2017 was an eventful year and full of surprises both for savers and investors. As we look towards 2018, it is easy to be worried about personal finance, i.e. your money. At the start of any new year, you can point towards this or that event or factor, but ultimately it’s an uncertain world. So, what should you do with your personal finance with the all the potential changes? The answer is simple: stick to your goals and continue working with your advisor. Let me explain why.
Extraordinary task for ordinary people
The PPF interest rate, deposit interest rate, loan interest fell in 2017. Equities, stock MFs and Bitcoins rose. Nobody could have predicted the asset movements at the start of 2017. You are not a professional investor, who is driven by their business needs to always ‘do something’. Ordinary people and individuals, who can’t take out more than an hour once in a while to take care of their investments, have an extraordinary task in 2018: to stay focussed and not let short-term events get you off-track.
2018 will be another year, which if you play well, will take you closer to your stated goals. When it is about your money, loans, credit cards, investments and plans, stop reading and reacting to the consensus view. Time and again, predictions have gone wrong, and even if predictions were right, the markets did not react to those outcomes in the way they were expected to. This teaches us something: We need not bother about what will happen to everything. All we need to bother about is whether our plans are relevant and if not, how can you correct the course. The average saver or the average investor needs good and timely advice. This is why an advisor is all you need to hold your hand for 2018, 2019 and beyond.
Goals never change with every new year
Our financial goals like buying a house, saving for retirement, down-paying house loan and prepping for child’s education or marriage will not change in 2018. Yet, we care too much about events and forget to go according to the plan that is based on sound principles. When you plan according to your needs and lay out a road-map, the approach to personal finance would be the same for any and every year. It broadly remains unaffected, no matter what you expect would happen.
As a good advisor will tell you, the right advice would be one that wouldn’t change from year to year. Yes, there is a load of stuff on the Internet telling you about “Best Investment Avenues for 2018”, or “Where To Invest in 2018” etc. These are just catchy headlines; nothing more. As far as the actual investment strategy for the individual investor goes, that’s no different for 2018 than it was for 2017 or for that matter 2016 or any other year.
So simple, yet so difficult
Irrespective of when you begin, your personal finance approach has to be simple. You should divide financial investments into different groups based on the time-frame over which you will need that money.
Firstly, the emergency fund must be ready. This would be in form of cash and some of it in a savings account.
Second, you should keep money you will need over the next two years. This can be kept in fixed-income options like small-savings schemes or debt mutual funds. As 2017 has shown, these are on their way to earning less than they used to. However, there’s nothing much you can do about that if 2018 sees more of the same. Short-term money must be kept in such instruments. Period.
Third, everything else that is there is for the longer term. Markets can be at any level, but this long-term money should be invested gradually into equity-backed funds. It’s a simple and effective strategy.
Fourth, on the liabilities side, you will continue to have to take care of loans that you may be carrying. Keep a tight leash on spending, because you don’t want to run out of cash.
Conclusion: Personal finance is a much bandied around topic. Yes, it may seem too large sometimes, but it starts with YOU. If your personal finance plan works without predictions and reactions, and only follows principles, 2018 will be a good year. Demonetization, meltdown, Brexit, GST, Bitcoins, rising G-Sec yields and falling gold prices — you can throw whatever you want at it with full force, but it’ll come out fine. Stick to your goals and continue working with your advisor.
(By Anil Rego, Founder and CEO, Right Horizons)