Personal Finance - How to approach your investments now ?

With financial markets and global economies undergoing very uncertain and unprecedented difficulties, it is very important you don't make any more mistakes and come out safer thru. these challenging times. I personally feel tough times will last for few more quarters.

The following are some of actions suggested which can act as a general guide:

1. Don't lose sight of your medium to long term goals (e.g. Higher education, House, marriage expenses, Retirement kitty and such large and important commitments which I also refer to as important mile- stones). Plan and invest for it on regular basis, earlier you start, easier it becomes.
2. After setting aside funds for liquidity and emergency needs (Thumb rule is to keep 4 to 6 months household expense in the form of cash or in savings a/c.), clear out your liabilities (if any), specially all the high cost ones first , viz. Credit card dues, Personal loans, Vehicle loans and other personal loans taken at high rates.
3. Pre-pay housing loan, in part or full, if you have surplus liquidity. You may also consider switching to linked bank accounts offered by many housing loan financier. Under this a/c. facility, you can deposit the surplus funds that may be available with you from time to time and you can withdraw the same at any time by issue of cheque, cash withdrawal,etc, just like the way you use your normal bank a/c. The advantage here being you are charged interest only on the loan portion outstanding (net of these temporary advance payments) and no pre-payment penalty is charged. At the same time you don't lose the liquidity advantage.
4. Earmark portion of the funds that should be invested in the stock market and use SIP's (Systematic Investment plans) route. Investing in Index Fund or Large-cap fund would be a safer option. Small allocation (based in risk appetite) may be kept for investing in Mid-cap and small-cap funds.
5. Take personal insurance. Start with pure term plan first - here the premium is the lowest and coverage higher. Avoid combination of insurance & investment from a insurance product.
6. Invest for your tax savings, if not already done, as year ending is just round the corner. Options like PPF & 5 yrs. bank deposits, provide attractive returns.
7. Invest regularly in Gold. ETF's are better options then Physical gold and jewellery. Treat this as part of your currency holding and don't expect returns on the same. Here the thumb rule is to invest 7% to 10% of your total investments.
8. Balance available should be preferably invested in Debt/fixed Income products of high quality (AAA rated) and having good liquidity (for early exit).
9. Avoid taking fresh loan and postpone availing it wherever possible.
10. I personally avoid taking loans for consumption items (e.g. Holidaying) or investing in a depreciating asset(e.g. Car, fancy mobiles,etc.).

All the above suggestion are general in nature and may not be applicable to all of you. It is always better to consult a financial advisor for each specific case. If you need my help pls. send me an email with your query.

Happy Investing.