50 Ways to Improve Your Finances in 2013

Along with a fresh start, the New Year brings uncertainty about changing tax laws, growing concern over online privacy and security, and challenges for almost every demographic group--even the wealthy, who face steep tax increases. To help you get ready to tackle your own money goals for 2013, we gathered our best advice from the past 12 months and organized it into 50 bite-size steps:

1. Be a year-round discount shopper

Specific holidays used to loom large in the world of coupon hunters, who expected to see massive discounts on July Fourth, Labor Day, Black Friday, and other big shopping days. But recently, that's been shifting as retailers are offering sales all year long, and often at unexpected times. In 2012, for example, retail experts noted that Christmas sales started in October, and continued all season, partly in response to customer demand. That means shoppers should always be on the lookout for the best deals, regardless of the calendar date

2. Ask for what you want

As the economy recovers, retailers are eager to pick up the biggest share of consumers' spending what they can, and in some cases, that means adopting more flexible pricing policies. Towards the end of 2012, several big-box stores, including Target and Best Buy, launched temporary price-matching policies. That trend could continue into 2013, which means customers can be more assertive about asking stores to match prices they find elsewhere

3. Coordinate budgeting with your partner

Much stress can come from disagreeing with your spouse or partner about how you should be spending shared income. Indeed, in author and yoga teacher JoAnneh Nagler's case, it even contributed to divorce. But she and her husband were able to reconcile (and remarry) when they jointly agreed to a disciplined debt-free lifestyle. By scaling back on restaurant meals and other splurges, they're able to invest in what they really value, including their creative pursuits and romantic weekend getaways

4. Pay off debt slowly

When you've built up a sizable amount of debt, it's virtually impossible to pay it off overnight, and attempting such a feat can be frustrating. That's why Nagler, who had $80,000 in credit card debt at one point, urges fellow debt-strugglers to go slowly. First, she changed her spending habits and set up individual savings accounts for each of her goals. Once she got those costs under control, she started paying off her debt

5. Prepare for tax changes

Tax rates are likely to rise for many Americans next year, especially high-earning ones. To lessen the stress from those changes, taxpayers should adjust their spending and saving habits as early as possible to prepare to hand over more cash to Uncle Sam. Taking advantage of any credits and deductions, as well as putting more money into tax-advantaged retirement accounts, can help ease the impact

6. Calculate your retirement number

Just 1 in 10 Americans have done the math to figure out how much they need to save for retirement, but it's an essential step in making sure there's enough cash for those much-deserved golden years. Financial advisers generally recommend saving enough to replace 80 percent or more of your income; that means someone who earns $80,000 should probably save around $2.1 million. Online retirement calculators can crunch the numbers for you

7. Make better retirement choices

Paying high fees, choosing portfolios that are overly conservative (or overly risky), and failing to update or even check on those investments on a regular basis are just a few of the common mistakes people make with their retirement accounts. To avoid missteps, employees can often rely on free services offered through their company's human resources department or retirement services provider. Fidelity, for example, offers free seminars and online information to clients

8. Save a quarter of your income

Alicia Munnell, director of Boston College's Center for Retirement Research, cautions that putting aside 9 percent of your income into a retirement account is "grossly inadequate." Someone who starts saving at age 35, plans to retire at age 67, and expects a 4 percent return, for example, needs to save double that, even after taking Social Security into account. Other financial experts recommend saving as much as one-quarter of your income, in both retirement and after-tax accounts, to make sure you're fully covered

9. Make it automatic

If manually shifting money into savings and investment accounts is too time-consuming or too painful, consider setting up automatic deposits. Many banks make it easy for customers to do that, and, in fact, might even offer rewards for doing so. Wells Fargo, for example, waives monthly service fees on some of its accounts when customers set up recurring automatic transfers

10. Leverage your credit card

If you pay off your credit card bill each month and earn rewards for your spending, don't forget to cash in on them. The biggest bang-for-buck often comes from purchasing retailer-specific gift cards, which have been pre-negotiated by card companies. Farnoosh Torabi, financial expert and television personality, recently picked up an Apple Macbook Air with her points, which she also uses to buy gift cards for family members.

