Setting SMART Goals for 2025: A Path to Success and Growth

Setting SMART Goals for 2025: A Path to Success and Growth

Starting the new year with clear, meaningful goals is a great way to set yourself up for a year of personal growth and achievement. But how do you begin? The secret lies in setting SMART goals. Here’s how to use the SMART framework and make your goals truly yours in 2025.

Start with Your Core Values

Before diving into goal-setting, take a moment to understand what truly matters to you. Aligning your goals with your core values makes them more meaningful and gives you the motivation to stick with them. For example, if financial security is important to you, your goals might include paying off debt or building an emergency fund.

Understanding your “why” is key. Dig deeper into why a goal matters to you. Ask yourself “why” five times to uncover the true motivation behind it. This will provide the intrinsic drive you need when challenges arise.

The Power of SMART Goals

The SMART framework helps you create clear, achievable goals. The SMART framework stands for Specific, Measurable, Achievable, Realistic, and Time-bound. Each part helps clarify your goals and gives you a roadmap to success. 

• Specific: Define clearly what you want to achieve. Avoid vague statements and make sure it's focused. e.g. "I want to save $5,000 for an emergency fund" instead of "I want to save money."
• Measurable: Your goal should have clear criteria to track progress. Break down your goal into trackable steps, like saving $5,000 by saving $417 each month for the next 12 months to reach your target.
• Achievable: Set a goal that’s challenging yet within reach, considering your resources and constraints. If you set goals that are too big, you may get discouraged. e.g. "I will cut back on dining out to save $100 per month to reach my savings goal."
• Realistic: Stretch your limits but set goals that are still within reach. Ensure that the goal is realistic given your current situation and capabilities. e.g. "I’ll save $5,000 by reducing unnecessary spending and using a budgeting app."
• Time-bound: Set a clear deadline for your goal to create urgency and a sense of accountability. For example, "I will save $5,000 for an emergency fund within one year."

Short-term vs Long-term Goals

It’s helpful to separate your goals into short-term and long-term categories. Short-term goals help you build momentum toward bigger, long-term goals. If your long-term goal is to pay off $50,000 in debt, break it down into smaller chunks like paying off $1,000 in three months.

This method not only keeps you focused but allows you to celebrate small victories along the way.

Prioritizing Your Goals

Once you’ve outlined your goals, it’s time to prioritize. Focus on what will have the greatest impact on your life. Maybe paying off high-interest debt will give you immediate relief, or perhaps a quick win with a short-term goal will boost your confidence.

You can also prioritize by time frame—starting with quick, achievable goals can create momentum, while long-term goals may require consistent effort.

Align Your Goals with Your Budget

Your financial goals should be aligned with your budget. If you’re serious about building an emergency fund, allocate a specific amount to this goal each month. For instance, if you want to pay off $2,000 in credit card debt by June 2025, set aside $300 a month.

As you progress, revisit and adjust your budget as needed, especially if unexpected expenses come up. Staying proactive will help you stay on track and reach your goals.

Implementing Your Goals

Setting goals is only the first step; the next is taking action. One way to keep yourself motivated is to visualize your goals with a vision board. Keep your goals front and center to remind yourself why you started.

Accountability also plays a big role. Share your goals with a friend, family member, or even on social media. This can help you stay focused and encourage you to keep going.

Remember, be kind to yourself. Progress may be slow at times, but small, consistent steps will eventually lead to big results. If things don’t go as planned, don’t be afraid to adjust your goals. Flexibility is key.

Staying Focused and Motivated

Staying motivated throughout the year can be challenging, but connecting small milestones to your bigger goals can help keep you on track. Also, replacing negative thoughts with positive affirmations can shift your mindset and increase your motivation.

Lastly, remember that life is unpredictable. If setbacks occur, don’t view them as failures. Instead, use them as an opportunity to reassess and adjust your plans accordingly.

Conclusion: Ready to Achieve Your Goals?

By setting SMART goals and aligning them with your core values, you’ll create a clear path for success. Break your goals down into short-term and long-term categories, prioritize them, and keep them connected to your budget. Stay focused with visual reminders, accountability, and a positive mindset. With determination and flexibility, you can make 2025 your best year yet. Let’s make it happen!

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7 Tips to Improve your Financial Health during this Corona Lockdown

The world is reeling under the Corona Virus Pandemic. Many people are experiencing job losses as companies across globe shut production. Markets have also shown huge fluctuation wiping our crores of investor's wealth. Needless to say, people are concerned about their finances due to COVID-19 pandemic. With so much uncertainty around, it’s important now more than ever to focus on saving and reduce spending. During this Corona lockdown, follow some essential financial tips to improve your financial health.

1. Keep Emergency Fund

Emergency is unpredictable and difficult to manage. The old saying that holds always. Save as much as possible. Maintain a budget. Avoid expenses that you can. In short, keep an emergency fund.

