INVESTMENT PLANNING
10 COUNTDOWN TENETS
10 COUNTDOWN TENETS
1 year
· Review your investments every year.
· Discard underperformers and add more to the high performers.
· The annual review is critical for maintaining the asset allocation of your portfolio.
2%
· It is the maximum you should pay as annual fund management expense on an average.
· A higher expense could prove costly in the long term.
· Even a 0.5% difference in the expense can widen the gap to 10-15% over 20-25 years.
3 months
· 3 months' worth of your living expenses should be in a contingency fund, which can be accessed at short notice.
· You will then not be forced to break other investments in an emergency.
4 times
· It is the maximum number of times you should roll over credit card bill in a year.
· If you do it more often, you could be headed for a debt trap, as it is very costly.
· It also shows you are spending more than you can afford.
5years
· It is the minimum time frame you should have if you invest in stocks and equity mutual funds.
· Equities are inherently volatile and may not yield desired results in the short term.
6 times
· 6 times your annual income is the minimum life term cover you should buy.
· Term plans make it possible to take a large cover at a low price.
7%
· It is the long-term inflation rate that you should factor into your financial planning.
· This is especially important for long-term goals such as child education and retirement.
· Education costs are rising by 12% every year, and in 6 years, the cost doubles.
8
· 8 is the maximum number of funds that a small investor should have in his portfolio.
· Any more funds will only duplicate holdings, making it difficult to track and monitor your portfolio.
9 years
· It is the minimum term after which unit-linked plans are profitable for an investor.
· Ulip charges are high in the initial years, so short-term plans will yield poor returns.
10%
· 10% of your income is the minimum you should put away for retirement every month.
· Increasing lifespan means you must have enough to sustain for 30 years in retirement.
Points to keep in mind
· Complying with even 6-7 tenets will ensure that your finances are on the right track.
· It is better to err on the side of caution where inflation is concerned.
· Your specific short-term and long-term goals will require tweaking of some tenets.
· A life insurance cover of 6 times the annual income does not include outstanding loans and other liabilities, for which additional insurance cover needs to be taken.
· Energise your contingency fund lying idle in a savings bank account by starting a sweep-in account.
· Or invest it in a liquid debt fund, which will pay within a day of submitting a redemption request.