11. Find your perfect piece of plastic

If your credit card isn't meeting all your needs, it might be time to find one that does. Comparison websites such as nerdwallet.com, indexcreditcards.com, and creditcards.com make it easy to compare the benefits of different cards to figure out which one suits your needs. If you carry any sort of balance, there's only one factor to focus on: finding the lowest interest rate

12. Upgrade your bank

Bank policies can vary widely, from offering above-average interest rates on savings accounts to making it easy to budget online with extra tools. Consider your own lifestyle and then find the bank that best matches it. If you travel a lot, you probably want a large bank with thousands of ATMs throughout the country (and beyond). If you're trying to save more, then you might want to focus on the savings rates

13. Demand more from the one you have

Customers are increasingly voting with their feet and switching banks when they're not happy with their current one. That also means customers have more leverage to ask for the changes they want from their current bank, as banks struggle to retain loyal customers. If you want lower fees or a higher interest rate on your savings account, ask your bank what they can do for you--they might be able to offer you a better deal than the one you're currently getting

14. Consider a credit union

Frustration with banks' policies, such as new fees, has motivated thousands of customers to jump ship and join credit unions, according to the Credit Union National Association. It can be a good decision, especially considering that credit unions often offer higher interest rates on savings accounts as well as lower fees and lower rates on auto loans and mortgages. They also prioritize spreading financial literacy to their customers

15. Get a raise

Just because the economy's struggling to make its big comeback doesn't mean you have to delay asking for a raise. Certified financial planner Lauren Lyons Cole suggests first checking out salary-comparison sites, such as Payscale.com and Salary.com, to see if your own income is out of whack with that of your peers. If it's lower than it should be, review your accomplishments and present them to your boss, along with a request for a raise

16. Earn more money on the side

The lack of job security these days has inspired many Americans to pick up a second stream of income by moonlighting. According to the website Payscale.com, the highest-paid moonlighting gigs are in law, clinical psychology, senior copywriting, and information technology security. Freelance website Elance.com predicts that the trend toward freelancing, especially in the creative-services sector of the economy, will only grow throughout 2013

17. Manage your time better

When people juggle more than one job, they can quickly feel overwhelmed with responsibilities. Veteran job-jugglers say they survive by staying organized, waking up early, and avoiding time-wastes such as television. Many also work on the weekends and some even take a sabbatical from their day jobs to focus exclusively on their second job for a few months

18. Take advantage of your HR department

When you land a new job, the human resources department can help you sign up for all of the new benefits, from flex spending accounts to health insurance to retirement accounts. Signing up for retirement benefits as soon as possible can pay off later: The earlier you start putting money away, the sooner it can start growing. TD Ameritrade calculates that saving $100 a month between ages 21 and 41 will create a nest egg of $471,358 by age 67, assuming a return of 8 percent per year. Waiting until age 41, however, will generate just under $60,000

19. Prepare to earn less after 40

If you want more motivation to ramp up that side income in 2013, here it is: In most professions, income stops rising around age 40. Payscale.com reports that in many professions, you earn quickly in your twenties and thirties as you become more valuable. Then around mid-career, you plateau, and as a result, salary increases slow down. (Certain careers, including those in law and high-tech, are exceptions.) One way to make up for that loss is to earn more money outside your full-time job

20. Burnish your entrepreneurial skills

According to a survey by Generation Y research and consulting firm Millennial Branding, 1 in 3 employers want their employees to have entrepreneurial experience. Knowing how to conceive, build, and promote a business idea is increasingly valuable in the new economy, even for those seeking more traditional jobs.

21. Learn to cook

Replacing take-out and restaurant meals with home-cooked goodness can save you hundreds of dollars throughout the year. If you feel hesitant in the kitchen, a few hours with the Food Network or browsing foodie blogs will help get you in the mood. Investments in certain tools, such as cookbooks, immersion blenders, or quality pots and pans can also make the kitchen more enticing after a long day

22. Invest in your home entertainment system

If you're a movie buff, you have a lot of new choices that are cheaper than seeing movies in the theater. Hulu Plus, Apple TV, and Roku are among your relatively affordable options, especially when you consider how much you'll save by skipping weekly trips to the theater

