How To Retire Sooner and Richer?

The mindset of today’s young professionals is changing radically. They would like to have a semi-retired life in their late forties or early fifties by taking up a hobby instead of a regular job.

Somewhere within all of us, there is a dream to reach a point in life where we have enough wealth to be able to choose the work we would like to do and the pace at which we would like to work, if at all we feel like working; a point also referred to as financial freedom. Financial Freedom is also interpreted as being able to spend whatever amount you like, on whatever things you like, month after month.

Here is a step by step guide to Retire Early.

How long you expect to live?

First of all, you need to decide on “How long you expect to live?” This is going to be the starting point for your retirement plan. This you can decide by your health history and your family health history.

Will you run out of money?

You need to accumulate enough money required to live up to that age. You need to calculate the corpus amount required for retirement based on when do you want to retire?, how much you need to spend every month after retiring?, Inflation, tax, investment returns and the like.

There are two things which can make you run out of money in between. One is inflation and the other one is medical expenses at the old age. So you need to be very careful in assuming inflation when planning for retirement. Also you need to be adequately covered with right health insurance policies.

Retirement corpus Break up.

You need to divide your retirement corpus into two portions. One portion of it is the corpus required to retire at the regular age. It could be 58 or 60. The other portion is the corpus required to live between the early retirement and the regular retirement. Say if you want to retire at 50, what would be the corpus required to live between the age of 50 and the regular retirement age of 58 or 60. First you need to accumulate money for your regular retirement. Then you need to proceed to accumulate for your early retirement. This way you break your targets and it psychologically gives you a lot of comfort in achieving early retirement.

Don't fall for get-rich-quick schemes.

To retire early, definitely you need a sizable corpus. Don’t look for any short cuts and get-rich-quick schemes. Only with the increased risk comes the increased return. If any scheme assures low risk and high return, then it is going to be another scam. So stay away from those schemes.

Don't fear stocks.

You need to consider investing in a well diversified portfolio for long-term. Diversified Equity mutual fund schemes are better. By investing in a diversified equity portfolio you will be taking calculated risk and not blind risk. Equities will beat all other asset classes in the long run. So it is an important option for those who want to retire early. Reduce your annual cash requirements for when you retire by working out a careful budget. The monthly income required after retirement is going to be an important criteria for deciding the retirement corpus. If you are comfortable with lesser income you can retire sooner. So you need to be careful in drawing a budget for cash requirement post retirement.

Investigate a better return on your savings.

Better return on your investment portfolio will help you retiring early. So maximize the return on your portfolio as far as possible.

Cut your current spending so you can save more.

Money spent is money saved. Spend less; save more; invest smarter and retire sooner. There are more number of ways to spend smarter to save more. Earn more now. Time is money. Don’t waste your time. Invest your time in revenue generating activities. Apart from your regular income source, there are other opportunities which you can exploit. You can create blogs; you can be a freelance writer; you can do internet marketing. There will be numerous opportunities based on your knowledge and skills if you take time to think and implement.

Take advantage of tax-deferred opportunities.

Tax deferment is an important tool for early retirement. Tax deferment means less tax now. If you pay less tax and you will have more money to save. You need to pay tax on FDs on maturity even if you renew them.Tax saving funds , Income funds and MIPs( Monthly Income Plans of mutual fund schemes) could be a better alternative to this. You need to pay tax only when you actually redeem.

Find out some ways to have an income.

Even after retirement you can have an income by way of a hobby or interest. You need not work on a regular schedule. Say you can be a trainer, you can be a blogger, you can be a consultant, or you can be an advisor in your chosen field. It generates money as well as it keeps you engaged after retirement. One of my clients has written a book and he is able to generate income from the copyright of that book year on year. If you are able to generate this kind of income, then you can retire early.

Retiring early is possible for each and everybody. You need to start planning for it little earlier. Professional assistance from financial planners will be of definitely useful to you, if you desire to retire sooner and retire richer.

The above matter views of Mr. Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

Is it the right time to invest?

Each and every investor would like to know when the right time to invest is. The ideal time for one to invest is obviously when the market is at a much lower level. So as to do the market timing, one needs to predict the market movements. Is it possible to predict in advance as to whether the stock market has peaked or will still rise to greater heights or the market has bottomed out or will further crash?

Warren Buffet, one of the successful investors and the world’s third richest person says,

• Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.
• Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.
• I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

It is highly not possible to predict the market always. The reason being stock market is not moving in a predictable or regular or particular pattern. But historically the stock market is moving up in the long term.