2. Insurance Cover

Situation and instances like COVID-19 can happen anytime. Do check that you have proper health and term insurance cover. Check your health coverage benefits and know how much it will cost you during any critical illness. If needed, increase the premium amount by taking more coverage. This will benefit you during a health emergency. Take proper health coverage for your family. Do an honest assessment. 

3. Continue with SIPs

Keep your SIPs. Don't do panic withdrawal. You never know what is in store for you in future. To keep you financially strong, keep saving your money by continuing your SIPs and long-term investments. Don’t panic and redeem all your investments due to the huge volatility in the markets. Rather, if possible, continue your SIPs, it will help you in creating bigger corpus when the market’s rebound. Top up your existing investment in equity using asset allocation strategy.

4. Check your EMI/Instalments

If you have not opted for the banks EMI moratorium, and not paid your EMIs instalments yet, your credit score might get impacted. Either you opt for a moratorium or pay your dues on time. Good credit score will help you in the future loan if needed. Don’t ignore your CIBIL score. 

5. Relook Investment Portfolio

It is advisable to relook at your investment portfolio and just sell the equity or any holdings which are not giving you benefit since long. One can sell and buy some good stocks and invest in strong margins coupled with low debt companies for the long term. Invest for the long term.

6. Go Digital

As per Government health guidelines we need to keep social distancing to avoid COVID-19. So, it is better to use a digital wallet as much as you can. Completely avoid going to your Banks or ATMs for any financial need and use. Use online banking, cards, UPI or wallets for payments and managing investments. Avoid using cash, keep ATM visits minimum.

7. Refrain from Panic Buying

Don’t spend your money buying food items, groceries, medicines just to stock up things due to fear of lockdown. Essential supplies will continue. Only buy those items which are very much important apart from daily use items. Panic buying will put a strain on your finances.

Source: https://www.indiatvnews.com/business/news-coronavirus-crisis-tips-to-keep-financial-safety-during-covid-19-lockdown-605896

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What should be your investment strategy when you are in debt?

While managing your personal finance, you may face a dilemma of giving appropriate weightage to either investment or debt since both are important aspects of your personal finance. If you ignore debt repayment, then compounding interest will quickly spiral out and you may easily get into financial distress. If you ignore investment, then you may fail to accomplish many of your financial objectives. So, it is important to maintain the right balance between debt and investment.

Now, when you are already in debt, should you still invest money or wait till your existing debt becomes zero?

To invest or avoid while in debt

Certain important factors like interest rate can help you decide on whether to invest or pay the debt first. If the existing and expected interest rate on debt is substantially lower as compared to the interest or return you expect to earn from an investment, then you should prefer to invest over prepaying. For example, prevailing interest rate on a home loan is around 8.5 percent p.a. and you have earned extra income through annual bonus. You have the option to prepay the loan or to invest the bonus in a balanced fund, which is expected to give a return of 12 percent p.a. (assumed) after tax. In this case you, should continue to pay home loan EMI and use the fund for investing in a balanced fund to earn a better return, considering a risk while investing money in a mutual fund. If the interest rate on loan is close to or higher than the expected return from investment, then use your extra income to first clear the outstanding debt and thereafter use the remaining fund, if any, for investment in appropriate instrument.

Assessment of existing liquidity

Another important factor that you must check before using the income to pay debt or invest is to assess your prevailing liquidity situation. If you find it difficult to manage your regular monthly expenses after paying the EMI, then using the surplus income for repaying such debt could help you to reduce the financial burden.

Repaying the debt on time is very crucial for maintaining a good credit score. If you have surplus fund and you invest it, then do assess whether you will be able to liquidate it at the time of emergency without any capital loss. If yes, then you can think of investing money over prepaying the loan amount. For example, if you face financial emergency, such as job loss or an accident, and you don’t have enough money to repay existing debt EMI, then you can use this investment for emergency cash flow. However, if you are not sure about retaining the value of investing funds and its liquidity factor, then it is better to avoid such investment.

Invest surplus in appropriate instrument

If you are planning to take a loan for other big ticket purchases, then instead of using the surplus income to repay your existing loan, you can use it to invest in appropriate instrument and later on use it to pay for your buying. For example, you are planning to buy a car after three months and you got a surplus income of Rs. 5 lakh. You have an existing home loan with Rs. 20 lakh outstanding and remaining tenure of 15 years, with an interest rate at 8.8 percent per year. Instead of using the surplus income to repay your home loan and taking a car loan to buy a new vehicle, you should invest it in a liquid fund for three months. The invested money can come handy later on for your car buying.

It's important to maintain a balance between risk and reward

To make a correct decision you should focus on maintaining a fine balance between risk and reward while selecting one of the options. You must analyze the impact of your decision on your retirement goal and your other financial objectives. Try to cut down the risk associated with your debt by utilizing the reward you expect to get by investing the fund.

