Financial Planning – Page 7

December 2, 2021

Child Education Planning using Mutual Funds

One common inference emerges singularly in all Financial Planning surveys in India – planning for our kids’ education is always going to be a top priority for Indian parents! Although this aspiration hasn’t changed over the years, the way we save for this critical goal has undergone dramatic shifts.

Gone are the days when investors looked no further than “Child Education Insurance Plans” to fund their kids’ higher studies. With AMFI’s impactful “Mutual Funds Sahi hai” campaign, has come the awareness that a low cost, potentially high return, and transparent tool exists for Child Education Planning, in the form of Mutual Funds.

Here are the three stages of accumulating wealth for your Child’s Higher studies using Mutual Funds.

Stage 1: Accumulation

The accumulation stage must ideally commence as early as possible – smart investors start accumulating money via Mutual Fund SIP as soon as their children are born! During the accumulation phase, it would be wise to not pay too much attention to your risk profile and instead focus on making affordable monthly investments into mid-cap-oriented mutual funds that have high volatility.

If you can achieve a 14% return over 18 years (not uncommon for many top-performing mid-cap oriented mutual funds), even a small saving of Rs. 5,000 per month can yield Rs. 50 Lakhs by the time your child turns 18.

Stage 2: Aggressive Step Ups

When it comes to saving for your Child’s Education using Mutual Funds, it’s of critical importance to re-evaluate your financial situation now and then and step up your monthly outgo accordingly. Since education costs tend to inflate at supernormal rates, a college degree that costs Rs. 50 Lakhs today will most likely cost between Rs. 2.25 Cr – Rs. 2.50 Cr, 18 years hence.

But fret not – starting with Rs. 5000 per month; but stepping this monthly contribution up by just Rs. 3000 per month every year for 18 years, can help you accumulate nearly Rs. 2 Cr for your kid’s higher studies. Such is the magic of the power of compounding when coupled with regular and disciplined annual step-ups.

Stage 3: De-risking & Corpus Deployment

The final stage in planning for your child’s education using Mutual Funds would be to systematically de-risk your portfolio as the goal date approaches. A common mistake that savers make is to continue to have a 100% allocation to equities to the goal date.

This can prove to be catastrophic if market cycles turn unfavorable in the year that you need to redeem money. Imagine, for a moment, that a 2008-like situation was to arise in the year that you need to redeem funds to pay your child’s tuition fees or college seat booking amount.

You may need to take a loan at that stage to circumvent the horrifying prospect of booking a 50% loss on your hard-won savings! Instead, make sure you begin STP’s (Systematic Transfer Plans) from your high-risk equity funds to lower-risk debt funds a good 3 years before your goal date. This will help you safeguard your capital as well as your profits, making them easily redeemable when you need to write that hefty check!

Source: Finedge

November 26, 2021

5 Traits of Smart Investors

The COVID 19 crisis has tested the mettle of investors like never before. From the heady highs of February to the dark depths of March, and to the sharp recovery that has followed since market movements of 2021 have been truly unprecedented.

However, smart investors continue to remain relatively unscathed through all this madness, while the less smart ones have seen their portfolios getting pulverized. Do you want to be a smart investor too? Start by cultivating these five traits that characterize them.

1. Don’t obsess over your portfolio

Someone wisely observed that a watched pot never boils. They may well have been talking about investing! While smart investors do check their portfolios periodically and make a sincere effort to stay on top of things, they also understand that obsessing over their investments will only serve to incite a host of behavioral biases in them that will work to their long-term detriment.

In short, smart investors review their investments periodically and then sit tight until something changes materially. They do not count their daily losses and profits.

2. Be goal-focused, not returns focused

Smart Investors seldom invest in an ad-hoc manner. They recognize money for what it is – that is, a means to an end. Resultantly, their portfolios tend to be segregated neatly into goal-based buckets. Long-term money being saved for retirement automatically flow into higher-risk funds, whereas emergency funds get set aside into safer, more liquid investments.

They understand that returns fluctuate, and so they measure their success by the more robust yardstick of the percentage of goal achievement instead. Retirement corpus down 30% due to COVID? So, what – there are still 25 long years left to cover lost ground!

3: Understand risks

Smart investors never commit money into an investment without total awareness of the risks (and potential rewards) involved. By doing so, they assume full responsibility for the fluctuations that may ensue during the investment life cycle.