23. Focus on home improvements that pay off

Leaky windows and attics can drive up heating bills in the winter and cooling bills in the summer. Consider investing in insulation as well as a programmable thermostat, which can cut energy costs by 30 percent over the year. Smart power strips, which cut power to electronics when they're off, can also help reduce electricity costs. LED lights are another smart option

24. Give better gifts

Do you know what people really want for holidays and their birthdays? Money or gift cards. It might sound impersonal, but a survey by Discover found that such fungible items top wish lists for both men and women. In fact, the National Retail Federation went so far as to name gift cards as the hottest gift of 2012, because they've grown so much in popularity. The fact that fewer cards come with fees and many offer extra loss protection has also contributed to that trend

25. Get to know the holes in your homeowners' insurance policy

The worst time to discover that your homeowners' insurance policy doesn't include reimbursement for water damage is right after a flood. Yet many homeowners don't understand the ins and outs of their policies, which can lead to nasty surprises. In fact, most standard policies don't cover earthquake damage, flood damage, or water damage from sump pump backups. (Homeowners have the option of adding supplemental coverage to handle these scenarios.)

26. Protect your online identity

The past 12 months have seen a series of high-profile security breaches, including at Zappos and Barnes & Noble. To make sure you're as protected as possible, consider changing your passwords regularly, reviewing bank account statements each month to check for errors, and being especially wary of hyperlinks to deals promoted over social networking sites. Hyperlinks embedded within emails should also be treated with suspicion

27. Stop before you shop

When you're surrounded by advertisements and material temptations, it's easy to buy without thinking. But one organization, Jews United for Justice, urges people to first ask themselves a series of questions about the purchase. The questions include: "Is this something I need?" "Can I borrow, find one used, or make one instead of buying new?" and "Will this purchase enhance the meaning and joy in my life?" The group distributes credit card sleeves with the questions to encourage more thoughtful spending habits

28. Ignore official-looking (but dubious) solicitations

It's one of the most common scams around: A company poses as an official government agency in order to solicit your attention (and funds). It might send out mail that's covered in intimidating warnings, such as "$2,000 fine, 5 years imprisonment, or both for any personal interfering or obstructing with delivery of this letter." But they're really just trying to sell you something you probably don't need. The Federal Trade Commission calls the practice outrageous and says it's illegal to falsely suggest something bad will happen unless the recipient asks quickly. The bottom line: Ignore such solicitations

29. Donate for free

You don't have to be rich to be charitable. Consider donating your blood, gently used books and CDs, and your time this year. For extra power, get together with friends to form a giving circle, so you can leverage your dollars and give to causes together

30. Learn how to talk about money with your kids

Parents are famously awkward when it comes to talking about money. A T. Rowe Price survey found that just half of parents talk to their kids about savings goals and spending and savings trade-offs, and even fewer discuss higher-level concepts such as inflation and investing. But research routinely suggests that parents play a powerful role in how kids handle money as adults, so if you have children, try to get over your awkwardness to share some important life lessons this year.

31. Protect your money from your children

Baby boomers have been generous toward their adult children, inviting them to move back home and offering them direct financial support. But often, that kind of generosity hurts parents' own retirement nest egg. In fact, even the parents of two Olympic gold medalists, Gabby Douglas and Ryan Lochte, revealed major financial troubles of their own. Before putting their own financial security at risk, parents should consider whether they can really afford the help they're offering

32. Use technology to ease those conversations

If you're struggling to explain the concept of limits to your children, there's an app that can help: "Can I Buy?" designed by the husband-and-wife team behind the Massachusetts-based developer Sqube. After crunching some numbers for you, the app tells you whether or not you can afford that purchase that you're considering. The creators themselves got the idea when they were trying to explain to their young daughter why she could not buy a new toy

33. Take advantage of other new online money tools

A new website, SmartAsset.com, hit the Web this year, and it's a useful one: It helps users make complicated personal-finance decisions, such as whether they should buy or rent, or which mortgage to take out. If you're looking for some help with number-crunching, the site could be the one for you. Mint.com is another useful site for budgeting and getting organized

