Wealth Management

Financial security means different things to different people. What does it mean to you?

  • Enough money to pursue your dreams?
  • Paying for your children’s college education?
  • Paying for a wedding, family trips or a vacation home?
  • Early retirement? A retirement with the same lifestyle or better than what you currently have?
  • Being able to leave a legacy to your heirs or favourite charity?

 

Whatever financial security means to you, it begins with a plan for accumulating wealth, which can be called Financial Planning. The longer you wait, the harder it will be to find the money you’ll need to set aside to meet your goals for wealth accumulation. Most people think only of investments when they think of financial planning. Some also feel it has to do with mutual funds and insurance or maybe even stocks. Honestly neither of it is fully true. Financial planning is all about channelizing your financial resources (income and wealth) towards your financial goals.

Two sources of income

As an individual/family, you have two sources of income:-

  • Income generated because of you being a ‘human capital’. All of us who work for money are human capital. A worker works so s/he earns salary.
  • Second source of income is from your financial and real capital.

The trick is to maximise the second source, since for most of us, there isn’t much that we can do about the first one.

Wealth Accumulation Strategies

Start with the following two fundamental principles for a successful wealth accumulation program:-

Save at least 20%, preferably up to 35%, of your earnings consistently and throughout your earning years.

  • Examine your spending. Write down every rupee you spend for one month. Where can you cut back?.
  • Reduce your debt. You can save hundreds — even thousands — of rupees in interest every year by consolidating debt and paying off high-interest debt as soon as you can.
  • Pay yourself first. Save or invest at least 10% of your earnings each month.
  • Take advantage of tax-deferred savings through ELSS (Equity Linked Savings Scheme) Mutual Funds, term insurance products etc.

Develop a sound investment strategy and stick to it over the long term.

  • Determine your long-term investment goals. Where do you want to be 10, 20, or even 30 years from now?
  • Determine your time horizon. How much time does your money have to grow before you need it? Don’t forget to factor in the impact of inflation.
  • Assess your risk tolerance. Are you willing to ride out fluctuations in the value of your investments in order to achieve higher long-term returns? Or do you need to see regular and steady growth, with perhaps less fluctuation in return? There are plenty of good avenues available for saving, whichever path you choose.
  • Diversify your money among different kinds of investments, a process known as asset allocation.
  • Invest regularly through a process known as rupee-cost averaging (RCA). The idea is to invest a constant rupee amount at regular intervals. By doing so, you even out the cost of your investments over time. However, do not misunderstand it – it is not a good idea to do RCA when your investment is losing money due to inherent weakness of its quality.

Consider Rupee Cost Averaging

With a rupee cost averaging feature working for you, you enhance your possibility of reducing the effects of market fluctuations. Instead of trying to determine the ‘right time’ to invest, rupee cost averaging enables you to invest systematically over time. This is a commitment to invest a set amount of money, generally every month, and sticking to it regardless of market activity. While this doesn’t ensure a profit, or necessarily protect against loss in a declining market, it can help smooth out the highs and lows of volatile, market-based performance to help maintain your individual investment objectives and risk level. Because RCA involves continuous payments over a period of time, you must consider your ability to make payments in a fluctuating market.

Regular Monthly Investment Unit Value No of Units Bought
Rs 1,000 Rs 5.00 200
Rs 1,000 Rs 15.00 67
Rs 1,000 Rs 10.00 100
Rs 1,000 Rs 15.00 67
Rs 1,000 Rs 25.00 40
Rs 1,000 Rs 8.00 125

 

Total Investment Average Price Per Unit over 6 months’ time YOUR Average Cost due to RCA
Rs 6,000 Rs 13.00 Rs10.02

 

What is the role of a financial planner?

Some people believe that the sole purpose of Financial Planners is to provide advice on investments. This is not true. Accountants, share brokers and other professionals can give you advice on some specific aspects of your financial and investment requirements. The role of a qualified Financial Planner is to look at all aspects of your lifestyle, goals and requirements and develop a financial strategy suitable for you. The recommended strategy should help you reach your goals effectively and efficiently.

At Hum Fauji, we concentrate on the task of providing sound strategic and technical advice on an ongoing basis. The Statement of Advice includes areas like cash flow management, insurance, estate planning, risk and return assessment, strategic asset allocation, superannuation, taxation and all other issues that impact your financial strategy. The SoA is a strategic and technical guide to any financial decisions you make. Specific investment recommendations form only a part of the complete SoA. Any changes in your goals, lifestyle and circumstances should be reflected in your SoA. As professional Financial Planners we regularly review your financial strategy with you to ensure that all such changes are incorporated.

It is important to understand that there will always be risks when it comes to investing your money. The goal is to effectively manage the risk. No one can ever guarantee beyond any doubt that the value of your investments will never decrease. What a good Financial Planning organization like HumFauji Initiatives can do is put processes in place to manage the risks.

So, convinced that you need us, the special financial planning firm which has only one objective in its mind – YOUR FINANCIAL WELFARE?!

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Team HFI Wealth Creators is on a mission to defend the wealth of armed forces personnel.