"The 10 commandments of investing" written by Prof. Parag Rijwani Thought it would be of interest to those who have not seen it before (he posted it a few months backin a FB Post)
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This is what I wrote to a past student sometime back. He has recently started his career and is posted abroad on company’s projects. The 10 commandments!
1. Create an emergency fund that can meet your expenses if you remain unemployed for 5-6 months. Part of this should be kept in savings bank account and remaining in an e-fixed deposit that is done through net banking. These can be withdrawn anytime without any charges /penalties.
2. Take a TERM INSURANCE for yourself as soon as you have a financial liability to meet. Comprehend that if you don’t have financial liability, YOU don’t need insurance. NEVER buy any other life insurance product because one should not mix two spirits. Cheers!
3. Increase the Term Insurance cover by taking newer/additional policies as and when you financial liabilities/future goals emerge. Like after getting married, having kid(s), parents getting retired, borrowing loan(s) etc. Always buy it online by disclosing ALL details CORRECTLY. Hiding anything may defeat the purpose resulting into claim rejection i.e. if you enjoy Chivas Regal, disclose it!
4. Take a medical insurance immediately! (even if you have a cover from your employer). Take a family floater that covers your present and future dependents (if any). Search for a product called Max Bupa. Read more on this before buying.
5. Equity (read again, ONLY equity) can give you inflation beating returns (real returns) in long run. So stay invested in equity till the time you need money in your life. Invest in direct equity (i.e. stocks) ONLY if you have time and skill to spot next Wipro, HDFC etc. I know a few who read 50 annual reports and invest in 4-5. If you can’t do this and/or can’t spare time, share 2-3% with Mutual Fund manager. 2-3 mutual fund schemes are sufficient to make a GOOD portfolio. The more NOT the merrier!
6. Debt is a very crucial part of your portfolio. Instruments like PF, PPF, Bonds, FDs etc. are few to list. Most of them are tax inefficient and illiquid. I am lucky to have a decent contribution to PF so I have conveniently and completely PPF. Find out what suits you.
7. Do NOT buy Real Estate and Gold beyond your consumption needs i.e. they do not find a place in you ‘investment’ portfolio. If my father had not bought the present house that I reside in, I had stayed in rented house ALL my life.
8. Use of credit card should be prudent. I use credit card for virtually EVERY expense that I incur. But in the past decade I have NEVER defaulted on paying the full bill before the due date. CIBIL score (google it if you hear this for the first time).
9. Learn to live a frugal lifestyle and simple eating habits. Do not overboard on lavishing habits. Do NOT buy things that you really don’t need. Invest in your health. Invest at least 40% of your take home salary every month. Investing is like a habit, cultivate it!
10. Spare time to learn personal finances. No agent can make YOU rich. You must take charge of your finances ASAP. Read about personal financial planning (books, blogs, articles but don’t get carried away) and talk about it with people who can add to your knowledge. There is EQUAL amount of financial PORN out there!
Abhi ke liye itna kaafi hai, shayad!
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This is what I wrote to a past student sometime back. He has recently started his career and is posted abroad on company’s projects. The 10 commandments!
1. Create an emergency fund that can meet your expenses if you remain unemployed for 5-6 months. Part of this should be kept in savings bank account and remaining in an e-fixed deposit that is done through net banking. These can be withdrawn anytime without any charges /penalties.
2. Take a TERM INSURANCE for yourself as soon as you have a financial liability to meet. Comprehend that if you don’t have financial liability, YOU don’t need insurance. NEVER buy any other life insurance product because one should not mix two spirits. Cheers!
3. Increase the Term Insurance cover by taking newer/additional policies as and when you financial liabilities/future goals emerge. Like after getting married, having kid(s), parents getting retired, borrowing loan(s) etc. Always buy it online by disclosing ALL details CORRECTLY. Hiding anything may defeat the purpose resulting into claim rejection i.e. if you enjoy Chivas Regal, disclose it!
4. Take a medical insurance immediately! (even if you have a cover from your employer). Take a family floater that covers your present and future dependents (if any). Search for a product called Max Bupa. Read more on this before buying.
5. Equity (read again, ONLY equity) can give you inflation beating returns (real returns) in long run. So stay invested in equity till the time you need money in your life. Invest in direct equity (i.e. stocks) ONLY if you have time and skill to spot next Wipro, HDFC etc. I know a few who read 50 annual reports and invest in 4-5. If you can’t do this and/or can’t spare time, share 2-3% with Mutual Fund manager. 2-3 mutual fund schemes are sufficient to make a GOOD portfolio. The more NOT the merrier!
6. Debt is a very crucial part of your portfolio. Instruments like PF, PPF, Bonds, FDs etc. are few to list. Most of them are tax inefficient and illiquid. I am lucky to have a decent contribution to PF so I have conveniently and completely PPF. Find out what suits you.
7. Do NOT buy Real Estate and Gold beyond your consumption needs i.e. they do not find a place in you ‘investment’ portfolio. If my father had not bought the present house that I reside in, I had stayed in rented house ALL my life.
8. Use of credit card should be prudent. I use credit card for virtually EVERY expense that I incur. But in the past decade I have NEVER defaulted on paying the full bill before the due date. CIBIL score (google it if you hear this for the first time).
9. Learn to live a frugal lifestyle and simple eating habits. Do not overboard on lavishing habits. Do NOT buy things that you really don’t need. Invest in your health. Invest at least 40% of your take home salary every month. Investing is like a habit, cultivate it!
10. Spare time to learn personal finances. No agent can make YOU rich. You must take charge of your finances ASAP. Read about personal financial planning (books, blogs, articles but don’t get carried away) and talk about it with people who can add to your knowledge. There is EQUAL amount of financial PORN out there!
Abhi ke liye itna kaafi hai, shayad!