Team WealthyMantra

Source: Moneycontrol

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Dos and Don’ts of Financial Planning

Good money habits are the key to financial independence. When you deal with money, you would not want to take any chances. You might do everything right with your money. Yet, you run out of luck when the financial need arrives. These basic dos and don’ts of financial planning could set you on the path to financial success.

Do’s

Identify Your Goals: 

Successful financial planning is dependent on the financial goals you set. It is necessary for you to know why you want to draw out a plan. Begin by asking yourself some straightforward questions. Why do you want to save money? What are your short-term and long-term responsibilities? What are your expectations from a retired life? Answers to these could give you a heads-up on your purpose for planning your finances.

Stick to Your Budget: 

Understand your current and future financial requirements. This will help you create a budget. However, sticking to the budget is important too! Cheating on a budget is as good as not having one. Know the difference between what you want and what you wish for.  Though you could treat yourself to little surprises once in a while, remember to spend less than what you earn.

Make The Right Investments: 

Investments are a favorable way to wealth creation. With a little caution, look at the ways to invest your money. Your investments could reap rewards if you choose where to place them. Try and identify what kind of investment suits your needs the best. Ask yourself how much and how often can you set aside money to invest. Can you afford a long-term investment? This could help you make right investments that suit your purpose.

Purchase Insurance: 

Money saved is equal to money earned. You can multiply your wealth, or save enough for the lean periods. Buying an insurance plan provides both savings and protection. If you do not have one, you could lose a substantial amount to uncertainty. In an emergency, the funds will have to come out of your savings. Some policies offer added benefits such as tax savings. Some could serve your financial goals along with adding to your wealth. These include retirement or pension plans that give you annuity benefits.

Don’ts

Procrastinate: 

Starting early has advantages. You must start financial planning as soon as you can. Delaying this decision will lead to lost opportunities. Starting early also prepares you to prioritize your responsibilities. In the long run, you will have more time by your side to save or to invest. Even if you make wrong decisions, you have time to rectify them. Additionally, you can handle risks better.

Refuse Financial Help:

Financial help does not mean accepting monetary help. That is debt. Financial help is taking financial assistance from a professional to plan better. If your planning efforts have not yielded results, it is alright to look for guidance. A finance advisor or a wealth manager is an expert who will analyze your goals. They could devise a robust plan for you to get to your financial goals.

Go On Credit:

It is easy to have a good time when someone else pays. However, this philosophy is not convenient if you want financial independence. Borrowing money on credit could force you to pay out of your savings later. You could start keeping a check on the number of times you swipe your card. You could also restrict borrowing to fund your passion. A debt can eat into your savings faster than you think.

Mishandle Your Money: 

Don’t abuse your money; respect it. You might want to stick to a few thumb rules. Do not leave extravagant amounts as tips. Avoid lending money. Remember to recover any money that you lend. Any money saved under the carpet does not earn interest. Have faith in the power of compounding and invest early. Every penny counts. Therefore, you should be careful in handling your money.

There isn’t a perfect list of dos and don’ts that work. When it comes to financial planning, different approaches work for different individuals. Yet, a more practical approach is likely to make financial planning a success.

#WealthyMantra

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10 Essentials to Stay Wealthy in 2017

Come New Year and its celebration time. It’s generally a happy time spent with near and dear ones. In the same spirit, it’s good to take stock of one’s financial well-being as well and chart a set of resolutions that could help you stay wealthy in the year 2017.

Here’s a list of ten resolutions which could help you with this:

Resolution 1: Go digital. With online banking, wallets and UPI seeing a significant penetration and surge, a large portion of transactions can be done digitally. What’s more, one can earn some good karma by introducing these facilities to one’s maid, cook or driver!

Resolution 2: Move excess money in the bank to an FD or a liquid fund. Too much money in the bank is not going to help. What with most banks offering 4% on saving accounts.

Resolution 3: Stick to the asset allocation that has been decided for the portfolio. Reams of data have been published outlining the virtues of asset allocation. The trick is to stay the course and not get swayed by short term volatility.

Resolution 4: Continue the SIP even if that near-term data looks shaky. In the short run, SIPs may not appear great, but for a great majority of investors, regular disciplined savings is a tool that can build a nice corpus over time. Caveat here is that one should ensure there aren’t too many or too few schemes in the list. If you are a new investor, it’s always a good time to start an SIP.

Resolution 5: MF scheme selection should be based on long term trends in performance and consistency of fund mandates and managers. Most investors and their wealth managers tend to highlight near term performance over long term consistency. It’s important to allow some time for the portfolio picks to play out. Similarly, while stock picks are great conversation items at parties, selection of the stock needs to be after careful research. Remember, one’s financial well-being is more important than idle party chatter. If an investor does not have the time or inclination to conduct this study, its best to allocate monies to a set of well rated mutual funds.