Instead of turning a blind eye to risks, they study how a prospective investment has fluctuated previously during good times and bad before deciding whether it fits in with their objectives as well as their bounds of risk tolerance. And once they do – they stay committed through the ups and downs that follow, without breaking into a sweat every time markets fluctuate.

4. Follow a “Core & Satellite” approach

A “core and satellite” strategy is a proven strategy that smart investors have long employed. It entails investing the bulk of one’s assets into long-term and relatively passive assets while setting aside the rest to play sectors and themes that may outperform the rest of the pack in the medium term.

By doing this, smart investors effectively contain portfolio risks while cashing in on opportunistic trends in a controlled manner. Importantly, smart investors draw the line between their core assets and satellite plays with unflinching discipline.

5. Avoid “Heropanti”!

While heroics are fantastic for Bollywood movies, they simply do not work well in the investment world! Buying into every dip, exiting opportunistically at every bounce, and getting back in swiftly at the next correction – these are just fantasy moves that sound great in your head.

In reality, such mercurial actions will leave your portfolio bruised and battered. Smart Investors understand that successful investing is more like watching grass grow or watching paint dry. They mentally prepare themselves for a marathon, while leaving the sprints for the novices!

The support of a qualified Financial Advisor can make you a smarter investor! To get started on your journey towards smart investing, get in touch with us today.

November 17, 2021

4 Tips to Achieve Your Financial Goals Through SIP’s

The “Mutual Funds Sahi Hai” campaign has fuelled an increased interest in Mutual Fund SIP’s (Systematic Investment Plans) over the past five years. The industry’s monthly SIP inflows have doubled to Rs. 8055 Crores since 2017, and assets have tripled in the past five years. If you’re one of the thousands of investors who are using SIP’s to achieve their financial goals, here are four things to keep in mind.

Select Your Funds Based on Your Time Horizon

Counterintuitive as it may sound – when it comes to goal-based investments, it makes sense to disregard your risk profile and focus only on your time horizon instead.

For instance, choose aggressive small & mid-cap equity funds for goals that are more than a decade away, and short-term debt funds for goals that are a year away.

Doing this will ensure that you reap the maximum benefits of rupee cost averaging and compounding from your SIP’s

Be Disciplined… Very Disciplined

When it comes to goal-based SIP’s it is mainly your discipline that will determine your long-term success.

If you’re the kind of person who frequently stops and starts his SIP’s, or lets them bounce for a couple of months and lets them debit for a couple of months, your chances of achieving your goals through them are fairly slim.

Ensure that you start with an amount that is comfortable for you, but once you do – make sure you treat your SIP’s as sacrosanct and ensure that they keep running like clockwork.

Ignore the Noise

Short-term events such as BREXIT, demonetization, elections, crude prices, and RBI rates have very little bearing on the long-term returns from SIP.

If you get rattled into action every time the newspapers sensationalize something, you’re likely going to wind up taking some very myopic decisions with your SIP’s When it comes to SIP’s in Mutual Funds, dispassion is more important than active management! Just ignore the noise and keep going; rewards will follow sooner than later.

Have a Step-up Plan

An annual step-up plan is like rocket fuel for your Mutual Fund SIP. Here’s an interesting calculation. If you run a SIP of Rs. 10,000 per month for 25 years for your retirement, you’ll probably end up accumulating something to the tune of Rs. 2 Crores at the end.

However, if you step up the amount by just Rs. 5,000 per month every year, you’ll have closer to Rs. 8 Crores! Some Mutual Funds even allow you to automatically step up your goal-based investments every year. Enrolling in this feature would be a great idea.

Source: FinEdge

November 16, 2021

5 Things that all great Advisors expect from their Clients

While much has been said about the traits of great Financial Advisors, the fact remains that the Client-Advisor relationship is a deeply symbiotic one, whose long-term success is contingent upon the attitudes and actions of both parties involved.

Here are the five things that your Financial Advisor expects from you to ensure that your investment experience is a great one.

Patience

Financial Planning is a journey, not a destination. Along the way, there are bound to be many euphoric crests and dispiriting troughs. While a great Advisor will do all that she can to handhold you and keep you aligned to the big picture, her efforts will fall flat in the face of impatience on your part.

As an investor, you must give an adequate amount of time to your investments, without being swayed by short-term market movements. Remember, your patience will give your Advisor the requisite bandwidth to take better long-term decisions on your behalf.

