Monday, October 25, 2010

Basics of Finanacial Planning - Part 3

Basic Rule # 1
Basic Rule # 2

Basic Rule # 3 
                  ... is to evaluate your portfolio time to time.

As we have seen in first 2 Basic Rules, understanding money and investing it on time is very important. Not only investing it on time is important, but evaluating your portfolio and keep it up to date is very important next step.Evaluation gives you clear sight of where you stand and how long you will have to go in order to achieve your goal. If portfolio is evaluated time to time, assets will be evenly distributed among equity, debts, bullion, bonds, long term FDs etc.

The true investor should have these 3 'E's to evaluate his portfolio.
3.Excess cash

    Experience is the key for investment. But as stated in previous blog, financial planning is trial-and-error tool and one minor mistake can lead your portfolio to havoc. Learn from others experience, its good. But don't trust on others tale-a-tell. People tend to show their 'fake' success and create stories on that. Don't fall in the trap. Even the person, who is giving you tip for investment, is successful investor, his tip may not suit you, as you both are different personality at all. Investment is like Homeopathy, same medicine will not suit other person, even with same symptoms.Start investing small amount and then learn to invest. You may suffer some loss in starting, but as the invested amount is less, the loss will be also less. Remember, practice makes the man perfect.

   Education here, does not mean your high school certificate, or college degree. Even if you know basic maths and compound interest, you can play well in investment field. Education means, knowing more about your options. Be up to date about your portfolio, learn to read Profit/Loss account, Income/Expanse account and Balance sheet. Keep yourself updated by reading about companies, markets and upcoming trends in industry.

   Excess Cash is also very important for investment. If you don't have excess cash and you are struggling for your  day-to-day living, its not possible that you invest. even in that condition, if you get money by lottery, then also, you will blow them all. Spend less and save more - this is the sure way to get excess cash.

  This is all for the day, keep reading for next blogs, next Basic Rules..

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