You could have seen a lot of success stories of people, who bought a good stock 10 or 15 years back and accumulated a good amount of wealth now because of the appreciation of those stock prices. But have you ever heard about a person accumulated wealth by timing the market or moving in and moving out of the market?

By timing you may make profits in a few transactions, but you will not be able to make profits forever. There is a lot of difference between making profit in a single transaction and being a successful investor forever. So time in the market is much more important than timing the market.
If there are investment experts who will be able to correctly predict the market they will not be writing or giving interviews about it in the media. They will be silently investing and making money without revealing their secret.

Successful mutual fund houses are not timing the market. They admit that it is practically not possible to do it. That is why they always maintain a fully invested portfolio. They will maintain a very small portion of cash to meet the liquidity requirements. They are not moving in and moving out of the market. On the other hand, the fund houses which tried to time the market by sitting on cash have delivered below average returns during the present recovery of sensex from 9000 to 17000.

Most of the big names in the stock broking sector were opening more new branches in the upcountry side during the second half of 2007 (when the sensex is moving closer to 20000 levels), expecting the market will go up further and their business will grow. But within six months, market has collapsed. At the second half of the 2008 these companies decided to wind up their newer branches in the upcountry as they were expecting further downside. But again within next six months market has started recovery.

SIP : SYSTEMATIC INVESTMENT PLAN

So, timing the market is really an obscure idea, investors should not fall prey for this. Perhaps a more appropriate question an individual investor should be asking is "Do I ever know when the right time to invest is?" The answer is “NO”. A long-term investor should invest on a regular basis during good and bad times. In the long-term, you will average out the ups and downs of the market.

The above matter views of Mr. Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

7 Secrets of Winning The Stock Market Game

Humans have a natural tendency to follow the crowd, but when it comes to stock market investing, following the crowd can often result in losses. Why replicate the mediocrity of the masses when you can clone the success of the World’s Greatest Investor?
The investment secrets of warren buffet have got unveiled here.

1) Look at quality businesses; not just the stocks

Warren Buffett said, “When I buy a stock, I think of it in terms of buying a whole company, just as if I were buying a store down the street.” Most investors don't analyse the businesses they invest in. They simply follow the symbols or brands of successful corporate houses.

If you are buying a shop, you will analyse about the products dealt by the shop, overall sales, consistency of sales, competition for the shop, competition strength of the shop, how the shop will manage the change in customer trends and so on. We need to apply a similar logic before choosing a stock. Don’t think that you are only buying a few shares of that company. Will you buy the whole company if you had enough money?

2) Are you willing to own a stock for 10 years? If no, then don’t own it even for 10 minutes.

Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years. In the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company. Looking at the short term opportunities in the stock market will not be a long term successful strategy. If you don't feel comfortable owning something for 10 years, then don't own it even for 10 minutes.

3) Check thousands of stocks and look for very high bargains

Avoid investing based on the stock tips or recommendation. Do your own research. Analyse thousands of stocks before choosing the right stock to invest. Once you have chosen a right stock, wait till the share is available at a very high bargain price. Buying a right stock at the right price is the key to investment success. Investors have the luxury of waiting for the “fat pitch”.

It is really difficult for an individual investor to analyse thousands of stocks and finding out the right time to buy a stock. If this is the case, you can outsource this portfolio management to a professional financial planner or wealth manager. But you need to be careful in choosing a professional who is capable and at the same time customer centric.

4) Scrutinize how well management is using the resources.

Check how efficiently the management is using its resources like money, manpower and material. This management efficiency will in turn reflect in Return on Equity and Return on Capital.

5) Always stay away from “THE HOT STOCKS”

The hot stocks are those stocks which have some attention catching activity such as severe volatility in share prices, high trading volume or when the stock is in news. Stay away from these hot stocks.

Warren Buffett once said, “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

6) How much money you will make?

Before investing in a stock calculate ‘how much money you will make’ in this investment. Of course, you need to make a few assumptions to do this calculation. But do calculate. Most often investors tend to ask the share is undervalued or overvalued. Identifying the intrinsic value of the stock is difficult and the various models available to calculate the intrinsic value are faulty. Warren Buffett wrote in a report “Unless we see a very high probability of at least 10% pre-tax returns, we will sit on the sidelines.”

7) Get rid of the weeds and water the flowers — not the other way around

People have this tendency of loss-aversion. That is when the share price has fallen down by 50%, they choose to wait. They convince themselves and others by saying “It will definitely come back”.
Also people will rush to book profit when their shares go up just by 10%. In effect investors tend to keep the loss making shares with themselves and they offload their profitable shares. Actually it needs to be the other way around.

These seven secrets properly applied in the stock market would be your roadmap to riches.