Resolution 6: The Indian mindset considers Bank FDs to be safe and comfortable. Of course, they are. But, with falling rates along with tax on the income, these are not great long term investment options. Its critical to measure the after-tax returns on any investment. An investor can diversify into Debt MFs and FDs of well rated and safe Institutions (for someone in the low tax bracket).

Resolution 7: A trend that is emerging of late is for wealth managers to offer portfolio management schemes and close ended private equity fund and real estate funds. These sound sophisticated and exotic, which in turn, drives investors to believe that these are superior vehicles to simpler instruments such as mutual funds etc. However, one needs to assess the level of risk, cost and historic performance (if any) before committing to these options. Most have steep exit costs or lock-ins. Hence, exiting may be expensive or not possible at all. If the investment thesis does not play out as expected, there may be no flexibility to exit and reallocate. A detailed study and careful examination is a must, before signing up.

Resolution 8: It is imperative to monitor an existing portfolio at regular intervals. MF schemes may have outlived their utility or may have changed the mandate. Stocks may not have turned out as expected. A clean up ensures robustness of the portfolio. Even better, if there’s a quarterly or a half yearly review built in.

Resolution 9: Current lifestyles have forced us to take stock of insurance needs. While a decent health cover is always helpful, sufficient term life cover is an absolute must. Unit linked plans need to be viewed as investment products and measured accordingly, whereas most investors blissfully, ignore this aspect. Pure term cover works as the best form of life insurance. Period.

Resolution 10: A house keeping exercise will do a world of good in keeping one’s portfolio ship shape. Important documents and bank accounts need to be up to date to reflect the current details. Unused bank accounts need to be shut, as there is no point in retaining too many accounts. An aspect a significant percentage of Indians tend to overlook due to sentimental reasons, is to ensure a will is written. Age is not a consideration here as human life is dynamic and uncertain. Large households and families with special needs, would be well advised to look at setting up Trusts to ensure continuity and smooth transition of wealth.

The 10 commandments outlined above are timeless and thus, it’s always a good time to revisit them. The motto for the year ahead should be simplification and consolidation.

30 minutes a week can go a long way in ensuring a robust financial portfolio.

Cheers to a wonderful 2017!!!

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The Magic of Compounding

Napoleon Hill author of best seller ‘Think and Grow Rich’ is often credited as saying that ‘Make your money work so hard for you; so that you do not have to work for it.’ Various books have been written on the art and science of making money based on more or less the same principle.

Mathematically speaking ‘Make money work for you’ is called as compounding or simply compound interest. Albert Einstein was amazed by the power of compounding and called it the eighth wonder of the world.

The only way to attain the wealth you desire is to spend less than you earn and to save the difference. The rich are not rich because they earn a lot of money; the rich are rich because they saved a lot of money. Those who become wealthy do so by spending less than they earn. There is no other source of saving, and, by extension, of building wealth.

If saving is the key to wealth, then time is the hand that turns the key to unlock the door. There is no reliable method to quick riches. There are, however, proven methods to get rich slowly. If you are patient, and if you are disciplined, you can produce a golden nest egg that will hatch later in life. It might appear that the pittance you save now could not possibly make a difference, but that is because you haven’t considered the extraordinary power of compound interest.

Before we move on to identifying financial goals and how to achieve them it is important to understand the power of compounding and regular saving.

Understanding Compounding

Regular saving in relatively safer financial instruments yielding moderate returns can work wonders over a long period of time. If a parent starts saving Rs 25 daily for their child from the day he or she is born for the next 25 years at a rate of 10 per cent compounded annually, they would be able to gift the child an amount of Rs 9.25 lakh on his 25th birthday.   

Apart from the money the amount will teach the child the advantage of savings. If he learns to save and invest in the same way as his parents and starts saving Rs 3,000 per month religiously in the same instrument earning 10 per cent compounded annually he would be able to get an amount of Rs 1.02 crore at the time of his retirement (60 years).

Compounding works wonders over longer period

Wealth cannot be accumulated overnight, like a tree it needs to be nurtured. Compounding teaches us that it does not take too much of money to save a decent amount. What is required is the discipline of regular saving and time on your side. Longer the time better will be the return.

Take the earlier example of the parent saving Rs 25 daily for a period of 25 years. In order to get the same amount in a span of five years they would have had to save Rs 400 every day. If the parents had saved Rs 150 every day for a period of 10 years they would have been able to save around Rs 9 lakh.

