Build your portfolio - Plan the investments 2 (template)

here it the template for planning

Build your portfolio - Plan the investments 2

Step two in planning your investments is minding your on-going monthly savings and aligning it to your portfolio. First write down all your monthly expenses. For example jot it down something like this

Petrol	1,000
Maid	1,000
Tel	500
Electricity	500
Grocery	2,000
Miscellaneous	2,000
Lunch	2,000
EMI	15,000
Shopping	5,000
Total expenses	29,000

Now map this with your income from all sources (self, spouse, rentals, investment income, etc) and see the balance you generate at the end of this. This will give you an amount you save every month. With that try and map it again to the kind of investments you will do on a monthly basis.

Think of the following options
1. Recurring deposits for a year (at the end you can transfer them to a FD)
2. SIP (Systematic investment plan) into a mutual fund
3. A gold scheme of say 3000 rupees. This will give you sizeable chunk at the end of the year to buy some gold jewelry
4. Stock picking. Think of some good stocks you want to keep investing into (more when we talk stock markets)
5. Of course assume you will have sufficient cash in hand based on step 1.

All this will then automatically start aligning to your risk profile. This will also help you reduce waste in terms of spends that are ad-hoc. This may sound a simple step but doing this is very critical. Also monitoring this every month will give keep you on top of your finances.

Now look at both step 1 and 2 and map it to your short and long term goals. You will see that you are now making it happen or at least in the direction to do the same. Remember, managing your money is as important as taking care of your health and more important than watching IPL matches!

I am attaching a template (in the next post) that I usually use for planning. Hope you find it useful. Happy investing. Subsequent posts I will talk about stock markets!

Build your portfolio - Plan the investments

Now here is where I differ from most Financial planners. I think a good financial planning needs to be looked at from 2 dimensions and needs to be done in a very simple way. First step is to look at all your current financial assets. And write down your balances in each of the areas. Include things like amount, amount last month, whether liquid or not and the type (bank, equity, bond, gold). These include
1. Cash on hand
2. Bank accounts with different banks
3. Real estate
4. Equities (write down just the sum - instead of listing all the stocks)
5. MFs (sum instead of listing all the funds)
6. others

Do this for each bank, each account you have. This will give you an idea of your total net worth. This will be a revelation if you have not done this before. Do this in a spreadsheet to give you ability to do some analysis. Now understand your percentage split between cash, FDs, equities, real estate, gold etc. Match this up with your risk profile and see how you fare in terms of your portfolio split. Rule of thumb - If you are risk neutral your equities should be about 40-50%. The rest should be about 10% each.

This completes step one. We will discuss step 2 in the next post. This is to look at your monthly scenario and how to map it back to your portfolio. I do have a simple spreadsheet to manage all this. Will share it after the next post...till then...happy thinking!

Build your portfolio - avenues for investments

Next step, understand the different avenues for investments (jargon - asset classes). I will also attempt to map them kind of risk/return they provide as well as the liquidity constraints they impose. Liquidity is the ability to purchase/convert the investment (jargon - monetary asset) into into goods/services. Cash is the most liquid asset.

Fixed deposits, Bank Deposits, RDs - Low return, Low risk, High liquidity
Equities (stocks) - High risk, High return (if you are not stupid), High liquidity
Bonds/PPF/Post office savings/etc - Least risk, Low return, Low liquidity
Gold - Least risk, Low return (unless there is a financial crisis), Medium liquidity (very low liquidity for married Indians!)
Real Estate (favorite amongst Indians) - Low to Medium risk, Medium to high returns (if you are not stupid), Very low liquidity
Art (if you are ambitious) - High risk, potentially very high return, Least liquidity

Mutual funds - depends on which type it is (Equity, Bonds/Gilt/Debt, Diversified. Gold, ETFs) - we will talk in detail about MFs in a subsequent post

I would suggest you take a look at the Mint Money guides (some available at http://mintmoney.livemint.com/mint-money-guides/) to develop some understanding of different type of asset classes. Once you develop a good understanding of these, we need to begin creating a portfolio. This needs to be done in two steps - current and on-going portfolio.

