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 M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, 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. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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You Can Be Rich Too with Goal-Based Investing

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  1. In the hindsight I reached the first milestone in 11 years. But took another 5 years to went past next 3 milestones. When you start from 0 it is difficult but once you have money it makes more money. Of course salary increments help too.
    May be once you reach that stage, you can keep the same targets but for a particular bucket. Like my retirement equity should be that amount then retirement debt should be that much.
    Or if I reanalyze my term insurance need that itself might have increased and so the targets are not reached after all.

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