Importance of investment vehicle in a financial plan.

If you can’t fly, then run, if you can’t run, then walk, if you can’t walk, then crawl, but by all means keep moving.

– Martin Luther King Jr.

Life is a journey and so is our financial life. In order to ensure a good financial life it is imperative that we choose vehicles which suit us, which we are comfortable with.

Every individual has different risks, liabilities, dreams so their goals will be different and accordingly they would choose the financial plan for themselves. One of the most important part of financial plan is the type of investment we choose. Let’s explore this by the following example.

You might use a flight for travelling from Mumbai to Bangalore, but if you are travelling to Pune then you will use either a cab or Bus. Even though you might like flights you don’t use them for short distances or vice a versa you won’t use buses for long distances.

So, based on your destination (read goal) you choose the mode of transport (read investment type or vehicle) then why not follow similar process for your financial planning. Your goal should decide which investment vehicle is to be used – Equity, debt, gold, real estate.

You shouldn’t get obsessed with your investment (vehicle), the moment you reach your goal you should get out of them. It’s like a train it will keep moving, you need to get down at your station.

Investing is a lot more than financial analysis, it has a lot to do with the behavioral part as well. If you cannot control your behavior (reactions) then no matter which vehicle you choose it would be difficult to reach your destination.

When you travel to new destinations, you might research on all the available information and plan your journey or you might consult a travel agent. Similarly, in your investment journey you need to put in a good amount of time in researching. And if you are not skilled enough to do this then you should hire a good financial planner.

“The rich invest in time and the poor invest in money”   - Warren Buffet. 

What to do with a start-up idea?

So, you have got your multi-million dollar start up idea, what do you do now.

What next?

Ideal step would be start its feasibility study and prepare for implementation or creating a business plan, but there is a small crucial step in between which is very important.

The step is to validate whether you are suitable for this idea. Yes, you want to execute this idea but does this idea want to be with you, it is equally important.

What if you end up leaving this half way or give up. It would be de-motivating for you and might hamper your confidence in implementing any such idea in future.

So, how do you make sure you are meant to work on this idea, ask yourself below questions.

            1. Is this something I can do every day?

If the answer is an honest Yes, then probably this is your calling. It is the ideal thing the thing that could be called your passion. And when you do something that you love doing then success will follow.

            2. Have I been able to sell this idea to my family, friends.

The important part here is to understand if you can sell it to your family & friends that means they will be supportive of your idea. This support will help you tide the vagaries of business world.

            3. Have I already started seeing multiple opportunities through this idea?

Are you getting impatient not only with your idea but the numerous other growth opportunities that you are seeing. If yes, then this idea will definitely lead you to some profitable venture. There have been occasions when you start with one idea but end up creating a business of some other idea, the crux here is to look out for profitable opportunities.

           4. Would I venture into this idea even if I did not get paid for?

Don’t worry rarely would anyone venture into something that does not pay, but if you enjoy doing something then you might be satisfied with whatever you earn out of it. This would ensure that your business will have a purpose, a purpose of making you feel happy every day.

           5. Is this idea so exciting that nobody can talk me out of it?

Now, this is an important part and a “Definitely Yes” is required here. If on every challenge or snag you start getting thoughts of quitting it or considering it as an impossible idea to implement or generate revenues. Then you need to sit back and re-think, re-visit your initial discussions / excitements..

If possible keep a written record of the purpose for starting this, the energy that you have right now will keep motivating you later on.

If your answer to all the above questions is a ‘Yes’ then maybe you can call this as your ‘Ikigai’ and should pursue it. Even if it is not an Yes for all do not worry as the entrepreneurial journey will reverse a lot of answers, keep your purpose in black & white in front of you to ensure you stay on course.

Bon Voyage J

Can't stop trading!!!

Earned a lot of money through trading...lost a lot through it...realized it's not worth the time and effort but still can't get over it...

Just can't keep our eyes off moneycontrol, the red / green color gives us a different feeling. Then comes the temptation of trading few shares in cash market what harm could it do. This marks the beginning of our trading adventure leading to little bit of options, little bit of futures and eventually a lot of money being lost.

So what is it that draws even savvy investors  towards trading, why can't we simply stay away from it.

1. The instant gratification.

It's difficult to completely get out of this but trading with around 2 - 3 % of your corpus or a fixed amount which you can afford to lose should be used.

BUT MAKE SURE THAT THIS AMOUNT SHOULD NEVER INCREASE WHATSOEVER.

2. Creating a corpus for investing.

If somehow you manage to create a corpus for investing through trading, one day you 'll end up selling a portion of your portfolio to cover up the losses incurred by trading.
Historically, you would be better off investing your small savings rather than trying to create a bigger corpus via trading.

3. Making it a secondary source of income.

This can be done only by professional traders. A lot of effort / practice is required. Those having jobs out of stock market should refrain from this.
It appears simple but the moment you understand how difficult it is to earn continuously by trading it would already have been too late.

If your speculative instinct gets better of you then the below quote of Benjamin Graham should always be remembered...

"By speculating instead of investing you lower your own odds of building wealth & raise someone else's."

Making millions through savings and Debt instruments..?

"How many millionaires do you know who have become wealthy by investing in savings accounts or debt instruments? I rest my case."

Though investing in a savings account is a sure bet, your gains will be minimal or probably negative given the extremely low interest rates and high inflation. But don't forgo one completely. Each instrument has its own importance. You can succeed as an investor only if you know the strengths of your players well. The players in the game of investment are the various instruments like savings account, debt, gold, mutual funds, equity etc.

A savings account is a reliable place for an emergency fund, whereas a market investment is not. Each player should be a part of your team, the challenge is not about whether you have them or not, the real challenge is in using them or putting them to play at the right time. Being brought up in a cricket crazy country i would conclude saying that you can compare debt instruments to a certain Rahul Dravid and the equity investments to Sachin Tendulkar or probably a Virender Sehwag. You need all three of them to form a strong team that can perform consistently in any given environment. 

Have I stopped listening to stock analyst....?

"If stock market experts were so expert, they would be buying stock, not selling advice."
                                                                                                    - Norman Ralph Augustine 

Probably selling stock ideas to investors is the most easiest thing to do. And our fascination towards  earning a quick buck makes this job even easier for them. Most of the analyst and brokers that I have heard on the television always prefer to swim with the tide i.e. their views change with the market conditions.

After each show the disclaimer of these analysts is that, " I have no personal holdings in the stocks that were discussed or recommended". It is like someone saying that the food of this restaurant is the best though I haven't ever tasted it. Probably this could be a way in which the big fishes of the market get out and the small fishes like us get trapped. The discussion on the ulterior motives of these individuals might go on, but we aren't concerned about it. We are more concerned on how can we avoid falling in such traps.

We all know the solution to this problem - Market Research. It sounds like a lot of work, but trust me we just need to start. It is a lot simpler than it appears, you just need to dedicatedly invest time in understanding the basics of investing. Once you get the basics, probably you would be in a position to eliminate 50% of the analyst's advice. The point to be noted over here is the classic marketing strategy of knowing your target audience, if you know that the people whom you are passing on the advice are actually illiterate in investing than you probably don't need to come up with some extraordinary idea to fool them.

So, start studying how market works by exploring the power of search engines and not your television. In my upcoming posts I will recommend some links and books for studying investments.

Stay updated, happy investments ;)