Another way of looking at the above example of retirement planning is that the amount of Rs 3,000 per month saved for 35 years, from the time he starts saying to his retirement, will earn the person Rs 1.02 crore. This is equivalent to receiving Rs 34,000 per month for the next 25 years of his retired life, assuming that the entire amount of Rs 1.02 crore does not earn any more interest post his retirement. In reality the amount of Rs 1.02 crore itself will be earning an interest of Rs 10 lakh per annum if it is invested in a fixed deposit yielding 10 per cent return, which would work out to Rs 83,330 per month.

In other words a small saving at a time when you are working and can afford to save can result in good revenue at a time when you yourself are not earning. This is what Napoleon Hill meant when he said to make your money work for you.

Impact of interest rate on compounding

It is a no brainer to suggest that higher the interest rate higher will be the returns. But interest rates have a magical impact on returns.

We will go back to the parent’s example to understand the impact of interest rates. Assume the same Rs 25 per day is kept in the savings bank earning 4 per cent interest. At the end of 25 years the parent would have been able to give their child a gift of only Rs 3.81 lakh. If on the other hand they would have invested in an 8.5 per cent instrument the return would have been Rs 7.35 lakh. While a 12 per cent instrument would have given them a higher amount of Rs 12.65 per cent.

However, as interest rates rises so does the risk. Higher yielding returns are possible only from riskier instruments like equities.

The problem with higher returns are that they are not steady and predictable in nature. Because of this unpredictability element they are difficult to work with in long term planning. There might be number of years when the return would be negative which would be counterproductive for the purpose.

Compounding and goal planning

Financial goal planning has to be on a steady and predictable return. Starting to save early in life prevents us from taking riskier bet. It is harder for your savings to catch up with your needs if you start investing later.

How to get rich slowly

You can make compounding work for you by doing a few simple things:

1. Start early: The younger you start, the more time compounding has to work in your favor and the wealthier you can become. The next best thing to starting early is starting now.

2. Make regular investments: Don’t be haphazard. Remain disciplined, and make saving for retirement a priority. Do whatever it takes to maximize your contributions.

3. Be patient: Do not touch the money. Compounding only works if you allow your investment to grow. The results will seem slow at first, but continue on. Persevere! Most of the magic of compounding returns comes at the very end. Compounding creates a snowball of money. At first, your returns seem small; but if you are patient, they will become enormous.

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Why Buying a Home Scores Over Investing in Stocks...

I am no fan of real estate, and certainly won't advise investing in property to earn rent. However, I strongly believe that one should own a debt-free house in which one will live in. Most of us have read about how Rakesh Jhunjhunwala sold his Crisil shares in 2005 for Rs 27 crore to buy a flat at Malabar Hill in Mumbai. Had he remained invested, his shares would be worth Rs 600 crore in 2015. The flat, on the other hand, was only worth Rs 65 crore. This story has hindsight wisdom written all over it. If instead of Crisil, Jhunjhunwala was holding Hindalco shares, his Rs 27 crore would now be worth Rs 18 crore. This story has too much of survivorship bias.

Putting all your eggs in the equity basket is not a good idea. Another ludicrous suggestion is to invest in equities in the formative years and then buy a property in the late forties, assuming that you would have built wealth by then. The assumption that you will continue with your job and draw a high salary to pay EMIs in your late forties or early fifties is quite cute, especially when I see voluntary and forced retirements all around. By the late forties, you may have gotten used to a certain lifestyle which could be difficult to cut down with the huge home loan EMI. If the house is bought early, you learn to live within your means. 

Leverage is a beautiful financial concept. When used to buy a property, leverage fetches us tax exemption. But the same leverage used to buy stocks (popularly known as derivatives) is a dangerous game. Can you imagine leveraging heavily year after year to buy the most convincing stock ideas? It is an extremely specialized field and requires phenomenal skill to make money out of leverage trades in the market. But owning a house does not need any special skill. After paying a certain number of EMIs, there is surety that you have a roof of your own. 

What is important is to keep the leverage multiple in check when you buy that mortgage. Stretch it too far and suffer sleepless nights. Keep it too low and you will probably look foolish a few years later for having bought a property much below your aspirations. On the other hand, rent is nothing but a sunk cost. Even if you are claiming tax benefit, it remains money spent which did not build you an asset. Staying on rent forever with a great equity portfolio sounds quite exciting when you are young. But when you get old, the idea may sound criminal. One does not have the energy, patience, willingness or strength to endure the burden of a rental home. All said and done, you are at the mercy of your landlord who may send you packing. 

Another argument against owning a house is that a young person may relocate in future. It's a valid argument, but once you decide to settle down in a city, buy a house quickly. Of course, this will also depend on the buyer's occupation and income. If he is a salaried employee with a regular income, buying a house makes more sense. But if you are living by the adventures of self-employment or upcoming business, it is more logical to live on rent. The return on capital employed in your business will be far higher than blocking money in a house. 