Trust

Few things impinge upon an Advisor’s efforts as much a trust deficit does. If you’re going to take her recommendations and run it past your banker (a salesperson), your LIC agent (a salesperson), and your well-meaning uncle (a little bit of knowledge is a dangerous thing!) before proceeding, you’ll have a hard time creating any wealth at all. While no Financial Advice is bulletproof, remember that a conflict-free Advisor is in a much better position to make the right investment calls. Ask all the questions you need to to build trust in your Advisor’s intent and competence; but once you do, take the plunge and hand over the steering wheel in toto, for best results.

Discipline

If only we had a Rupee for every time that a Financial Plan crumbled in the face of indisciplined investing!

Things like – stopping and starting your systematic investments, making futile efforts at timing the market, redeeming your Goal-Based Investments to fund short term ‘wants’ while sacrificing long term ‘needs’ – all constitute acts of indisciplined investing that lead to great consternation for an Advisor who is as invested in your long term goals as you are.

Being a disciplined investor allows your Advisor to frame and execute a robust Financial Plan that leads to the achievement of your goals in the long run.

Focus

Remember, even a great Advisor’s efforts will amount to nothing if you suffer from investment ADHD (Attention Deficit Hyperactivity Disorder).

An NFO here, a short-term gamble there… and before you know it, you’ll have a scattered portfolio of Financial Assets that are beyond repair. The best Advisors will expect you to follow a goal-oriented approach to your investments.

That involves sitting down together and mapping your goals, prioritizing them, and then aligning your current as well as future investments to them. Your goals are firmly in place, your Advisor will have a much higher chance of succeeding if you stay focused and keep your ‘eyes on the prize’!

Responsiveness

Last, but not least – great Advisors expect your time and commitment. That involves making time for important discussions such as periodic goal reviews and portfolio reviews. Once discussed and agreed upon, your Advisor will expect you to be swift with change executions as well.

A lack of responsiveness on your part can result in your missing out on tactical entry opportunities as well as important, time-bound exit recommendations during tempestuous market cycles such as the one we witnessed when we first started grappling with COVID-19. When your Advisor calls, do make sure that you answer!

Source: FinEdge

November 1, 2021

6 Financial Lessons from Diwali

Diwali is one of the most awaited festivals in India. This is one festival, which keeps all of us busy with making arrangements, buying crackers, sweets, and gifts for everyone. Not everyone is aware that this festival also brings to us, the 6 most important Financial Planning Lessons of life.

Let’s see what they are!

1. Safety First

All of us enjoy fireworks and we also take all the needed measures to keep ourselves and our families safe. The same planning has to be implemented concerning one’s financial health.

Also, when we burst crackers, we take utmost care and children always burst them under adults’ supervision. Likewise, one also has to take the advice of a financial advisor before making any investment in schemes. Several schemes look attractive but they turn out to be a disaster in the long run.

The same also applies to trading as well. Never follow anyone when they ask you to invest in a particular stock. Do your research before investing in any stock. This is similar to how we trust ourselves when it comes to choosing and burning firecrackers.

2. Advanced Planning
People plan for the festival of Diwali well in advance. Everyone plans for the kind of gifts they need to give their family and friends, the sweets to make, the kinds of crackers to burn, shopping for clothing, house renovations, and so on. Similarly, one needs to plan and invest early to reap better benefits. By early investments, one can also generate good returns with compounding. So, we not only need to plan early for Diwali but we also need to plan for our investments.

One also needs to be extra cautious when investing and it is important to have a very detailed financial plan, planned well in advance before making a safe and lucrative investment. Always choose an expert financial advisor.

3. Have a Goal When Investing
Gifts for family and friends during Diwali are bought as per their taste, age, and preferences. Likewise, one has to have different goals of Financial Planning at various stages of life. One needs to have a goal when investing and these help you sail through some difficult situations without disturbing your regular cash flow.

4. Get Rewarded with Variety
We all choose various varieties of crackers for Diwali and similarly one also needs to properly diversify the investments in one’s portfolio. By this, investors will reap the benefits that are offered by different financial institutions. A well-balanced portfolio will provide you joy and benefit at the same time.

Also, crackers are classified into hazardous and non-hazardous categories and we give the less risky ones to the kids. Likewise, when investing, we need to choose the schemes that are less risky or riskier by considering various other factors.