34. Check your Social Security benefits

Since the Social Security Administration stopped sending out paper statements via snail mail each year, you might be missing your annual estimate of just how much Social Security income you're likely to receive in retirement. But there's an easy way to get that information: Visit socialsecurity.gov/mystatement to see your earnings history and projected future benefits. More than one million people have already done so

35. Be an alpha consumer

Jon Yates, the official problem-solver at the Chicago Tribune and author of What's Your Problem? Cut Through Red Tape, Challenge the System, and Get Your Money Back, says persistence is often the most important factor when seeking a response from a company. That might include threatening to take your business elsewhere, or asking to speak to a manager or executive until you get the answer you want

36. Start a social media account

Airing grievances about specific companies on a blog, Facebook, or Twitter can also be an effective way of getting their attention. Just be sure you don't sacrifice your own privacy and security in the process. Many banks, for example, run active Twitter accounts, but they caution customers to take specific questions off the public venue and onto a phone line or email account. Talking over social media, after all, means talking in front of an audience

37. Pay less for gas

In addition to seeking out the lowest-priced gas station in town, you can also stretch your gas dollars through more creative means. Those include lightening your car by unloading any heavy items stored in the trunk, carpooling, making sure tires are properly inflated, and replacing clogged air filters. An even safer bet is replacing some of your car time with public transportation or biking

38. Refinance, or not

When interest rates are low, refinancing to lock in a lower rate on your mortgage is tempting. But doing so also comes with costs, including closing costs and your own time. (Completing the paperwork can take hours.) Before jumping on the refinancing bandwagon, crunch some numbers with an online refinance calculator to help you figure out if it will really save you money

39. Improve your credit score

Credit scores can hold a lot of power over your life; they influence your loan rates and the ability to rent apartments, and they can even play a role on job applications. According to money expert Liz Weston, author of Your Credit Score, the most important steps you can take to improve your score include removing any errors and making regular, on-time payments to all revolving accounts, including credit cards. Paying down debt helps, too

40. Get your credit report

You're entitled to a free credit report every year, which you can access through annualcreditreport.com. Reviewing it regularly makes it possible to check for (and correct) any mistakes, as well as catch potential problems, such as identity theft, before they escalate. The Consumer Financial Protection Bureau also announced this year that it will start supervising the credit bureaus as part of an attempt to make the world of credit scores and credit reports more transparent to consumers.

41. Learn patience

Research co-authored by Columbia Business School professor Stephan Meier found that impatient people tend to have lower credit scores, which means they pay more for loans. Study participants who were most willing to wait for their cash rewards had, on average, scores that were 30 points higher than those who were the least patient. The suggestion? Learning to wait for rewards can pay off in the form of lower loan rates

42. Check your insurance policies

According to MetLife, just 3 in 4 married couples with young children have life insurance. That means 1 in 4 do not. Given the high cost of raising children (the Agriculture Department estimates $234,900 per child before age 18), that leaves families in a vulnerable position if one or both parents were to die. While there's some hassle involved, the cost of taking out life insurance is relatively low (a half-million dollar policy on a healthy 35-year-old might be one dollar a day, says MetLife), so consider signing up if you haven't already

43. Organize your financial paperwork

When Superstorm Sandy hit in 2012, thousands of people on the East Coast had to quickly leave their homes. If your paperwork is in order, it will be easy to know what to grab if you suddenly have to do the same thing. Essential papers to carry with you include identification, insurance information, and family documents, such as birth and marriage certificates and wills

44. Create photographic evidence

Just in case you ever have to file an insurance claim, take photos of your most valuable possessions, including furniture, jewelry, and televisions. Creating a paper trail of those goods, any damage they sustained, and subsequent claim filings can make it easier to follow up with the insurance company and collect reimbursements

45. Prepare for emergencies

In the spirit of always being ready, consider coming up with a plan for an alternative place for your family to stay in an evacuation scenario. When the power goes out, it's harder to find the closest available hotel, or to talk to friends about staying with them. It's also a good idea to get an emergency kit together, so if you have to hunker down in your basement for a few days without power or running water, you know you could survive. The kit should include batteries, flashlights, water, changes of clothes, cash, non-perishable food, and a first-aid kit