Reverse mortgage is another fantastic financial innovation. A couple gets a stipulated amount every month depending on the value of their property and when they both die, their heirs repay the lender the accrued interest and principle of the annuities given to the owners. This may not be the most efficient or cost effective tool, but it is very useful. It allows a couple to live a better life even when they get old without burdening their children. 

Your wealth can dwindle, plans can go haywire, money can be philandered or lost, businesses can get wiped out, medical ailments or court cases can leave you broke, but a house remains. When I was a child, my dad suffered a huge business loss which stripped us of our savings. But the house which he had bought earlier stayed. He was desperate to sell it to repay debts, but my mom did not allow it. She would send prospective buyers away, saying the house was not for sale. The house gave us a reason to fight it out, giving us comfort. The house was our strength. It can be yours too. 

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Eight Tips on How Not to Invest

Despite loads of information available, investors often jump into the stock market without much of an idea on what lies ahead. Here are a few tips on how not to invest.

1.       Not Knowing Why to Invest: Is it for capital protection, capital appreciation, returns, risk diversification, hedging or pure safety?

2.       Avoid DIY Investing: Investing requires being alert about the state of your investments and calls for active participation - a feat which not many can achieve.

3.       Not Actually Investing: Most of us begin investing with a long-term view, expect returns in the medium term, and end up trading in the short term. So, the grand goal of investing practically gets reduced to trading and speculating.

4.       Stock Tips: It's not the tips that are the problem, it's from whom and how you take them. However, any tip actually means that you don't invest without doing your own research.

5.       Not Asking the Right Questions: Why should I invest in the stock? Is it the right asset to invest? Do I know enough about the company to remain invested? These are worryingly missing from the popular narrative.

6.       What Looks Cheap may Not Be: A stock priced at Rs. 20 doesn't necessarily make it cheap to buy. Price-to-earnings, price-to-book, and price-to-sales ratios will help you judge the true value of a stock.

7.       Succumbing to Hype: Consulting financial advisors, investing in time-tested companies or investing based on personal experience as a customer are more effective ways.

8.       Repeating Mistakes: Time-tested classic principles of investing, such as not to follow the herd, buying low and selling high, are forgotten in the rush to make a quick buck.

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Warren Buffett’s Best Investing Advice in 10 Quotes

One great way to learn the basics of investing is by studying the greatest buy-and-hold investor of all time, Warren Buffett. Here are 10 of the Oracle of Omaha’s famous quotes that could translate into investing success for you and might prevent you from making mistakes.

1. “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

You may have heard the expression “don’t throw good money after bad,” and this is the point of what Buffett is saying here. If you own a stock that’s gone down and your original reasons for buying it no longer apply — get out. It’s a common mistake to attempt to “average down” on losing positions. Instead, you’re better off cutting your losses and finding a better way to use that money.

On the other hand, if a stock you own has gone down for no other reason than general market or sector weakness, but the business is as strong as ever, that’s the time to double down.

2. “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

In other words, don’t hesitate when you see a great opportunity. In the aftermath of the financial crisis, Buffett didn’t simply tiptoe into bank stocks. Rather, he made multibillion-dollar investments in Bank of America and Goldman Sachs that have paid off tremendously.

3. “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”

I like to apply what I call the “30-year test” to most of the stocks I consider for my own portfolio. I ask myself if the business will be around in 30 years, and if the company has a clear competitive advantage that should allow it to maintain or grow its market share and profitability during those 30 years. If the answer to either question is “no,” or “I’m not sure,” I move on.

4. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Cheap garbage is still garbage. Radio Shack was trading for a ridiculously low valuation a couple of years back — but that’s because it had serious problems, eventually leading to bankruptcy. Instead, a better idea would be to compare rock-solid retailers such as Wal-Mart, Target, and Costco to see which is trading for the best price.

5. “Our favorite holding period is forever.”

There are plenty of valid reasons to sell stocks. For example, if a company’s business strategy changes, its growth or profitability declines, or if you simply need the money, it can be in your best interest to sell a stock. In fact, Buffett-led Berkshire Hathaway BRK 0% sells stocks regularly, and for a variety of reasons. However, Buffett’s point is that you should go into every stock investment with the intention of holding it forever.

6. “Only when the tide goes out do you discover who’s been swimming naked.”

Anybody can make money in a rising market. We’ve been in a bull market for seven years now, so if someone brags about how much his or her portfolio has risen since 2009, take it with a grain of salt.

On the other hand, it takes real talent and discipline to consistently do well in falling markets. Since 1965, the S&P has finished the year in the red 11 times. In those 11 years, Berkshire has beaten the market in all but two of them.

7. “Never invest in a business you cannot understand.”

Buffett doesn’t understand tech stocks well, so they’re mostly absent from Berkshire’s portfolio. I don’t have a particularly good grasp on the biotech industry, so I’m not going to invest in it.