5. Prepare For Emergency
Whenever there are a lot of firecrackers to be burnt, fire extinguishers are kept handy to avoid any accidents that might occur. When planning any investment, one also needs to have a backup by choosing the right insurance policy as it helps to deal with any uncertainties that might come up. Being prepared with an insurance cover will be of help when unplanned losses occur.

Also, we never purchase crackers from unknown brands and similarly one should never invest in any unpopular scheme. Just understand the risk before you invest in any scheme.

6. Clean up your portfolio on a timely basis
Like people clean their houses and offices before Diwali and give away the things that are no longer needed, investors also need to follow a similar approach with their investments. Check the investment portfolio thoroughly to make sure that it has all for your financial goals and any unseen and unplanned expenses. One also needs to exit from the schemes that are not performing well.

The festival of Diwali teaches us all many money management lessons. Apart from those mentioned above, this festival also has a lot to teach us when it comes to financial planning. So, this is the time to plan your finances well and to have a sparklingly safe and financially planned Diwali.

Source: Motilal Oswal

October 15, 2021

5 Key financial lessons to learn from Dussehra

Dussehra is celebrated to honor the victory of good over evil with much pomp and fervor. While Dussehra is a time when eternal hope rises in the good that exists in humanity,

it also brings with itself some important lessons you can implement to your financial plans to have a better grip on your finances and plan for a better future. Read 5 Key financial lessons to learn from Dussehra here;

Destroy the evils on your wealth creation journey

The festival of Dussehra marks the victory of good over evil. During the Lanka war, Lord Rama and his army encountered various hardships to attain victory. Looking at the festival from a finance and investment perspective; the festival offers the vital lesson of ridding away all the causes that pose as a hurdle on our financial planning and wealth creation journey. Surmounting credit card debts, reckless expenditure, timing the market, booking losses amongst many other hurdles are the real enemies on our wealth creation journey.

Live a disciplined life

The advocacy of ‘Dharma’ or righteousness by Lord Rama emphasized the significance of being upright, responsible, and disciplined in life. While in exile or during the Lanka war, Lord Rama did not deter living a life of frugality. You too can learn to live in less than what you earn. By saving wisely, spending cautiously, and investing smartly; you can apply financial discipline to cater to your current and future needs as well as your family’s needs. One way of inculcating and nurturing financial discipline within you is by firmly following a financial plan, avoiding binge-spending at all costs, and investing in a regular pattern; possibly in Mutual Funds via Systematic Investment Plan (SIP).

Lead a life of patience and perseverance

When Lord Rama along with Lakshmana and Sita were exiled to the woods for 14 years and was asked to live a simple life as opposed to the luxurious lifestyle of the royal palace; he accepted his fate and maintained composure. When Ravana abducted Sita and the Lanka war broke out; Lord Rama fought the war with patience and perseverance and never thought of giving up or looking for shortcuts. These two incidents in the Ramayana signify the importance of being patient and perseverant in the hardest of times. In your life too, you may face financial hardships or you may find it difficult to avoid unnecessary expenditure. As an investor, you may get impatient while watching your money grow or market ups and downs can test your patience to its extreme forcing you to quit investing any further and derail you from achieving your financial goals. Irrespective of the above-mentioned incidents; you must be patient and perseverant at all times.

Protecting your finances

The festival of Dussehra symbolizes the faith in defeating all forms of evil to protect humanity on Earth. By protecting or securing your finances, the message is to create a financially sound future and shun all evils that affect your financial wellbeing. You could protect your hard-earned money from going to waste by putting it to good use; in the form of investments or insurance plans. Also, maintaining a contingency fund that helps battle your emergency needs can prevent you from using up your savings or taking loans.

Cheers to new beginnings

The Lanka war of 14 days marked the defeat of evil and paved the way to newer paths. Upon returning to Ayodhya with Lakshamana and Sita, Lord Rama was crowned as the King of Ayodhya, and Vibhishana was crowned as the new king of Lanka. The events during the Lanka war and the subsequent victory of Lord Rama brought a new lease of life by starting afresh. Taking a cue from this; it’s never too late to tread on a path of financial freedom. You can start by chalking out a financial plan that suits you the best. If you wish to achieve your financial goals, you can always invest in a Mutual Fund scheme that is aligned with your financial goals and matches your risk appetite.

