Getting CFP Certification - My Approach & Tips

I recently cleared CERTIFIED FINANCIAL PLANNER Certification. Below explains my approach while preparing for the Certification:

I took Challenge Status Route & attended IMS Pro School Classes in Mumbai over weekends. I studied for about 2 months over weekends before giving the exam. I thoroughly completed Case no. 14 to 24 given on Pro School Website. I Identified the gaps where I was not scoring & prepared comprehensive notes that came very handy. 

I reviewed all Theory Questions given on Pro School Website. I could only attempt one case in real time 4 hour target. I registered 2 Weeks before Exam & took 4 days leave before Exam. 99% Questions were covered in IMS Pro School Syllabus. I thought I did well, but actually did not. But I passed :)

I fell short of time in the Exam. This was very surprising. I was prepared to use Open Office. However, Mumbai Center has Excel :)  

Best of Luck

 

Investing Thumb Rules

The Economic Times - Wealth (Feb 14th Edition) has published a good collection of Thumb Rules for Investing.

• Rule of 72 - Double your Money. Dividing 72 by the compounded interest rate tells you how much time your money will take to double. For e.g. if your investment is earning 9%, then money will double in 72/9 = 8 years.
• Rule of 114 - Triple your Money. Dividing 114 by the compounded interest rate tells you how much time your money will take to triple.
• Rule of 144 - Quadruple your Money. Dividing 144 by compounded interest rate tells you how much time your money will take to quadruple.
• Rule of 70. Dividing 70 by the current rate of inflation tells you how fast the value of investment gets reduced to half its present value. As an example, inflation of 7% will reduce value of investment to half in 10 years (70/7). However, the assumption here is that inflation rate remains constant.
• 100 Minus your age Rule. Subtract your age from 100 to find how much percentage should be invested in equities. So if you are 30 years old, invest 70% (100-30) in equity.
• The 10, 5, 3 Rule. You can expect 10% from Equities, 5% from Bond and 3% from liquid / cash like accounts
• Emergency Fund Rule. Always keep aside 3-6 months worth of expenses in a liquid saving account for emergency purpose
• 4% Withdrawal Rule. Financial Planners typically suggest using 4% as a thumb rule to withdraw during retirement.
• Pay yourself First. Experts suggest that 10% of your income should go in for retirement corpus. The rule ensures that as you earn more, you save more for your retirement.
• Are you wealthy? Thomas Stanley & William Danko gave a thumb rule formula in 'The Millionaire Next Door' a book that studies selfmade American Millionaires. You are wealthy if your Net worth as on today equals (Age *Pre-Tax Income)/10. In the Indian context, the financial experts argue changing the denominator value. Instead of keeping at constant 10, it should be a sliding scale linked to age. Article says experts argue applying a denominator of 25 for a 20 year old and denominator of 20 for a 40 year old

Regards, Rohit

Credit & Reference: The entire post above is based on the article published in The Economic Times - Wealth, Feb 14th edition.

Financial Independence

This is a very big subject. But here are My quick thoughts:

• To me, Financial Independence is the state when one is consistently able to save 20 to 25% of his income.  
• 'Rich Dad Poor Dad' & 'The Richest Man in the Babylon' point one of the key factor as the ability to first pay yourself (save)
• Being financially independent is just not 'earn more, spend less & save more'
• Idea is to think through what one is earning and spending, forecast for next 2-3 years, decide on financial goals, identify the asset allocation and work on the gaps
• I find the spend control part to be very difficult, in this 'Consumerism' era. One approach that has worked for me is that I have frozen the spend amount on say electronic gadget and we typically plan our spends far in advance.
• One must keep asking 'Whats the best use of my Money'. Remember, once we earn money, the earned money should earn more money for us. 
• I have been tracking my Networth for last 5 years. Being conscious of my Assets & Liabilities has been very helpful, the same way the goal of 'Rs.100 Crores by 2035' keeps me driving.

Received Pathbreakers Series from Money Life. Looks interesting. Lets see when can I catch up with this.


Regards, Rohit

Financial Planner

I have enrolled for Certified Financial Planner certification, in line with my objective for 2011. Just the first step...long journey ahead !

Regards, Rohit

My Investment Style

Over a period of years I have evolved as an Investor. There is a change, there is a learning and experience. So here is how I see it today:

Good Part of my style:

1. I can analyze Stock performance from basic parameters
2. I can do a good job judging IPO investment opportunity
3. I can spot good MF schemes & quality stocks
4. Have been conservative
5. Historically, made decent profits in IPO (But IPO Money is getting difficult now)
   
6. I can analyze my own personal finance well
7. Good reading on the subject. I spend reasonable time to keep myself updated.

Not so Good Part of my style:

1. Not reached a level of analyzing the opportunities for Stock Investments on my own. Still need professional analyst reports. This is a function of time that I can spend so hoping to make better use of my time going forward.
   
2. Have not been opportunistic in terms of getting maximum buck. Thinking is 'If I am going to sell LIC Housing Finance years later at 2000 or so, it does not make a difference if I buy at 980 or 1025. In reality, even this difference, matters
   
3. Have not been able to network much with others & hence not learning the smart way
4. Personal Finance focus is largely on Stocks & MF. Have not yet done a comprehensive insurance for house, as an example.
5. Have not understood Technical methods, chars etc. Have not learned / traded in derivatives. Don't even intend to Trade in derivatives but knowledge would be nice.
   