46. Beef up your emergency savings account

No matter how prepared you are, emergencies can end up costing a lot of money. Consider funding an emergency savings account that could cover you in the event of weather disasters, car breakdowns, and other unexpected calamities. Financial advisers generally recommend putting away three to six months' worth of expenses

47. Plan to work well past retirement age

Older Americans are increasingly working into their 70s, for financial as well as psychological reasons. In other words, many of them enjoy their work. A Charles Schwab survey found that one in three 60-something middle-income workers don't want to retire. To prepare for a long career beyond age 65, career experts recommend making sure you're doing work you love. That might mean launching a second career, unrelated to your primary one

48. Change your habits

In his book The Power of Habit, New York Times reporter Charles Duhigg explains how we can change our habits by focusing on the cue and reward. If you want to start exercising every day, for example, "cue" it up by putting on your running shoes before breakfast, and then reward yourself afterward with a piece of chocolate. Eventually, the new habit will become a natural part of your day

49. Check out your older self

Here's an easy way to motivate yourself to commit to big changes in 2013: Focus on your future self. Research by Hal Hershfield, assistant professor of marketing at New York University's Stern School of Business, has found that showing people aged photos of themselves makes them more likely to put money away for later. You can get in touch with your future self by writing a letter or even downloading an aging app, such as AgingBooth, for a sense of what you'll look like in 30 years. Spending more time with your grandparents can also help

50. Think about where you want to be (financially) in a year

When you're brainstorming for your big money goals for the year, try to focus on specific steps, instead of big, overwhelming dreams. For example, if you want to build financial security, goals might include spending less on food or developing a second stream of income. BJ Fogg, director of Stanford's Persuasive Technology Lab, suggests breaking big goals into small baby steps

Here's to a prosperous 2013!

Source: http://in.finance.yahoo.com/news/50-ways-improve-finances-2013-155537722.html?page=all

Placing Small Bets

Small-cap funds help spread risk, yet make gains.

If you had invested Rs 1 lakh in Crompton Greaves on 1 January 2002, your money would have grown to Rs 65 lakh by now. Back then, Crompton Greaves was a small capital goods company with a market capitalisation, or market cap, of Rs 115 crore and a stock price of Rs 1.80.

It has been one of the biggest wealth creators in the Indian stock market and given 52 per cent annualised return over the last 10 years. The company had a market cap of Rs 8,300 crore on 28 November 2011 while its stock was trading at Rs 123.

On 2 January 2002, Sesa Goa had a market cap of Rs 99 crore and its stock was at Rs 1.28. On 28 November 2011, the stock was trading at Rs 174 and the company's market cap was Rs 16,000 crore.

Scores of once small companies have over the years grown big, giving investors a 30-50 per cent annual return over 10-15 years and creating fortunes for investors. However, more often than not, we find ourselves at the wrong side of the fence and regret our inability to spot such stocks on time.

The number of small-cap stocks is large and finding a quality stock that can give high returns over a long period is tough even for equity analysts. One reason is that such stocks usually have a short history and are not tracked by many analysts and brokerage houses. Then there are risks such as low liquidity, governance concerns and competition from larger players.

If these factors scare you but you still want to gain from the upside potential of such stocks, small-cap mutual fund schemes are an ideal choice for you.

A typical small-cap fund invests over 50 per cent money in stocks of small companies. However, the fund manager can lower the exposure depending on market conditions. Mid-cap stocks form 25-35 per cent of the portfolio. A small portion, usually less than 10 per cent, is invested in large-cap stocks. Mutual fund schemes that invest a large part of their money in small-cap stocks also carry a higher risk.

RISK-RETURN TRADEOFF
It's a challenge for the fund manager to build a portfolio of quality small-cap stocks as the number of such companies listed on exchanges is huge. Also, many of them are little-known.

"The number of small companies listed on Indian stock exchanges may run into a few hundred. Out of this, 30-50 companies can be selected for investment. The challenge is that many of them may be under-researched by research/brokerage houses. One may have to rely extensively on primary research," says Dhiraj Sachdev, senior vice president and fund manager, equities, HSBC Asset Management India.

