Shanti and Mahesh, with their five-year-old son Amit, were a happy family. And, suddenly, one day, tragedy struck, when in an accident, Mahesh died. Now, all the responsibilities of the household, including investment and planning, were Shanti?s lookout. For a person who had left the investment planning part with Mahesh, this was an onerous task. How do we plan the investment?
Siddharth and Reena, after nine years of married life, have separated. Their little daughter, Divya is with her mother who has no experience about managing investments and planning for the future. These are some of the cases wherein a single parent suddenly has to start managing investments and also plan for the future. The questions we all ask is: Am I equipped to handle this and will I be able to provide for the needs of my child and also my own?
The method: There is no easy way out. You have to sit down, note the things in order of your preference and, then, with the available resources, plan out the strategy. This is where the time-tested strategy of writing down your needs/goals, the time horizon for the goal, liquidity needs of the goal and your risk appetite are considered.
Along with the above, your available resources for meeting the goals should be taken into account. Both Shanti and Reena are single parents, but their circumstances are different. However, the needs and aspirations are similar ? ensuring education for their child, maintaining the existing lifestyle, investing in assets in which returns are predictable and do not carry volatility.
The path: The initial part will be risk management. First and foremost, take out a term plan. This will ensure that in an unfortunate event of the death of the parent, the child?s future is not affected for reasons of money. A simple term plan, based on the goals decided, will suffice. Second, with the rising health care cost and increasing life expectancy, health insurance policy is recommended. Now that risk is covered, the next step would be plan the investments.
The most important rule to follow is to understand the asset class and the investment product thoroughly before investing. Do not go by the sales pitch of your banker or your friendly insurance advisor. Ask questions about the products. Check how the products will help you attain the goals.
Seek feedback from other investors who have invested in similar products. Most mistakes are made at the point when investments are first carried out. Once invested, the cost of exit is very high, as there is a cost to exit and two, there is the opportunity cost of reinvestment.
Become financial literate and it is easy. As more you probe, the answers which are shared, will throw more insights and nuances which could have been missed, are now out in the open.
Another point to note is to make a Will. Since life is full of uncertainties, we should control what can be controlled and within our sphere of influence. By making a Will, you can ensure that even in your absence, the future of your your child is not effected.
The point to note is that you need not undertake multiple and complex strategies. Get the basics in order and the entire strategy is then easy to follow and implement. With so many financial products, media information and advisors doling out recommendations, you should try and have one financial advisor who can guide you and ensure that the investment strategy and goals are in line with your aspirations. What is good for Shanti may not be recommended for Reena, based on their needs and requirements.
The loss of the loved ones, either through death or separation, is a personal grief. But life goes on and you need to ensure that you are well provided for and you, too, ensure that the future of your loved ones are not compromised.
The writer is founder & managing partner of Zeus WealthWays LLP