Regards, Rohit

My Investment Tools

So here is what helps me to manage my personal finance.

While Outlook Money, Profit & Money Today help me to keep updated and get lot of good tips, I have stopped reading Value Research Insights Magazine since last 15 months or so after having started focusing more on Direct Equity. While, I have not added here, the starting point was of course classical books like Rich Dad Poor Dad & One Up on the Wall Street.

Then there is a brokerage chart available here. A handy tool for calculating total price of shares. I use Money Control for updating portfolio. tracking stock news etc. What you see at bottom is IPO calculator, available here. This is very handy to estimate the trading profit potential in a public issue


Regards, Rohit

Asset Distribution

So here is our family investments distributed across the asset classes. I have excluded Real Estate in this consideration. As I have mentioned earlier, I would like to include Real Estate as an Asset only when we have our second home. Including the current home, we live in Mumbai, will distort the asset pie as 3/4 pie will be in real estate category.

The Debt asset class comes out largest, thanks to my Retierment savings. In the years to come, I need to channelize my savings in the Equity Asset class to improve overall returns. Looking at our Family profile, I would eventually like this distribution to be 35% Equity, 35% Real Estate & 15% each in Gold & Debt.

Gold & Cash are normally once category - Cash & Equivalent. I am tracking separately since home loan linked current account earns me a decent interest. Also, right now I am sitting on cash that I hope to deploy in next 6 months. Let's see.

Regards, Rohit

Money Monitor

I came across the Money Monitor Service by Yes Bank. The Service will provide an integrated view of finance by combining various bank accounts, Fixed Deposits, Stocks, Mutual Funds, Credit Card, Reward Points etc. Something that I have been looking for. It briefly says Rs.149 p.a. as Service Charge and first 3 months as free. But its not clear if this is for complete gamut of the service. Sounds bit cheap but definitely impressive.

Regards, Rohit

Income Distribution Analysis

This is based on the current status + a forecast for next one year. I have included Retiarals investments by my Employer as well. The biggest expense is in the housing category towards servicing housing loan and flat maintenance, though the loan is @ 7.75% and this house in Mumbai was purchased in 2005. The flat maintenance is on a higher side @ 6.5 / Sq., being recently built, has all amenities and hence the high maintenance.

Investments @ 28% is at a satisfactory level. Forecast suggests that I will end up with 14% cash. So either I increase my monthly investments or look for another avenues for upfront investment. We may end up spending much more on vacation budget as I hope to take a vacation abroad in next one year along with parents. On the Donations category, I would progressively like to increase the spend to 10%. In the Car Category, Petrol is hardly 1.5% right now as I get some allowance from my Employer. Rest is Drivers Salary & Car Loan. The expenses are for all four of us viz. My Parents, My Wife & myself.

Regards, Rohit

Financial Planning - my thoughts

Very often I have been asked. Which mutual fund scheme is good? Which shares I can invest in? How much insurance is enough for me? And so on... I recently made a presentation to few of my friends. So here is a copy for you. Sorry, the presentation is not very intuitive and it's best when someone walks thru.

Basics of financial planning

Here are some of the basic things that one can keep in mind, for sound financial planning:

1. Make financial projections (income, expense, savings etc.)
2. Asses risk profile
3. Set financial goals (short, medium & long term)
4. Determine the appropriate asset pies. Current & Ideal state (e.g. 10%Cash, 10% Gold, 25% Real Estate, 25% Equities, 30% Debt-Retirement)
5. Over a period of time, ascertain sub pies & sub sub pies e.g. Equities into 50% Direct Equity (DE) : 50% Mutual Fund (MF)...further classification of DE can be into IT:Banking:Power sector etc. and MF can be into Diversified : Tax Saving : Balanced and so..
6. Draw an action plan to reach your ideal pie, over a period of time, which should in turn help you to meet financial goals
7. Always invest or disinvest regularly & Never at a stretch
8. If you are invested in a not so great fund, don't sell in a hurry as there could be tax implications.
9. Track your portfolio regularly.

There are many tools available for most of the above, on the web. If you need help, let me know. I will keep sharing my thoughts on the basics of investments.

Cheers

Interesting Articles for a New Investor

Power of Compounding
http://www.moneycontrol.com/planning_desk/powerofc.php

Dollar Cost Averaging
http://www.moneycontrol.com/planning_desk/dollarcostaveraging.php?step1=1

Rich Man Poor Man
http://ww2.dowtheoryletters.com/DTLOL.nsf/htmlmedia/body_rich_man__poor_man.html

How warren buffet made his millions
http://www.rediff.com/money/2006/dec/26buffet.htm

7 good reasons to invest in SIPs
http://in.rediff.com/money/2006/may/12perfin.htm

10 myths about Systematic Investment Plans http://www.rediff.com/money/2006/oct/26sip.htm?zcc=rl

5 fears of a first time investor http://www.rediff.com/money/2006/dec/01invest.htm?zcc=rl

Mutual Fund resolutions one must follow in 2007 http://markets.moneycontrol.com/india/newsarticle/stocksnews_newsletter.php?autono=258534

7 great investment tips for 2007
http://www.rediff.com/money/2006/dec/29invest.htm