Source: Mtilal Oswal

October 12, 2021

How to Invest at A MARKET HIGH

It is that point of the year…the stock market is at its all-time high. All this while you waited for this opportune moment to begin investing. But wait! Don’t lose yourself in the exuberance all around. You never know where the market is heading the next moment.

The questions remain unanswered:

* Is the market going to rise further or is it going to fall?
* Should you be a skeptic and wait for a correction or cheer up and invest right away?

Waiting for a market correction to start investing would result in a loss of opportunity. This is exactly why you should get going immediately. If you keep waiting for a market correction, you will stay stuck. This is why you should invest, even at a market high, as the markets are only going to go higher. Sure, there will be a few hiccups on the way, but the general market trajectory is going to be largely upward-looking.

In case you are a novice investor, this time demands higher levels of composure from your end. Instead of placing impulsive bets and repenting later, sit down and formulate an investment strategy.

Review the entire portfolio

When you initially constructed a portfolio at the beginning of the cycle, markets must have been quite different. Now that so much time has elapsed in between, chances are the valuations might have changed.

The reasons which made you buy that bunch of stocks might no longer be existing. The market leaders might have changed ranks. In such a situation, sticking to laggards might end you in losses. So, use this time to review your entire portfolio. Weed out the stocks which don’t seem valuable anymore.

Re-balance the portfolio

You need to know that market volatility affects your portfolio’s asset allocation. Your original asset allocation might have been in a ratio of say 50:50 (equity: debt). But the steadily rising markets might have skewed the original allocations.

It means that now the ratio must have become say 70:30 (equity: debt). On one hand, it may seem like a lucrative opportunity to accumulate more wealth. But if it is not in line with your risk preferences, you may land in trouble.

You got it right! Your portfolio has now become riskier than you actually can digest. If you don’t want to carry a riskier portfolio, then it is better to re-balance it. Re-balancing involves bringing the skewed allocation to its original asset allocation of say 50:50 in this case.

Diversify your portfolio

Your portfolio might be composed only of small-cap or mid-cap stocks. In a rising market, a concentrated portfolio might increase your chances of losing money. When markets are high, you need to diversify. In diversification, you need to include stocks of different market capitalization. You can invest in large-cap stocks which tend to be stable during such volatility.

Start SIP in mutual funds

For first-time investors, trading in the stock market can be tricky. If that is not your ball game, then go for equity mutual funds. Equity mutual funds give a similar kind of investment experience; although with greater diversification and professional fund management.

You may think of starting a Systematic Investment Plan (SIP) in equity funds. In this, you will be consistently placing smaller bets. Over a period, it will give you the advantage of rupee-cost averaging.

Never invest in something you don’t understand

One mistake you shouldn’t commit is investing in a complicated financial product. Market highs are usually accompanied by fund houses launching sophisticated offerings. You might come across a lot of New Fund Offer (NFO) during this time.

These offerings might promise sky-high returns. However, you shouldn’t get enticed by the lucre, especially when the product offering is not transparent. Ensure that you understand what you are getting into before investing.

Moreover, invest in a financial product that has an investment history of 5 to 10 years. Even if you want to take the risk, don’t invest a lump sum in a single stock or fund.

Goal-based investing

Mapping specific mutual funds to specific goals will help you not only choose mutual funds correctly but also keep track of them in a better way. You can choose mutual funds depending upon the term and the risk profile of the goal.

All said and done, market highs and market lows will come and go. The volatility shouldn’t bother long-term investors. You should keep an eye on your goals and invest systematically.

Source: ClearTax

August 20, 2021

Arbitrage Funds vs Liquid Funds, Which fund suits you best?

While choosing the right investment option most suited to meet your short-term investment need most of you tend to invest in Bank FD or savings account.

However, there are other short-term investment avenues that you can and should explore for your short-term investments. Arbitrage funds and liquid funds are two such investment options that can be considered to meet your short-term investment needs.

Arbitrage funds

These are mutual fund schemes that leverage the price differences in two different markets and thereby earn profits. As arbitrage funds are involved in simultaneous buying and selling of shares and making profits from market inefficiencies, they are considered to be low-risk investments and a safe option to park funds.

The returns generated by these funds depend on the volatility of the underlying asset. As these funds primarily invest in equities, they are categorized as equity mutual funds and taxed like any other equity mutual fund.

