Investments :: Various Types of Investments...

In this post let me try and analyse the various investment options that a person can consider and what is the usefulness of each of these. Over the next few posts I will try and examine what a portfolio is, and what is the best way to manage the portfolio.

The various investment options that are available are as follows:
1. Banks (Savings Accounts)
2. Banks and Governement Agencies (Fixed Deposits)
3. Mutual Funds
4. Stocks
5. Commodities and Metals
6. Real Estate

These are the few basic investment options that a person generally has. If you look at then I think we can safely say that the top most items on that list are very safe options and as we come down the risk increases. But at the same time or rather with the risk the profits can also be higher from the options in the lower portion of this list. We can easily classify ourseleves into one of the following two actegories.

a. No Risk No Gain
b. No Risk No Loss

Now you already know to which category you belong to. The first one is a person who is ready to take some risk in return of a potential gain and the second one are people who wish now to risk their money or probably take less risks. Throughout this blog my efforts will be dedicated to help you deduce an investment stratergy for yourself which is specific to the way you think. You can call it to be a middle path between the two situations.

Remember one thing for sure, the idea is to change the general outlook towards money. High income doesnot mean that you are rich or are going to become rich and vice versa. The only thing that can make you rich is your Financial Aptitude. In the next few posts, I would try to analyse each of these Investment tools. We would discuss their pros and cons and then move forward. Another important thing while considering to invest is to save tax. We will throw some light on that as well...

So bookmark this page and keep watching this space....

Are you working for Money?

Is the Answer a Yes? Are you really working for money? Well in that case your situation is not good. Working for money is not what any of the Rich people does. To retire early the first and the most important thing you have to do is to change your outlook about money.

Money is very essential and important; I am not suggesting you to choose sainthood when I am asking you to quite working for money. All I am saying is that you have to change your outlook about money. If you keep on working for money, you will end up having no money. Yes, that’s a truth.

So what needs to be done?
Well the idea that we are discussing here is to retire early, so this obviously means that we want to establish a system of earning money without the need to work. That is what retirement is all about. The retirement I am talking about is indeed financial retirement. So one simple idea is that others work for you; But who would work for you and how?

Well let me illustrate this a little bit. Last week I was going through the local newspaper classifieds section. I have this habit of reading through it every Sunday. I was struck with a few business opportunities, where people wanted money. I read through then and most of them seemed not worth it. But there were two which were quite good. One of them which I really like was like this.

It was from a Company, a rent a Cab Company, which was Limited and were offering an attractive per month income for a one time investment. To be exact they were offering Rs. 4000/- per month for the next five years in return of Rs.1,00,000/- to be invested in them. This comes out to be more than 18% p.a of interest. And the amazing thing was that at the end of the 5 year tenure, they were also offering Rs.70,000/- back.

It appears risky right? There is too much risk in investing in such offers? Is this what you are thinking? Even I used to, but after I have acquired the knowledge of F.I., I am more confident now. I visited the Company’s office, investigated the clients they service (which consisted mostly of Govt agencies) and then decided to invest in them.

And the decision seems to be working fine till now. So am I suggesting that we should start looking for such opportunities? Hmmm, well you can but what I want to impress upon you is that we should actually start looking at money differently.

The first thing to remember is to start thinking positively about money. Changing your job or getting a higher salary is not always going to help to reach your goals. What you need is the right kind of investments. We will look into the various options in the next post…

I plan to Retire at 43? When do you?

Last month I met the Senior Manager of a leading Products company, I was amazed at the financial jargon he threw at me. I was listening to what he was saying, and then he said something that did affect my thinking a lot.

All he said was ... Plan your retirement. Don't let the society decide when you are going to retire instead you decide when you are going to retire. And retire early.

It was quite hard to digest in one go but after pondering a little about it, I began to see the light. The idea is simple enough. Below I have attempted to structure my thoughts in a structured manner.

1. What are the factors that will contribute to your taking the decision of retirement?

a. Your Commitments:
The biggest and the most important factor that will decide when you are going retire are your commitments. In other words I will call these commitments as your liabilities. Sorry, if this offends you in any way but the truth is that all your commitments are financial liabilities. Yes, your kids, family and every other person dependent on you financially is a financial liability.

b. Your Assets:
The second factor is just the opposite of the first one. Assets are things which act as a source of income for you. So the more assets you have the more easily you can counter liabilities.

2. Does your income matter?
Honestly speaking it does not. Even if you have a low or a mediocre income but you have a high F.Q. or Financial Intelligence, chances are that you can retire early. There have been many cases in the history where people like Sportsmen of Film stars, which have had tremendous incomes, have become poor.

3. Savings are okay but they are not good enough.
The rate of inflation right now is much more that what your bank pays as interest, so that means if you are keeping cash in a bank account, you are running chances of actually loosing it year after year. A sum of 1000 bucks this year would hardly be equivalent to 500 in 5 years.

Before I can generalize these ideas, let me tell you how I plan to do this...

1. I have just started my career and am just 23. Considering the fact that I wish to retire at around 43, let me access what my liabilities at the stage would be and what assets I need to create to cover those liabilities.

a. General Monthly Expenses: I talked to quite a few people who are in the range of 40's and are working. On an average the expenditure on the basic necessities which excludes rent and education of children is around Rs.15 - 20k. This excludes any additional liabilities like Cars etc as well. There would be inflation and at that point of time this will grow a lot. But I am not getting into that right now as that will complicate things. Right now what I am going to assume is based on the current stats which are more factual.

b. Loans: Assuming very safely that I would possess a Car for myself and may be another for the family the loan EMI per month can safely be around Rs10 k at the present time. Another thing is a House. At present, I am living in my parent's house. I love it, but at the same time I feel that 20 years down the line I may be living in a bigger house with my parents and my family. So I can safely say that I will have to take a hefty loan for that and the money will amount to an EMI of around 30 k. Again I would like to point out that this kind of a house is more of a liability then an asset as all of us might think. So, it may happen that I don’t have such a liability but as I am right now just preparing myself, its better that I prepare well and for every possibility.

c. Education: Children's Education is another major factor. 20 years from now I would have kids. So I am estimating something around Rs. 15k per month as their education expenses.

d. Recreation: Hmmm... This includes holidays, and other entertainment needs. Let me keep it around 10 k each month (though I believe this is high again by any standards but that's what it is all about living a lavish life after you have retired)

So in all my total monthly liability at that time is going to roughly 85k. Considering what I assume a person at that stage would be paid in the current IT industry, I think I can safely assume that my income at such an age would be roughly Rs.4 million per year (Wow sounds a lot, But remember I plan to retire at this point of time. This means I wish to give up all this income). If I pay my taxes etc properly, this should translate to around Rs. 200K per month. This means a lot more than what my liabilities are.

So the idea is that if I plan to retire at such an age I should be able to collect assets which would give me a fixed income of a minimum 85k per month. I would however love to see that unto around 200K per month, as that would definitely mean my retirement is a good financial decision and would also cover for any contingencies.

So now the problem is clearly laid out before me. And I have to attack the various issues. I have to obtain some assets by which I can start generating some additional income. So in the next few posts here in my blog I will assess the various options that I have and will analyse each one and take decisions accordingly...

Apart from that in the next few posts I will also present before you an entire new way of looking at money and how to invest it.