Before you buy any stock, you should have a thorough understanding of how the business makes its money, and how it expects to continue to make money going forward. Getting into a stock you don’t fully understand is a recipe for disaster.

8. “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

As a classic value investor, Buffett looks for stocks trading below their intrinsic value. While there are many different methods for determining whether a stock is on sale, here’s a quick guide to value investing that can help you get started.

9. “Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.”

Perhaps the most famous Buffett quote of all, it’s actually one of the most inaccurate — at least in the literal sense. Buffett will be the first to admit that he’s made a few bad investments over the years, and no investor will be right 100% of the time.

Instead, the point is that protecting your principal from losses should be a higher priority than making money. Berkshire Hathaway has produced a 50-year return of nearly 1,600,000% for its shareholders, even though it often underperforms the S&P in years when the market rises quickly. The real trick to long-term success is to outperform during the bad times.

10. On buying individual stocks: “If you like spending six to eight hours per week working on investments, do it. If you don’t, then dollar-cost average into index funds.”

The bottom line is that investing in stocks the right way requires time. You’ll need to do your homework and research and compare stocks before investing, make sure your profile is properly diversified, and monitor your stocks on a regular basis. If you’re not willing to do that, there’s absolutely nothing wrong with buying a low-cost S&P 500 index fund, which Buffett has said is the best investment most people can make. Not only does this method do all of the hard work for you, but history has also shown that you’ll probably beat the majority of mutual funds over the long run.

http://time.com/money

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Five investment mistakes you must avoid in 2016

Making mistakes is part of the learning process. However, it's all too often that plain old common sense separates a successful investor from a poor one. At the same time, nearly all investors, new or experienced, have fallen astray from common sense and made a mistake or two. Being perfect may be impossible, but knowing some of common investing errors can help deter you from going down the well-traveled, yet rocky, path of losses.

This time of the year, many individuals want to begin with their financial plans. Sometimes it pays not to make mistakes. While it is not possible for anyone to predict definite returns when investing, it sure is possible to avoid some common mistakes which can help you from losing your money.

Encapsulated below are some mistakes that you sure must avoid starting in 2016:

1.     Over investing in one asset class:

Like Warren Buffett rightly said “Don’t put all your eggs in one basket”, it is always advisable to manage your financial portfolio by the way of diversification. Diversification is when one chooses to put his money in more than one investment platform than just one, for example having the right balance of equities and debt funds in your portfolio. Most Indians have a poor exposure in equities which is not advisable; to make profits a right amount of equity investment is proposed. It should be noted that fixed deposits, real estate and gold are almost similar in nature, as over a long period of time all three asset classes perform at par with inflation.

2.     Postponing investment decisions:

Most people are too busy to invest; they just wait for the right time to invest. May be for a next promotion, a better salary or also a good raise. It should be noted that investment decisions should not be postponed. You can start as early as 20 years of age; you can save from your pocket money itself. Imagine your money resting in your savings bank account where it will earn only an interest of 4%, whereas when invested wisely it can earn you anything from 14% to 16%.

3.     Constantly looking for “What is New” syndrome:

Anyone who makes systematic investment decisions can easily say that the Indian equity market has performed 14-16% over the period of 10-20 years. An individual can easily keep adding more to it systematically to gain on their investments. However, people are more bothered about the “What is New” craze and unknowingly over diversify or what we call it as diworsefy.

4.     Periodic review:

Reviewing and analyzing ones wealth pie is very important, most individuals skip the process, in turn losing money. A holistic view of the assets one has and taking corrective measures at the right time is what is required to keep the investments healthy. It is imperative to note that reviewing your investments once a year is advisable, as this helps you to keep a check on what asset classes are performing and which are giving a negative return. If you notice negative returns you may want to switch your investments.

5.     Being affected by “Get Rich Quick” syndrome:

In the hurry to get rich most individuals do not want to give time, often falling prey to fast trading and quick losses. They buy expensive stocks and the moment the stocks start depreciating they sell them, as they get scared of losing money. The result is, instead of making money they end up incurring a loss. The worrying aspect of this syndrome is that both first time and experienced investors are affected by this. The ideal thing to do is to buy slow but steady, in this process you should ignore the highs and the lows. For stable returns one needs to stay invested for a considerable amount of time. Seek professional help as and when you need.

Summing up, I would like to add that it’s a pleasure to see your money go up, but it can be devastating to see your money going away. The idea is to avoid the above mistakes and stay safe. One just needs to stay focused on your wealth creation.

Source: Moneycontrol.com

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Seven product combinations for different financial needs

A variety of ingredients come together to make a complete meal. In personal finance too, it's about getting the mix right. 

Here are seven product combinations for different financial needs for you to consider.