More in subsequent posts...Till then keep reading about the different asset types...Remember invest into areas that you know...rather than what your friend/relative advices you!

Build your porfolio - Know your profile

Understanding yourself is the key to making sound financial decisions. What kind of person I am? What kind of ambitions I have in terms of "making my money work"? Knowing this requires a lot of introspection.

A risk profiler has tools that map your risk apetite. Some links are here below.
http://wealth.moneycontrol.com/jtrisks.php
http://myiris.com/mutual/riskProfile/index.php

But the catch with risk profiler is that they concentrate on positive cases. Think of negative scenarios when trying to map yourself. A person like me does not get nervous, when my stock portfolio dips by 50% or even 100%. In fact during the downturn (much to my wife's and parent's nervousness), I was buying more stocks. However, not everyone is risk taking. And I would suggest if you are not, don't try things that would impact your health and create nervousness around you. An analogy is around buying cars. I cannot buy a luxury car. Reason, if there is a scratch on my car, I cannot sleep. The more expensive the car, the more days are lost in thinking about the scratch. Hence I stick to less expensive ones.

Knowing yourself will help tune your portfolio to rewards that make sense to you. If you dont like taking risks, stick to an average 15% return portfolio. If you like taking them try a 30%+ return portfolio, but be prepared for the roller coaster ride. An important step in doing your profile is also to check with your spouse and his/her comfort level. A better idea would be to take an average risk the two if you invest jointly.

The questions you should have answered are
1. What kind of returns you expect on investments
2. Does negative news over your wealth make you lose sleep?

As far as I am concerned, I go by the old gujju saying "In the medium term we all need to make money, in the long term we all die"... happy thinking!!

Build your porfolio - Financial goals

As kids we have been trained to believe that money or too much money is not good. And some kind of negative mindset develops towards it. Well, first change all that! Money is good, greed is good...this is what you work for and this is your fruit of the hard work you put in. To put it like an economist "It functions to serve as a medium of exchange, a unit of measurement and a store of value"

Money helps you achieve your near term and long term financial goals. Let us talk of short term goals. In the horizon of the next 1-3 years what are your targets? Some examples
1. A vacation
2. A new piece of furniture for the house
3. An anniversary celebration for your parents.
4. Wife's birthday (that might need a lot more planning)

...and so on. First step - write these down. Now think of when the event needs to occur and approximately how much money will be needed for this.

Similarly think of long term financial goals. This requires a bit of patience, discussion with people at home and of course "greed" (which is not bad according to me). Again write them down. Some examples
1. Buy a house
2. Buy some specific jewelry
3. Buy a luxury sedan
4. Go on a world tour
5. Upcoming marriage (read today's Mint - Indians spend 50% of their savings on marriages)

..and so on. Again, make a list, attach a time-frame and an approximate expense. Next step will be to look at how to plan your finances based on these goals...in the next post..till then...keep writing/thinking.

Build your portfolio

Though it may sound a bit like Financial planning with a "Wealth manager", it is a very simple concept. Think of savings that you can do every month from your salary. You put it in a recurring deposit account. Over the years, you have been purchasing gold. At some point in your life you purchased a flat, invested in some stocks. Consciously or unconsciously you have built a portfolio for yourself. This was build with some objectives in mind, again done without any formal method.

There are a few aspects that you need to consider while building or designing a portfolio
- What are my financial goals - short term and long term
- What kind of person I am..what makes me nervous, what does not - essentially your risk profile
- What are my avenues for investment
- What is my current state of finances? And what can I plan every month for investments

These are very simple things one can start thinking of. I will discuss each of these in detail, with tools you can use to plan each of these. Keep watching, and keep thinking.