Posts in category "financial-planning"
-
Budget 2024 And How It Affects Me
Budget 2024 announcements concluded and like every year I have to check if it affects me. This budget was a major headache for my calculations. It doesn’t affect how I invest but making the tax calculations will take a lot of time. There were some bad surprises but that is how budget works. You just have to work with it. For one, the short term capital gains tax was increased from 15% to 20%. Indexation benefits have been removed. A big blow for real estate and long term debt mutual funds (in certain cases). There was some good news in the way of changing tax slabs for new regime and increasing standard deductions, but neither of them apply to me.
...continue reading -
Should You Prepay If You Are Nearing The End Of Loan Period
I recently wrote a post on whether one should prepay loan or invest if you have extra savings lying around. A reader commented that a friend had a different opinion about prepaying loan when she is already at the end of the loan period. Here is the comment again for your reference – “Not used to loans, but different view from my friend. She had availed personal loan for 4 years (if I’m correct) and was in 3rd year when she received a good bonus that she can close her loan but instead she didn’t. When asked she said as part of EMI she had paid all interest and what she is paying is her principal and very minute interest so she said it’s unworthy to repay the loan. She had a point there”. While she is correct in that, one is paying more of the principal than interest towards the end of a loan period, the benefits of prepaying still remain.
...continue reading -
Should We Go With 3% Rule?
I recently wrote a post about asset allocation in which a reader commented whether we should be using 3% safe withdrawal rate in Indian context instead of the 4% safe withdrawal rate that is generally accepted in the US (at least in the past). The commenter also provided a video supporting the 3% rule. I strongly encourage you to watch that first. It makes some good arguments. If you are interested, I’d also suggest you read the paper which contains all the details, assumptions, data and methodology used for the simulations. According to the research paper, it is recommended that one should go with a 3% safe withdrawal rate instead of the generally well known 4% rate.
...continue reading -
Is The Stock Market Peaking?
I am a little bit concerned. The stock market has been giving great returns for the past 3 years or so. Since the COVID-19 pandemic there has never been a long drawn bear market scenario. How long can this continue? On top of it, I see more and more people getting involved in trading. Some are even quitting their jobs to do trading full time. Generally, when there is euphoria in the market, you see these kind of events happening. New traders, who think they are investors and think they have the know how, enter the stock market just as the market starts peaking. Then, armed with a bunch of algorithms based on back testing, start to do algo trading. When you see more and more of these people, you know the time has come for the market to crash.
...continue reading -
Don't Be Fully Invested
While I encourage everyone to invest as much as possible, I’d also like to advice you to not be fully invested. I know this sounds a bit contradictory, but it actually makes sense if you analyze it. Some of us are excellent savers and investors to that point that any amount that we can save, we immediately think of investing. This is as much of a problem as people having trouble controlling their spending. If you optimize your investments to the point that you no longer have any buffer or flexibility left for unexpected expenses, you are in trouble. I have seen this happen to a couple of friends in the recent past and thought I’d pass on the advice so you can avoid similar mistakes.
...continue reading -
Should You Prepay Loan Or Invest?
When you have some savings you might wonder whether to invest the savings or prepay your loan. I have always suggested a simple thumb rule, which is that if you anticipate your investments to give you better returns than the loan interest rate then invest, otherwise prepay your loan instead. Generally, for almost all kinds of loans the return on investment is usually lower than the loan interest. One exception is home loan which has a much lower effective interest rate because you get tax benefits. For most other loans it is better to prepay. That is a very simplistic rule, but does it really work? Let’s find out.
...continue reading -
What Is The Right Asset Allocation
In discussions with various people, the question about asset allocation always comes up. Some want to know what asset allocation they should follow. Others question my asset allocation. Unfortunately, there is no one answer for what asset allocation one should go with. Everyone’s situation is different and their risk appetite is different. They should go wih an asset allocation that they are comfortable with. If they can’t figure it out by themselves, then they should hire a financial planner who can tell them what asset allocation to go with given their situation and mindset. If you push me to give one number, I always say 70% in equity and the rest in fixed income if you plan to retire early, but even otherwise too. In this post I want to go into some nuances.
...continue reading -
The Cost Of Ignorance
Neither mrs. reynd nor myself (especially myself), are good negotiators or bargainers. Not sure how that happened, but I have a hunch as to why that might be the case. I know this weakness very well and hence delegate almost all bargaining to my better half. She is slightly better in this aspect but not by much. We have seen this come up over and over many a times, to our detriment, but we are probably too lazy to correct ourselves. The re-discovery of our skills (or lack there of) came to light just a few days ago when we decided to get our house painted.
...continue reading -
Changes To Extraordinary Items Reporting
Recently I made some changes to how I report my extraordinary items. These items could be expenses or income. An extraordinary item is an unusual expense or income that is not accounted for in budget. Generally, I have planned expenses and have a budget for them, but in some rare cases, I had either unexpected income or expense that was not planned. Earlier, I used to consider all extraordinary income as growth in corpus and all extraordinary expenses as growth in expenses. But lately I have changed the reporting. Now, both extraordinary expense and income are considered as growth or drop in corpus. I applied the changes retroactively to all old expenses too. Read on to understand why I made this change.
...continue reading -
The Markets Of 2023
The year 2023 is behind us, and this year was definitely less eventful than the past 3 years. Since COVID hit, things have changed quite a bit. It all started with the virus of course that wreaked havoc all over the world at the same time. There were a lot of side effects. Many lost loved ones, we were restricted to home isolation and lock downs were introduced. For the first time ever, we had everything closed including schools. Only the emergency services were running. The new work from home culture started. Then came pumping money in the fear and anticipation of reduced spending. The free flow of money caused inflation because people now had more money but nowhere to spend. Remember, everything was closed, so you could spend on nothing but food and health. Then came interest rate hikes to control the inflation. What a crazy ride.
...continue reading