1. Tax Planning

ELSS + PPF + NPS

When choosing products under Section 80C, opt for a mix that will not only help you preserve capital and save tax, but also make your wealth grow. ELSS gives the benefit of superior wealth accretion coupled with tax saving, with a low 3 year lock-in period. PPF offers guaranteed interest income, with a 15 year lock-in.

Based on your risk appetite and time horizon, decide whether to put more in ELSS or PPF. This can be supplemented with Rs 50,000 in NPS under Sec 80CCD (2), which is entirely tax deductible. This scheme is a good vehicle for building a retirement kitty.

Total tax saving: Up to Rs 61,800 for a person in highest tax bracket

2. Post-Retirement Income

SCSS + Bank FD

For those about to retire without the benefit of NPS or government pension, there are several options for generating income. The Senior Citizen Savings Scheme is the ideal fit with an assured return of 9.2% (currently) for 5 years, coupled with a tax break of up to Rs 1.5 lakh under Section 80C. You can invest a maximum of Rs 15 lakh a year in this scheme.

Any surplus should be parked in a 5-year tax-saving fixed deposit offered by banks at interest rates similar to traditional bank FDs. These investments are also eligible for tax deduction under 80C. However, interest earned on both instruments is not tax exempt. The two instruments combined offer retirees a steady stream of income.

The interest on SCSS investments are paid on a quarterly basis, i.e. on the first working days of January, April, July and October.

3. Capital Preservation

Tax-free bonds + Arbitrage funds

Safety of capital is very important yet safe instruments like FDs are not tax-efficient. Investors can instead put their money in a mix of tax-free bonds and arbitrage funds. The former are fixed income instruments issued by government-backed companies that guarantee safety of capital.

The interest rate of 7.3-7.6% is completely tax-free, making them more tax-efficient than FDs. While these come with a tenure of 10-20 years, investors can sell them on exchanges before maturity.

For enhanced liquidity, consider arbitrage funds. They yield returns comparable to debt instruments and are very safe. They are-tax efficient as they are treated as equity funds for taxation.

Tax-free bonds issued in 2013-14 have yielded returns of around 20%, apart from a near double-digit rate of interest for the investor.

4. Wealth Accumulation

Diversified equity funds + Dynamic asset allocation/Balanced funds

To build a corpus for long-term goals like buying a house, building a retirement kitty or funding a child's education, investors must choose products that provide enhanced earning power. This can come in the form of diversified equity funds. Those with a steady cash flow should ideally set up SIPs in 3-4 funds with a proven track record.

Additionally, investors can invest in a balanced fund or dynamic asset allocation fund to ride out the volatility inherent in equity markets. These will automatically shift the investor's money between equity and debt instruments depending on market conditions and introduce stability to the portfolio.

A Rs 10,000 monthly SIP in a multi-cap diversified equity fund starting January 2006 would have generated a corpus of Rs 23.5 lakh today.

5. Emergency Fund

FD sweep-in + Liquid fund

Put in place an emergency fund (ideally amounting to 6 months' expenses) to act as a buffer against unforeseen events. This fund is best created with a combination of a sweep-in account and a liquid or ultra-short term debt fund. Put 3 months' worth of expense in a fixed deposit with a sweep-in facility.

Under the sweep-in, any amount beyond a threshold is automatically moved into a fixed deposit, earning a higher rate of interest. In case of an emergency, the deficit in savings can be met by pulling from the FD. The remaining funds can be put in a liquid fund that not only offers high liquidity but also yields better return on idle savings.

Some funds like Reliance Money Manager Fund provide an ATM card which can be used to withdraw money instantly from the fund any time.

6. Insurance

Pure term plan + Family floater health plan + Accident insurance + Critical illness protection

For complete protection of yourself and your family, it is necessary to look beyond life insurance. A pure term plan will provide financial cover to your family in the event of your death. But this would be of no help if the policyholder meets with an accident and loses a limb. Supplement the term plan with an accident disability cover.

To prevent any medical exigency wiping out your savings, opt for a family floater health plan that can reimburse such expenses. Also consider a critical illness rider to go with a term or health policy to protect against costs associated with diseases like cancer.

A life insurance policy should ideally provide a cover of at least 8-10 times your annual income; health cover is best enhanced through a top-up plan to reduce costs.

7. Payments

Credit cards + Internet banking + e-wallets

Paying with cash is so last decade. Internet banking now allows you to carry out most transactions from home. Pay bills, transfer funds or create a fixed deposit at the click of a mouse. While shopping online or in the mall, make the experience more rewarding by using credit cards or e-wallets smartly. Credit cards allow you to enjoy interest-free credit for up to 50 days provided you pay the card bills on time.

They also offer rewards on every purchase. E-wallets being prepaid accounts help you buy merchandise and transact online without using your debit or credit card. The discounts and cash-back offers on various products make them a rewarding payments solution.

E-wallets allow you to store Rs 10 to Rs 10,000 in your online account at any time.

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