Another risk is low volumes, which makes these stocks illiquid. This means the fund manager may not be able to sell the shares as and when he wants. Small-cap funds are thus prone to liquidity risk. For example, the average number of daily traded shares in the CNX Small Cap index was 75 million compared to CNX Nifty's 141 million during the year ended 30 November 2011. CNX Nifty comprises large-cap stocks. Anyone investing in small-cap funds, therefore, should have a long investment horizon.

Small-cap companies see sudden rise and fall in stock prices and this is reflected in the net asset values, or NAVs, of funds investing in such stocks. "Due to small size, such companies are more prone to volatility," says Vinay Paharia, fund manager, Religare Mutual Fund. Paharia manages Religare Mid and Small Cap Fund.

Therefore, only investors with appetite for high risk should go for such funds. Besides, small-cap funds should form a small part of your portfolio.

Mutual funds investing in small-cap stocks can minimise the risk by diversifying across companies and sectors. Since mutual funds are managed by professional managers supported by teams of analysts and researchers, they are in a better position to select the right stocks, diversify across sectors and companies and react swiftly to changes in equity market conditions.

HOW THEY PERFORMED
There are four mutual fund schemes-Sundaram Select Small Cap, Reliance Small Cap, HSBC Small Cap and DSPBR Micro-Cap-which invest primarily (50 per cent or above) in small-cap stocks. None of them have a track record of five or more years. Only Sundaram Select Small Cap and HSBC Small Cap have completed three years.

In the one-year period up to 9 January 2012, the NAV of these funds fell 25 per cent on an average compared to the 38 per cent drop in the BSE Small Cap index. HSBC Small Cap fund fared the worst as its NAV dropped 42 per cent.

Sundaram Select Small Cap was the best performer with a return of -16 per cent. Sundaram Select Small Cap is a close-ended fund and its units are on offer for a limited period. Mid- and small-cap funds performed slightly better on the downside with an average -19 per cent return in the one-year period compared to the -29 per cent return delivered by the BSE Mid Cap index.

The average three-year return by small-cap funds as on 9 January 2012 was 25.5 per cent compared to 24 per cent by mid- and small-cap funds. The average return of large-cap funds in the past one year has been -19 per cent. The average three-year return by large-cap funds was 17.518 per cent on 9 January 2012.

ARE YOU GAME?
Those who wish to invest in small-cap funds should do so only if they have a long investment horizon and tolerance for volatility. Small-cap stocks suffer the steepest falls in a bear market and rise the most in a bull market. An investor should stay put for at least three-five years to allow the fund to gain from at least one bull run.

A small-cap fund will generally witness more frequent changes in its portfolio than a large-cap fund. It's better to go for schemes with a low turnover ratio, which measures how much the portfolio has been churned. A higher ratio means a higher trading cost.

Buy funds with lower volatility, which is measured by standard deviation (SD) and beta. The higher the SD and the beta, the more volatile the fund is. A better way to judge the performance of the fund is to check its Sharpe Ratio, which measures the risk-adjusted return. The higher the Sharpe Ratio, the better is the fund's performance. R-squared is the proportion of the fund's portfolio that moves in line with the benchmark index.

You can check these ratios in fund factsheets released by fund houses every month. These factsheets are also available on websites of mutual funds.

"Small-cap funds are good only for a portion of the portfolio. These funds are more volatile than large-cap funds. While there could be a possibility of higher returns from these funds, I think only a small percentage of wealth should be invested in such funds," says Raghvendra Nath, managing director, Ladder up Wealth Management.

There are many companies in the small-cap space that may become success stories in the future. Investing a small portion of your savings in the small-cap theme through mutual funds may give you a pleasant surprise.

Source: http://businesstoday.intoday.in/story/invest-small-cap-mutual-funds-companies-good-returns/1/21880.html

Neighbours are not financial wizards

Love thy neighbour is a common adage, but most people extend it to include financial decisions as well. For instance, a sustained rise or a sudden fall in the stock market is often observed due to frenzied buying in bubbles and selling in crashes.

In fact, as a recent study by Ameriprise Financial India shows, Indian investor even used this ‘follow the neighbour’ formula for purchasing insurance, gold and other financial instruments as well.

There are strong preferences for certain products in specific cities. No wonder, every city has its preference for certain instruments. Mutual funds and gold are preferred by Delhi, stocks are favoured by Mumbai, Chennai wants real estate and Bangalore is into debt. The survey was done between the age group of 28-45 and with an average annual household income in excess of Rs 12 lakh.