Liquid funds

Liquid funds, on the other hand, are open-ended debt schemes, that invest money in debt instruments such as treasury bills, commercial papers, certificates of deposits, and even term deposits, etc. Liquid funds are extremely liquid and have no exit load. The redemptions are processed within 24 hours.

Which fund to choose- Arbitrage Fund or Liquid Fund?

Arbitrage funds gained a lot of popularity after the Union Budget of 2014 when the minimum holding time for long-term capital gains on all debt investments was increased from 1 year to 3 years and long-term tax on equities was nil.

However, now under the new budget, even gains from arbitrage funds would be taxed; 10% if sold after a year and 15% if the holding period is less than a year.

While both arbitrage funds and liquid funds are low-risk, low-return types of investments, there are few things you must compare and choose the investment option most suited to meet your needs.

Time Horizon of Investment

One of the most important things to consider before choosing between the two is the time horizon for which you are looking to invest. If you are looking to invest for a few days or weeks, then you should invest in liquid funds.

Returns from arbitrage funds are dependent on arbitrage opportunities available, which are few.

Thus, for such a short time you may not be able to generate any returns from such funds and hence more suited for investors who are looking to invest for at least 3 months or more.

Tax efficiency

Before you choose to invest in either of the two options, understand the tax implications on your returns. Short-term capital gains on arbitrage funds are taxed at a flat rate of 15% and those from liquid funds are clubbed with your total taxable income and taxed as per your income tax slab.

Thus, the tax efficiency of the investment will primarily depend upon the tax bracket that you fall under. For low-income investors, liquid funds are more tax-efficient as compared to investors in the highest tax bracket.

Similarly, arbitrage funds are more tax-efficient than liquid funds for investors who are in the tax brackets of 20% and above as the short-term capital gains tax is 15% which is lower.

Liquidity of investment

Liquid funds score over arbitrage funds when it comes to liquidity. Redemptions in liquid funds are processed within 24 working hours but in the case of arbitrage funds, the redemption is made within 3 to 5 working days.

Returns

The returns generated by arbitrage funds are slightly higher than liquid funds, especially in volatile market conditions when ample arbitrage opportunities exist.

Exit Charges

The exit charges in case of liquid funds are nil, but there is usually a pre-mature withdrawal charge in arbitrage funds if the withdrawals are in the first few months.

Risk

Liquid funds and arbitrage funds are both low-risk investment options but arbitrage funds are slightly more risky than liquid funds.

While returns on liquid funds are similar to those of bank FDs, returns in the case of arbitrage funds are dependent on the arbitrage opportunities available in the market, which are erratic.

Conclusion

The choice of investment most suited for you will depend on your investment objective. Ideally, investors looking to invest for 6 months or more, especially those in the highest tax bracket should opt for arbitrage funds for better returns and higher tax efficiency

And those investors looking to invest for a shorter time frame or those in lower-income brackets can look at investing in liquid funds to make the most from their investment.

August 3, 2021

Benefits and Risks of International Equity

International investing has become vital for our portfolios as we take part in the global growth story.

Adding international stocks to a portfolio offers diversification and may provide higher returns. However, there are both benefits and risks associated with global investing.

Benefits of International Equity

a. Diversification

Diversification is the most obvious yet the most crucial benefit of global investing. A diversified portfolio acts as a source of stability during market volatility.

When you spread out your investments across geographies, there is a low correlation between them. This means that the volatility in one market is likely not to affect your other assets.

Many of the US-listed companies have global revenues. Over 40% of the revenues of the S&P500 companies come from outside the US. By investing in the US itself, you can build a globally diversified portfolio.

b. Wide range of investment options

Global investing enables you to access investment opportunities that are not present domestically. Developed markets like the US are home to some of the world’s largest tech companies – something you cannot access by investing in India.

You may even choose a theme or a combination of multiple sectors. For example, you can prefer the US market for technology, Europe for engineering, and Australia for commodities.

If you are interested in healthcare or pharmaceuticals, there are several options in the US and Europe.

You can access multiple geographies through ETFs. For example, you can invest in German equities through the US-listed EWG ETF or in the Brazilian market through the EWZ ETF.

c. Investment Protection

Another significant benefit of global investing is the protection of investments against fraud and liquidations.

Developed market companies generally have strong regulations that ensure sound corporate governance and severe penalties for market abuse. This protects retail investors from potential scams and insider trading losses.

