Wednesday, January 21, 2009

Financial Health Checkup: A must before investing.

Though in many of my previous posts I have stressed on investing in debt and low risk instruments of investment taking care of the present financial scenario, yet there are many traditional investors who think that investment in the securities market is the best option knowing that high risk is involved in it. It is a fact that high return investment options are always associated with high risk. But in this case also we have to take care of many points before investing in such options.It is not always possible to meet all financial goals with available savings. If the savings are limited and the needs are substantial, then one must invest the savings in avenues that would offer high returns. But high returns mean high risk. So what to do??Infact there are various scientific methods by which you can understand your risk profile before investing. Its also known as financial planning or financial health-checkup.

So do your financial planning without anyone’s help and get an idea about your risk taking ability and where to invest before investing.
Your age? (Age is an important factor in deciding what amount of risk to take)
• 25 to 35
• 35 to 50
• 50 to 65
• Above 65

Your position is best described by:
• You are self-dependent and don’t support anybody
• You have dependent(s)
• Nearing retirement
• Retired
How much of the following needs have been taken care of? (Fully, partially, not at all)
• Children’s education
• Insurance
• Retirement
• Housing
What proportion of your current expenses is funded from your investments?
• Nothing
• Upto 15 %
• 15 to 30 %
• 30 to 50%
• More than 50%

Your earnings in the future will:
• Far exceed inflation
• Marginally ahead of inflation
• Keep pace with inflation
• Will not keep pace.

If the price of the shares you are holding falls, then you will:
• Sell all of them
• Sell some of them
• Keep them as it is
• Buy more of them

If you answer these questions and find answers on your own then you will be able to get an idea about your financial standings and what step to be taken. I think everyone must do this financial check up to avoid heavy loses and to go for the right investment path.

Sunday, January 18, 2009

Debt Instruments of Investment: the best investment option.

Millions of investors have incurred heavy loses by the end of 2008 following the 1 year of unprecedented stock market volatility. This has not only shaken the confidence of the investors, but also made the situation worse as many such investors have already withdrawn considerable sum of money from the various instruments where they have invested. But in contrast to this situation, the global bond investors not only managed to escape the loss, but also bagged considerable profits. Now we may think that what is so special in bonds and what is the reason behind its success. Bonds are debts which are issued by the government and companies. When a person is buying a bond he/she is actually lending the money he/she has invested to the government or companies for a certain period of time. Its just like you are lending the money to someone and getting the interest in return. But your principal amount which you have invested or is safe. Taking care of the present financial market condition it is suggestible to invest in bonds as they are the simplest and safest mode of investment. If this is not enough to motivate you then few facts and figures about the bond performance will be enough I think. It has been seen that the global equity funds have fallen by 24% in 2008 but in comparison the global bond portfolio was up by 16%. The Renfield US government bond fund performed very well with a huge growth of 58%.Quite strange yet a positive indication to the investors. The list doesn’t come to an end. There are other players too. The SWIP global bond fund experienced a growth of 53%, Henderson overseas bonds experienced a growth of 49 %. Now if you are wondering that what is the reason behind this success story inspite of this global financial turmoil, the answer is huge currency fluctuations. Besides the reduction in interest rates has helped in pushing the prices return up. It is really a positive indication to the investors. Besides, people who have just started to invest or already invested in few stocks and incurred losses, must shift to bond investments and its times to balance your portfolio. Often people underestimate bond investment looking at the return or performance in comparison to the stock investment. But Bonds I feel are the safest and best instrument to invest in, taking care of the present market scenario. In matters of investment, “slow and steady always wins the race”.