TWO DIFFERENT FAMILIES: YOU AND YOUR NEIGHBOURS

• Goals, time horizon will differ
• Risk-taking ability will differ
• Financial commitments will differ
• Age group may differ
• They share successes, not failures
• ...then, why follow them?

However, following the investment decisions of one's neighbour or friends or even relatives is not the best strategy. The culture of collaboration does not work while making financial decision for your family. There are a host of other reasons that should be considered while making investment decisions.

Your reason to save or invest may not be the same as your neighbour's. The other family may be investing for their child's school education, while you need it for higher education — clearly, the amounts required would be vastly different. For them, a 10-year debt instrument may work, whereas since the requirement is much more, you may have to opt for equity.

More importantly, your monthly outgo may be completely different. As financial planner Suresh Sadagopan says, individuals should count their priorities before copying. "When you have commitments, having cash in hand is important. And you have to account for it. But many don't," he says. Do not invest because somebody else is investing and he/she thinks you are missing out on something big.

Your neighbourhood uncle at 50 may be looking to earn 8.5 per cent on a 10-year NHAI bond, because it means a nice little safe corpus at the age of 60, when he retires. For you, at 30, it makes little sense. If the stock market falls further, there may be a good opportunity to enter and stay invested for the next 20 years.

Conversely, if you are 50, it makes more sense to stay away from high-risk, high-return products, because capital erosion is the last thing you want. Going with the good old bank fixed deposits or post office deposits may keep the corpus safe with steady returns.

Random investment is something that one should be wary of. The Ameriprise study talks about most individuals investing through real estate, insurance, gold and so on. But, none of these investors know if the asset class suits their profile.

However, you need to match your requirements to an asset class before investing. "For instance, real estate and start-ups could work wonders for some individuals, while it may end up being disastrous for others," explains Bimal Gandhi, chairman of Ameriprise Financial India. Therefore, do not pick a scheme just because good friends have done so.

Most important: It is unlikely that many will discuss their investment failures with you. Most will tell you about their successes. Certified financial planner Anil Rego says individuals see how their friend(s) have made money in an asset class/scheme. And then invest. "But, they fail to understand that this may or may not be the right time to enter that scheme. A classic example is gold and many are more than willing to enter gold now just because many have gained from it in the past year," he explains.

Source: http://www.business-standard.com/india/news/neighboursnot-financial-wizards/462019/

Delays are costly in retirement planning

People exceedingly depend on provident funds and fixed deposits to provide for their requirements post retirement.

Whether or not you make other New Year resolutions, here is one you should make. Don't postpone savings or investments.

The new urban lifestyle has made people more prone to spending than to saving or investing.

With India Inc prospering and young professionals getting handsome packages, people today are financially independent at a younger age. As a result, most of them become complacent about their long-term finances.

While everyone is aware of their financial needs and aspirations, only a few assess their ability to meet critical long term goals - saving for retirement and saving for child's education, to name two key ones.

Yet, procrastination and delay in formulating and implementing a proper financial plan can have serious repercussions on future financial goals. Postponement in planning can result in a higher financial burden in the later stages of life, and one may not be able to save enough for long term goals.

Let us understand the cost that the delay can cause with the help of an example. Keeping in mind the current inflation rates, it is estimated that an MBA degree that costs Rs 4,00,000 today will cost Rs 20,00,000 in 15 years time.

How many parents will be financially ready to bear this cost when required for their child without dipping into retirement funds? According to Aviva Young Scholar Insights, a recent survey conducted across 12 cities in India, it was found that investment for a child's education is the topmost priority for 72 per cent of Indian parents.

But 81 per cent of parents also admitted that they have no clue on how to go about meeting the cost of their child's education. It then becomes even more important for young parents to start saving early so that the expense for their child's education doesn't become a burden later.

Apart from saving through conventional methods like a savings bank account, parents can choose insurance policies to protect their children's future.

Insurance ensures that the child's education is unhindered, in case the parents are no longer around. There are also child plans from other investment options like mutual funds which aim at creating a corpus.

