Financial planning is important. In a inflationary economy such as ours and with continuous changes to the tax structure it becomes even more so. Quite simply it is the critical starting point of any meaningful wealth management strategy.
So what is financial planning? Well the first thing is not to think of it as a one off event. It is on going - a process of setting goals, evaluating where you stand against them, and then reviewing your progress towards them.
What do we mean by goals? Well it's more than just money. It's planning the children's futures. Making sure retirement is going to be the idyll you dream of. And, if things go horribly wrong, making sure your family are protected from the consequences.
So what is it for you look for? Quite simply its peace of mind. That sense of calmness and confidence that comes from knowing you are in control.
You're sure of two things – you want to protect the wealth you have, and you want it to grow. But there is a world's difference between knowing it and achieving it. Achieving it means ensuring that your wealth is working as hard for you as you are for it. And whilst you are hard at work, it is being protected at all times. You know that you need guidance. And you know that you need to start today. But you have to be able trust the advice you get. You need somebody who will take the time to understand you, not just your wealth. And they must be independent and fair, with your best interests at heart.
It may be about the good things in life – planning for your children's education, an unexpected windfall, a dream retirement or helping others. It may be to shield you from some of the less good things – a tax bill, a sudden illness or loss of job or loss in business. It certainly means that wherever possible, you want to avoid wealth-related surprises. Your strategy may be simply to protect your wealth or it may be to grow it.
Technology is all set to change the world of Financial Planning too in form of Robo Advisory as its already doing to many other professions. Robo Advisory are preferred models because of their unbiased approach. These are automated investment platforms that handle the construction and rebalancing/ maintenance of an investment portfolio. Concept is similar to the idea behind target-date retirement funds and other all-in-one funds. In both cases, the goal is to provide you one-stop-shopping for your entire investment portfolio.
Benefits with Robo Advisor:
1. High-Quality, Low-Cost Portfolios;
2. Ease of Use & Always available;
3. Hands Off Investing;
4. Regular Rebalancing;
5. Low Minimum Initial Investment Requirements;
6. Unbiased Advice, No Mis-selling & Less conflicts of interest;
7. Multitude of services;
On the whole, I think that robo advisors are a fantastic option. They offer high-quality, evidence-based investment portfolios at a low cost, making it easy for you to invest well no matter where you're starting from.
It's important to recognize that they are simply investment management tools, not comprehensive financial planners. They don't ensure your success and they might not help you navigate the complexity of your entire financial situation.
One of the most valuable benefits may not be obvious at first. Robo Advisors can save investors from making serious mistakes. For some people, saving money isn't a problem. Instead, they struggle to decide what to do with their investments. Some people trade too frequently, trying to time the market, or otherwise reacting to changes. This can cause people to make one of the worst investing sins possible – buying high and selling low. Other people make the mistake of waiting to get into the market, instead playing things too conservatively. Perhaps they sit on too much cash, or they fail to rebalance their portfolio because they fear they may make a mistake. They rebalance at set intervals, based on your predetermined risk tolerance. They stick to the plan. And in the long run, this can save many investors from making costly mistakes. But if you're purely looking for a simple way to implement a high-quality investment portfolio, robo advisors are a good choice. Robo advisors can be the perfect investment alternative for people who are not interested in do-it-yourself investing.
Robo advisors have stimulated more demand for artificial intelligence in the hopes that AI software will help personalize financial choices better. Due to their overall value proposition, robo advisors have grown very quickly.
Financial or Retirement Planning in our country isn't easy job despite having one of the highest savings rate among the world's relevant economies. Unstable inflation numbers, not-so-great economic growth, Indian's sickening liking for Gold, too many financial products, untrained financial advisors, etc are the reasons to be blamed to for this. Mis-selling either ways adds to the problem list of already confused indian investor.
Idea of writing this is to hep reducing the complexity in decisioning process.
Following are the 5 investment propositions in accumulation phase:
1.Mutual funds/ Equities: Nothing better than Equity Mutual funds for 5 years+ scenario,
2.Employee's Provident Fund (EPF),
3. Exchange traded funds (ETF): ETF can be done through Gold or Index,
4.New Pension Scheme (NPS): Its an Sec 80C investment and has delivered appox 10% in last 4 years,
Appropriate value of Term policy is also advisable during accumulation phase. Opting out of a term life policy is much easier than getting out of cash value policies. Further, many term life policies are "renewable" and "convertible". The premium for term insurance steeply increases with advancing age and hence insurance needs at higher ages cannot be economically met with term insurance.
5 propositions during distribution or Post-Retirement phase:
Pension Plans: Provided by insurance cos and AMCs/ Mutual Funds.
Fixed deposit/ Liquid Funds:
Monthly Income Schemes (MIS): Offered by various AMCs and Post-Office,
Senior citizens saving scheme (SCSS): The account can be opened in post office or any nationalized banks.
Reverse Mortgage: Pledge your house with a bank to receive tax-free income from the bank regularly for a set period of time.
Suggested Ideal allocation: