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The secret to financial goal setting

Money is a guarantee that we may have what we want in the future. Though we need nothing at the moment it insures the possibility of satisfying a new desire when it arises

— Aristotle

When the equity markets begin to go down or up, everyone starts talking about the loss or the gain. Timing can be a bad game if you have not understood the microeconomic indicators. In this chapter, you will learn about the important commandments that can fetch you yielding returns in the long run.

Are there some rules that can allow us to take the minimum risk and yet yield the maximum returns? Yes, there are specific guidelines that I have created out of my decades of experience.

These are my well-defined ten commandments to be followed for driving the best results while navigating to your long-term goals:

last 35 years returns
Last 35 years returns

  1. Patience and a disciplined approach for a minimum period of 10 years is an ideal period, to look at equity mutual When people buy a property, they don’t look at the gain in the next one month or one year but look at the returns after five years or ten years or twenty years; in the same way, colossal wealth creation is possible in mutual funds in the long run. Do keep looking at your portfolio to ensure it is under control, being monitored but don’t look at it every week or every month as a good period to evaluate is three to ten years.
  2. The markets are going to be volatile as there are cycles and hence the temporary up and down; this should not be considered as profit or loss, and hence, one should not Declining markets or the Sensex going down is only temporary, as you cannot forecast in the short run. If your goals are clear, the time horizon is defined, and you have made your investments after due diligence, now have the patience for the next ten years and patience will pay you well over this period.
  3. behaviour gapInvestor’s return is not to be understood as an investment return why? Simply do not run after performance and returns of your investments. You have to be careful about your goals and the quality of funds selected. You will experience the good and the bad phase of the market, on your journey to wealth creation. There is a GAP! that gap exists between the rate of return an investment would earn for an investor, in a fixed period, and the return an investor actually earns from that particular very investment. the latter, is normally less, as the investor moves his money around in an emotional response to whatever maybe happening in the market.
  4. Look at the overlap, between your well-defined financial goals, available resources and things which you can Just ignore all the global garbage news that the media gives you, tries to scare you, about the global economy, as they will only add to the nuisance value and not add to your long-term investments. Be careful, ignore things which are not relevant for you and focus on what you can control, like savings, and investing it for the long-term.
    your financial planning
  5. To beat inflation of 5 to 7%, in India you can invest in long- term equity mutual funds, as an asset class and therefore ensure that your purchasing power for the future goals is not put at Risk, for not having enough, or adequate exposure to equity mutual funds.
  6. Ups and downs of the market give you the opportunity to lay the foundation of systematic investment plans, which can also be called The opportunity of saving in a monthly mode is a great ability or a habit, developed for the long-term. Cultivate this habit for the maximised benefit to your long- term goals.
  7. You don’t have to be a research scholar to find out the best funds, well-diversified equity funds need discipline and patience for the long-term investor, who is not running after the performance or the Your financial planner would be assessing this performance or the CAGR (Compound Annual Growth Rate), to see that it is performing better than the benchmark return of that fund’s category. If this is being evaluated and checked, once in a year, do not make frequent changes in your portfolio as choosing returns, purely can hurt the performance of your portfolio seriously and can be called as a bad habit in the world of wealth creation.
  8. In India, various studies have shown that only 5% of the investor’s population, continue to hold on to their selected funds for more than ten Can you be in this 5%? To make it big, big in the world of wealth creation? Are you prepared to be in this premium league?
  9. Compounding is the eighth wonder of the world, he who understands it, earns it! He who doesn’t, pays it-said Compounding yields returns only over some time, and there may not be any substitute. Here, you may look at one of mutual fund equity category which has grown over five years or more and has given compounding return of more than double the inflation rate. But don’t look at one to three years the returns to assess this particular equity fund. Let’s understand more about the miracle of compounding.

Power of compounding

You may have heard about the magic of compounding. But what exactly is compounding?

Compounding means growth in the capital value of an investment by re-investing any earnings back into the investment itself. Unlike simple-return investments, where a certain amount is added to the principal value at the end of each period and the end of the term, you get back the capital. In investments with compounding returns you earn interest on the interest too. This magnifies the return you can earn. Let’s learn more about the miracle of compounding through an example.

For example, a simple interest returns of 8% annually for two years on Rupees 1,000/- adds to Rupees 160/- which is Rupees 80/- for year one plus Rupees 80/- for year two. However in compound interest, at the end of year one, you would have Rupees 1,000/- plus Rupees 80/- is Rupees 1,080/- and this entire amount is reinvested at 8% for year two, and you would have Rupees 1,166.40/-.

Have you ever felt the need to understand the time value of money? Research tells us that only 19% worldwide have understood this concept and continue on their journey to wealth creation! The rest think that it’s finding the right time to invest or the right opportunity! I have found that over the last 30 years of my advice to my clients, they should focus on the time that they stay invested, means the difference. Let’s understand.

Each one of us has financial needs and goals. Once the goals are identified, we need to set goal values (targets). ftis means that we should be in a position to convert the needs / goals into financial terms. To do this, we should be aware of and understand the most important aspect of ‘Financial Planning’ i.e., Time Value of Money (TVM)

Timing the market of your investment is not in your control. However, how much time you stay invested, makes the difference! The future value of your investment depends on three factors:

investment control

PV: Present Value: Identify what amount you want to invest, and for what particular goal.

r: is the rate of return or the interest it can get you. As per your risk profile and as advised by your financial planner, select the right medium to invest your money.

t: means the time that you remain invested. With your financial planner, be clear about the number of years for your investment. then, remain invested as advised. Don’t go by people’s opinion or the market noise. Ignore what the newspapers are showing you. Stay invested.

Where, F = Future Value, PV = Present Value, r= rate of return, N

= Number of Years for which you invest

Let us explain how this formula applies to retirement planning. FV = Future Value

Future value (FV) represents how much you want or need to have for a goal like a retirement.

You need to decide for how long you should remain invested.

Don’t try to change your investment just because the market has moved up or down.

Focus on time and stay invested. So, make sure to put your money to good use, and good time.

What Is the Rule of 72?

The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return.

The Rule of 72 states that the amount of time required to double your money equals 72 divided by your rate of return. For example:

    • If you invest money at a 10 percent return, you will double your money every 7.2 years. (72/10 = 7.2)
    • If you invest at a 9 percent return, you will double your money every 8 years. (72/9 = 8)
    • If you invest at an 8 percent return, you will double your money every 9 years. (72/8 = 9)
    • If you invest at a 7 percent return, you will double your money every 10.2 years. (72/7 = 10.2)

10. Wealth creation is a combination of time, disciplined activity and Not doing anything, most of the time, for your investments, which are on track, which are being monitored, which are under your control, don’t need to be looked at every now and then; in fact, now do nothing and be a long-term investor, a happy long-term investor to be happy and let your investments work for you.

A combination of all the above (under the supervision of an able planner, who can give you independent advice) can fetch you the maximised benefit for this combination. Hence, it is recommended to seek the advice of a professionally qualified investment advisor who is regulated with the country’s law.

A missing combination can result in a deadlock situation, and you may rather feel annoyed by the expected outcome of your long-term investments.

So, go out and enjoy the power of compounding and remain happy.

In the next chapter, we will learn about effective tools to evaluate your investments.

financial advisor in gurgaon

Taressh Bhatia is a CFPCM  cfpCERTIFIED FINANCIAL PLANNER CM  and is the founder/partner of Advantage Financial Planner LLP – A firm Registered with SEBI (Securities and Exchange Board of India) as RIA (Registered Investment Advisor).

If you have Liked the blog You can read more in the book – The Richness Principles.
Amazon Link: http://bit.ly/BookTRPAmazon

About ADVANTAGE FINANCIAL PLANNERS LLP: The Firm is registered with Government Of India-The Ministry of Company Affairs as a partnership firm. The firm is registered with SEBI (The Securities and Exchange Board of India) as "Registered Investment Advisors (RIA) under the SEBI (Investment Advisers) Regulations, 2013. Registration with SEBI as "Registered Investment Advisors (RIA) brings more formal approach, risk profiling, disclosure, and transparency. While the firm is a fee-based investment advisor, this brings you the opportunity to get unbiased, researched, accurate, transparent and professional advice. The firm is managed by the founder and its Partner, Taresh Bhatia. The company provides financial planning advisory services from its office in Gurgaon, India. The firm specializes in investment planning, retirement planning, tax planning, personal financial planning and wealth management. About Taresh: Taresh Bhatia is CFPCM CERTIFIED FINANCIAL PLANNERCM. He provides fee-only financial planning advice. He has helped over 300 families plan and organizes their economic life so as to move positively towards their financial goals. Taresh is an expert on financial advice and has three decades of industry experience. Among his qualifications, he is a CFPCM CERTIFIED FINANCIAL PLANNERCM and an MBA from IMI, New Delhi. He is also a member of the Financial Planners' Guild, India (FPGI), an association of Practicing Certified Financial Planners. If you have any questions, please email us at Support@advantagefp.in

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