Retirement blues

Similarly, due to lack of a formal social security system in India, retirement is another top area of concern for 45 per cent of the people in India.

People exceedingly depend on provident funds and fixed deposits to provide for their requirements post retirement. But keeping in view the current rate of inflation, the steep rise in the cost of real estate and the substantial rise in the overall cost of living in India, these savings alone will not suffice.

For a comfortable lifestyle post retirement, in absence of a regular stream of income, one needs to start planning for it right away.

Here again, it is easy to save for retirement in the initial years of one's career, as there is no pressure to support a growing family and you don't have high medical expenses. However, if you delay investing even by a year, then there is a ‘cost of delay'.

Take a typical pension plan offered by insurers. A 30-year-old man with a target retirement fund of Rs 25 lakh wishing to retire at 58, has to start investing close to 24,000 an annum by way of premium.

However, if he delays this by five years and starts investing at the age of 35, he will have to pay close to Rs 38,000 an annum for same accumulated amount of Rs 25 lakh, an increase of 58 per cent. This is based on an assumed net investment return of 8 per cent an annum.

Nowadays, people can look at several options for saving for retirement like pension and retirement plans by insurance companies, mutual fund schemes.

These, when combined with PPF and fixed deposits can give an individual a balanced financial portfolio to attain the retirement goals.

Thus, judicious and proactive financial planning will make sure that you have enough resources with you in the future, to fulfil your child's aspirations and take care of your retirement needs. Start planning for future financial needs without any further delay.

Remember, while the key to successful planning is to start early, at the same time, it is never too late to get started.

Source: http://www.thehindubusinessline.com/features/investment-world/article2763836.ece?ref=wl_features

How to select mutual funds

How does one select a mutual fund? The Indian mutual fund industry has come a long way, with the assets under management (AUM) growing at an annualised rate of 20% between September 2006 and September 2009. It has moved from offering traditional equity and debt schemes to specialised products, such as funds of funds, arbitrage funds, asset allocation funds and exchange traded funds (ETF). All these make it difficult for investors to select the scheme that suits their needs.

Let us look at some of the parameters that should be considered while selecting funds.

Investment objective & risk profile: The investment goal of the fund must coincide with that of the investor. The objectives can be defined in terms of tax planning, regular income, high returns, long-term planning, etc. Equity funds are more tax-efficient compared with debt funds, short-term debt funds aim at regular income, whereas closed-ended equity funds aim at long-term capital appreciation.

The fund should be chosen according to the investor's risk tolerance. The objective of high returns is generally associated with high risk. The Association of Mutual Funds in India (Amfi) defines three types of risk tolerance levels: low risk or cautious, moderate risk or cautiously aggressive, and high risk or aggressive.

Low-risk investors should consider debt funds, which invest in government securities or high rated debt papers. Moderate-risk investors should consider index funds, balanced funds and asset allocation funds. High-risk investors should look for equity funds (diversified and specialised), offshore funds and mid-cap funds.

Fund performance & management: Though the past performance of a fund does not define its future performance, it is important to consider how it has performed with respect to its benchmark or other similar funds. A fund should be compared with the same category of funds. So, the performance of a mid-cap fund cannot be compared with that of a large-cap fund as the former is more volatile compared with the latter.

Past performance also helps in assessing the quality of fund management, the skills of the fund manager and his team. The stock picking and market timing abilities of the manager can be judged by comparing the fund performance with its benchmark.

The funds that perform better than their benchmarks are considered outperformers, whereas the funds that yield less than their benchmarks are underperformers.

Fund size: The size is important because a very large fund often faces difficulties in the optimum deployment of its corpus, which, in turn, negatively impacts its performance. On the other hand, a very small-sized fund is constrained with the problems of high costs. Therefore, one should go for a mid-sized fund as it ideally balances the investment flexibility and costs.

Fund costs: These involve the operating costs of running a fund and include marketing and selling expenses, audit fees, custodian fees, etc. These costs can be gauged by looking at the fund's expense ratio, which is reported in its annual report. The expense ratio should be compared with similar funds as those with high ratios significantly impact the long-term investors due to the effect of compounding.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/how-to-select-mutual-funds/articleshow/11315080.cms