Remember, capital is always at risk, but many foreign financial institutions, offer protection from seizures and other threats such as liquidation of the broker-dealer. For instance, in the US, SIPC protects investments up to $500,000 if your broker-dealer faces liquidation.

d. Currency Diversification

Investing overseas exposes you to currency appreciation (or depreciation). For example, the USD has been appreciating, on average, between 3-5 percent versus the INR over the last few years.

Emerging markets’ currencies depreciate over the longer term. Interest rates in domestic savings accounts are at a low of 3-4 percent on average.

By investing globally, portfolios have generally had the dual benefit of better markets and appreciating currencies.

Risks of International Equity

a. Higher Transaction Costs

The most significant barrier to investing in global markets is the added transaction cost, which varies depending on the foreign market you want to invest in. For the US markets, for many other markets, access may not be as inexpensive.

There may be additional costs like FX conversion charges, transfer fees, and annual maintenance fees that you should know on top of the brokerage commissions.

b. Currency Volatility

When investing directly in foreign markets, you first have to convert your Indian rupees into a foreign currency at the current exchange rate. Let’s assume you own a foreign stock for a year and then sell it.

You then convert the foreign currency back into the Indian rupee. That could help or hurt your return, depending on which way the domestic currency is moving.

c. Political Risk

While investing, you should also consider the geopolitical environment of the country. Political events affect the domestic markets of the country and may lead to volatility.

In developing markets, government and policy decisions could hurt even the most prominent companies. We have seen this frequently in countries like Brazil and Argentina.

Conclusion

International investing has become the need of the hour to achieve strong portfolio diversification. While the benefits are lucrative, you must pay attention to the risks as well. There is a lot of information available online to measure the risks and ensure your portfolio’s right mix.

Source:- Winvesta

July 20, 2021

Why do you need an investment manager?

It’s a common question among investors who don’t have an investment manager: Why would I pay someone to manage my money? Can’t I do that myself with a cheap, online brokerage platform?

The answer of course is ‘yes, you can manage your own money on any number of brokerage sites.

However, as a professional financial planner and investment manager, I’ve noticed at least 3 reasons why you may want to consider hiring a professional to come alongside and help you with such an important responsibility.

And they may not be the reasons you think.

3 Reasons to Consider Hiring a Professional

First, your investment advisor will help you to continuously and quickly invest cash in your investment accounts.

One of the most common issues with do-it-yourself investing is thinking you can time the market with your cash. Over and over, I encounter clients who have been sitting on cash (to varying degrees) in retirement investment accounts.

Remember, you can’t even get at this money until you are 60 years old. Also remember, if you are 60 years old, you likely have a 30-40 year retirement on the horizon. Compound interest only works when you let it work.

That means keeping your cash invested continuously and quickly and a financial advisor will help you do this.

1. When do things always go according to plan?

Second, an investment advisor will help you stay accountable to the savings and investing goals you set for yourself.

When you are going it alone, it’s easy to make excuses, blow past personal finance deadlines, and feel like you are doing alright when you have one too many blind spots. A great financial advisor will help you stick to your investment plan.

But when things don’t go according to plan, your advisor will help you course-correct and make appropriate changes.

And let’s be honest, when do things always go according to plan? Helping you make adjustments and not simply ignore important financial decisions is what your advisor is there to help walk you through.

2. Making progress, moving forward

Next, your advisor should make you a person of action! With financial decisions, it’s far too easy to push a final decision to the background.

Even once you’ve made a final decision, executing that decision can take weeks, or, more likely, months.

Your advisor not only helps you make the decisions but helps you execute the decision promptly.

Whether you need to re-balance your portfolio, make an allocation change, or review your fund expenses, your advisor helps the action happen.

Put simply, your advisor helps keep you moving forward!

3. Do you have a thinking partner?

Third, your advisor should be your thinking partner when it comes to adding or deleting investments from your portfolio.

Every investor faces decisions from time to time on whether to change a certain investment fund in their portfolio.

How do you know when is the right time to make a change? What is your decision framework for making big investment changes? What is the tax impact of the decision? For most investors, the framework is largely emotional.

Your advisor should be your thinking partner when it comes to investment changes.

A fiduciary financial advisor will be able to help put investment decisions into proper context and bring the decision back to you and your financial plan rather than your emotional opinion of the investment.