Money Management: Taking it to the next level

So, you have term insurance, health insurance, emergency fund, understand the need to beat inflation and have started investing towards that. Congratulations, you have reached the base camp! The summit still has to be climbed! Here are some ways to take money management to the next level.

In the recently concluded Chennai investor discussion meet, I was pleasantly surprised to find that the audience was quite knowledgeable and wanted to discuss beyond the basics.

Only three people in a group of 50+ did not have a term plan! None of those three needed one! They knew about asset allocation, goal-based investing, how much to expect from equity and the like!

To me, this is a clear indication that with each passing day, more and more investors are ready to move from money management 101 to 202.

Here are some steps to take money management to the ‘next level’

1. Define and document your investment strategy

• I am investing for  X, Y and Z goals.
• I am investing in A, B and C asset classes for these goals.
• I am aware of the risk vs reward profile of these asset classes.
• I will not invest in any product I do not understand.
• I do not need any other product for my goals
• I review  my investments with personalised benchmarks and not because someone said something, somewhere
• …..

2. It boils down to attitude

Once the basics are covered, and a clear investment strategy is laid down, it boils down to attitude.

• How calmly do we handle (read, ignore) the .. er .. “information” from social media, media, crap blogs like this etc.
• How strongly do we believe in our strategy? Do we throw it out just because someone claims it is all wrong and will not work, or do stick to our guns?

3. Defining expectations

It is important to define our goals. It is even more important to define our expectations. Wanting the ‘best’ return or mutual fund is plain immature. Expectations w

Expectations have to be quantified. For eg.  “10-12% return from equity will make me happy”

Clarity hones attitude.

4. Quantifying risk

Learning never stops. We naturally learn how to quantify the growth of our investments – CAGR, XIRR etc.

The next step is to quantify the risk associated each of our investments and the portfolio.

Related tasks:

What is a risk-adjusted return?

Quantifying Portfolio Diversification

5. Learning to review investments

Our investments have to be reviewed with our benchmarks. Here are some posts on the subject that maybe of help:

How to Review Your Mutual Fund SIPs

How to review a mutual fund portfolio

Basics of Personal Portfolio Management

Simple Steps to De-risk Your Investment Portfolio

6. Learning to review goals

At least once a year, we need to know ‘where we stand’ with respect to our financial goals:

What is the current worth of my retirement corpus or my child’s education corpus? These questions can be answered without worrying about current returns.

Review Your Financial Freedom Portfolio in Seven Easy Steps

How to track financial goals?

You may also consider using this

Google Spreadsheet for tracking progress to financial freedom