<p><em><strong>Sunil Dhawan </strong>on how to make financial plan the starting point to navigate through various life stages to reach your goals no matter how uncertain the journey is</em><br><br><br>When markets swirl, most investors get worried about their investments. Lately, there has been tremendous volatility in the markets and different indices are experiencing a fight between the bulls and the bears. Macroeconomic factors may still be fine but global headwinds are keeping the FII investors largely away from the markets. Indian corporate sector results, expected to be out soon after the Infosys results, may not be encouraging too and the consumption story doesn’t look to be promising either.<br><br>Does all this market action require you and me to rejig our investments? Should one consider selling or buying, stocks, mutual funds or bonds because of such movements in the market? Yes, if you are a trader, there are always opportunities especially when volatility is high.<br><br>But, for most of those who are into chasing their goals, markets and its movements are irrelevant. The fear of losing money comes to mind if there is no financial plan in place. For all others who have a financial plan in place, the uncertainty and volatility attached with market are immaterial and largely accounted for.<br><br>Most of us treat investments as an all-inclusive deal to meet their goals. However, investment planning is only a part of the larger process called the financial planning. Financial planning may be defined as, “The process of meeting life’s goals through proper management of finances.” Without a proper financial plan in place, one should not venture out in searching and investing in different products.<br><br><strong>The right start:</strong> A financial plan will tell you what you need to achieve in terms of your financial goals. Therefore, identifying the goals mark the beginning of any financial plan. Life goals can include buying a home, saving for your child’s education, marriage or planning for retirement. With goals identified and estimated, one gets a control of their finances. The temptation to time the market or meet short-term goals and wait for longer term goals doesn’t arise.<br><br><strong>Prioritize</strong>: Once the goals are written down, you need to prioritise them. Prioritizing helps in allocating existing resources and future investments towards a more important goal. For example, saving for retirement may be more important than buying a luxury car or going on an overseas vacation. Or, for instance, you might like to acquire a house in the next three years. This could mean an expense of around Rs 10 lakh as down payment. This being a high-priority goal, your investments should ideally be focused more on this rather than, say, on retirement.<br><br>Therefore, the basis hinges most importantly on the criticality of the target goal and also occurrence of that event. So, for someone with small kids, children needs and retirement may be equally important and adequately taken care of. However, with teenage kids, children education or marriage attains importance over say retirement. Also, children needs are met largely around a standard age and hence targeting it initially is imperative. Goals like vacation, buying a second home could then be postponed. Therefore, early planning helps in provisioning for all goals arising at various stages of life by prioritizing them.<br><br><strong>Get the Link Right: </strong>Once you have linked your investments to your goals, it’s time to relax. For long term goals, make use of equities ideally through equity mutual funds. Similarly, balanced fund or debt funds can be used for medium to short-term goals.<br>Choose well-performing equity MF schemes and start saving regularly through them, preferably through SIP’s.<br><br>Studies done in the past have suggested that equity delivers the highest inflation-adjusted returns among all asset classes over the long term. The underlying message here is the time horizon--the longer you remain invested in equity, the higher the returns you earn. Irrespective of the risk profile, therefore it becomes a compelling case for one to save through equity either directly through stocks or equity mutual funds.<br><br><strong>How much to invest:</strong> Once the goal is set and prioritized, it’s time to see how much one needs to invest to meet it. To achieve the specific goal it is important to initially calculate the potential future value of the corpus required after adjusting for inflation. This helps in exactly saving the right amount and not more or less. Illustratively, a marriage that costs Rs 25 lakh at today’s cost would make you shell out nearly Rs 70 lakh after 21 years at an assumed inflation of 5 percent. Now, assuming equities could generate a conservative return of 12 percent growth over the next 21 years, estimate the amount of monthly savings required to meet the need. For short-to medium term, accordingly, find out how much to save at a much conservative growth rate.<br><br><strong>End note:</strong> The reason to stay invested in a scheme, or to exit it, should not be based on sentiments. An investor who has seen the ups and down of markets remains poised for the long haul and is largely undisturbed by such frequent fluctuations. And, most importantly, mistakes made during the initial days of investing can help you master its basics. They will be of great help in the later stages of your life. With three years away from goal, one needs to de-risk by moving out of equity into less volatile debt assets. If you have a plan in place, market movements will no more be relevant to you.<br><br><br><br><br><br><br> </p>
