realistically)?
   (You can use the PersonalFN Retirement Calculator to see how much you will need)
    
8. What do you like to do in your spare time? If you don't have any specific hobbies, would you like to develop some, like perhaps photography or travel?
    
9. Do you want a new car? How often would you like to change your car?
    
10. Do you support your parents financially?
     
11. Do you make the right kind of tax saving investments?
     

(Read our article on Easy Tips to Save Tax)

Within your answers to these questions (and more) lies your reason for investing.
You, individually, want to give your family and yourself an even better lifestyle. You want to give your kids the best education possible, whether in India or abroad. You have personal and emotional ambitions that you would like to help your family achieve and achieve for yourself too. And this is the "Why" of investing.

If you keep your eye on the prize - that is the "Why am I investing", you will automatically know the "How to go about investing".

There are 3 key guidelines within financial planning, which is basically planning for your life goals, that will help you stay on track to achieving the "Why":
 

1. Never get swayed by market movements
   
   The richest investors today and some of our wealthiest clients managed to do one very difficult thing - they didn't panic when markets crashed. They recognized the incredible opportunity in buying low and continued their SIPs diligently and without pause. At 8,000 levels when everybody thought the market was going to fall further to 6,000 and decided to wait and watch, these clients just steadily went on investing. An SIP is the best way to go about investing if you want cost averaging and investing discipline.
   
   (Read our article titled To SIP or to VIP - That is the Question)
    
2. Diversify
   
   There are different asset classes for a reason, and this reason applies to you too.
   Equity grows wealth.
   Debt protects wealth.
   Gold hedges against inflation.
   
   You need all 3 in your overall portfolio, in different proportions at different times for different goals. Diversification is important, but over-diversification can hurt you. Keep it simple.
    
3. Invest based on your goal timeline and your risk appetite, not on your age
   
   There exists a pervasive myth among investors that investing has to do with your age. This is false.
   
   A 65 year old man with surplus funds and a goal that is 10 years away (such as leaving money to his grandchildren) can certainly invest part of his funds into well researched equity mutual funds. The tenure of his goal allows equity exposure.
   Similarly, a 25 year old with his whole life ahead of him should not touch equity with a ten foot pole if he has short term goals coming up i.e. any major expenses within 3 years. The tenure of his goals does not allow equity exposure.
   
   (Read our article on 3 Personal Finance Thumb Rules)
    

Conclusion

Financial Planning is essentially easy. You don't need to get swayed by the flood of news out there.
Remember the "Why", and follow the simple guidelines given here to achieve it.
If you are seeking professional financial assistance, feel free to call PersonalFN.

Add Comments

Comments
contact@linkbynet.com May 10, 2012 My problem was a wall until I read this, then I sampled it.
litera_konkurs@ukr.net May 10, 2012 According to the second video, Wall Street can't beat the market and no mutual funds beat the market. But the market is just the aggregate of Wall Street (including mutual funds) and ... who? Private investors? Since the "market" is an average and all of Wall Street is below average, someone has to be above average in order to create the average. Does that mean private investors are all beating the market?I really dislike the type of oversimplification presented in that video. First, this type of presentation doesn't question the assumption that everyone's trying to beat the market. It's a straw man argument. Since the market is an average, not everyone can beat it (and not everyone can lag it). Not everyone is trying to beat the market. Some people are investing for income. Others are investing for long-term inflation protection. Others own shares through corporate sponsored share purchase plans. Hedge funds, as an example, (that use a hedging strategy) don't mind under performing the market some years, as long as they can return a steady 5% over inflation.What the argument comes down to, most often, is "you could save money by ditching your advisory." That's fine for some (maybe most) people, but there are people who don't mind paying to have their hand held and there are people who could buying an index, but want help choosing which index. Ad visors shouldn't ever promise to beat the market. But if they can write a realistic financial plan and help a client achieve their goals, that's worth the price.

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