Why term insurance is not enough + Which equity mutual fund to choose first + How to define a financial goal

Published: August 4, 2018 at 8:19 am

Last Updated on

This weekend, we discuss three important questions: (1) Why term life insurance alone will not protect your family (2)  A beginner question: Which equity mutual fund should I choose first? (3) How to define a financial goal – part one.

If you have not heard my Paisa Vaisa podcast, go give it a listen. This is part one. Part two is coming up. Why we need to forget about “pension after retirement” & focus on “financial freedom” – Paisa Vaisa Podcast Part 1. Do share it with those who have not yet thought about retirement.

Also, do check out Lazy Investing: Five Test Stock Portfolios Aug 2018 Update I am currently working on three different ways to list “good stocks”. Watch this space.

Why term life insurance alone will not protect your family

A term insurance cover is subject to inflation risk. A once crore cover can halve in value over a decade. So it is important to start investing early, investing right and investing as much as possible.

Give yourself 10Y to reach a net worth of 50% of your life cover. So invest at least 60% of what you can in equity. With some luck, you can make it.

Here are 3 personal finance milestones to conquer: liquid net-worth = 50% of term life cover ===> liquid net-worth = 100% of life cover. The equity portion of net worth ====> 100% of life cover ====> Fixed income portion ===> 100% of life cover.

As an example: Suppose you start with no net worth and one crore life cover, give yourself 10Y to have a wealth of 50 lakhs (50%). Another 5-10Y to make that one crore (100%). Then your equity holdings should become one crore and then your fixed-income holdings.

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With aggressive investing, I was able to achieve this within 10Y (don’t get ideas, my life cover is < 1 crore). You can too. All it takes is time and non-interference.

Read more: Things to do AFTER you take a term insurance policy!

Plus: Things to do AFTER you buy a health insurance policy

Which equity mutual fund should I choose first?

This is a question that has multiple “right” answers. I had written a slightly different version here: what should be my first mutual fund? To the funds mentioned, you can also add Franklin Balanced fund (now called Franklin Hybrid Equity Fund)

How to define a financial goal – part one

If you wish to start managing your money from scratch, then download this free e-book: Re-assemble

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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