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
You may also consider using this
Google Spreadsheet for tracking progress to financial freedom
Create a "from start to finish" financial plan with this unique open-source robo advisory software template
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About the Author
M. Pattabiraman is the co-author of two books: You can be rich too with goal based investing and Gamechanger. “Pattu” as he is popularly known, publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis, including a robo advisory template for use by beginners. Contact information: freefincal {at} Gmail {dot} com He conducts free money management sessions for corporates (see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints.Content Policy
Freefincal has original unbiased, conflict-of-interest-free, topical reports, reviews, commentary and analysis on all aspects of personal finance like mutual funds, stocks, insurance etc. All guest authors and contributors to the site also do not have any conflict of interest. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. No promotional content. We do not accept sponsored posts and link exchange requests from content writers and agencies. This is our privacy policy Our website is non-profit in nature. The revenue from the advertisement will only be used for hosting charges, domain registration charges, specific plugins necessary for traffic growth and analytics services for search engine optimisation.Connect with us on social media
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Do check out my books
You Can Be Rich Too with Goal-Based Investing
My first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
My second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earnerThe ultimate guide to travel by Pranav Surya
This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for ₹199 (instant download)Free Apps for your Android Phone
All calculators from our book, “You can be Rich Too” are now available on Google Play!Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)
In truth once you’re set on the path, there’s really no need to optimize it to the micro level. You run to catch the train, but once you’re on the train, stop running, settle down and think of other things in life. The destination will arrive, sooner or later, all you have to do is just be on the train.