Finance

“Beware of little expenses, a small leak will sink the entire ship.”

It’s extremely important to understand the importance of money, investment and  financial management in our lives. It’s not about how much money you are worth, it’s about how you manage the available resources more effectively. Idle money is equivalent to not having any, hence never keep your money idle. Any disposable income left after saving sufficient money  for ~6 months of expenses  (rent/mortgage, food, travel, education etc) should ideally be invested wisely. In the United States, since savings/ checking accounts and other bank instruments do not provide any significant interest rates, it might be prudent to explore investment options like mutual funds, stocks, bonds etc. At a minimum, any significant net positive returns from the above investments might help fight inflation and retain the dollar value of our savings.

According to research from 2015, 25% of American families have no savings, 40% working Americans have not saved for their retirement while only 23% of adults acknowledge having an emergency fund that could last them at least six months. With companies providing retirement benefits and medical insurance, it’s easier to save for the our future. Around 93% of middle-class workers are participating in a 401(k) plan.

There are several platforms in the United States like Wealthfront and Betterment that help manage and invest your money. Wealthfront and similar automated investment advisors are a new breed of tech companies which allocate your money smartly across low-cost index exchange traded funds (ETF) that invest in stocks, bonds and commodities around the world. These platforms also provide continuous monitoring and automatic rebalancing of your portfolio to provide better investment returns, minimize capital gains tax liability, all at a low cost.

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In India, personal savings have increased from Rs. 20,547.37 Billion in 2012 to Rs. 22,124.14 Billion in 2013. India ranks first in retirement readiness (global survey conducted by Aegon Religare Life Insurance Co. Ltd). Recently several financial startups like FundsIndia and Scripbox have tried to revolutionize how people approach and purchase investments like Mutual Funds, Stocks etc.

FundsIndia provides customers access to a wide array of investment products like Mutual Funds, Stocks and ETFs, Fixed Deposits, 24 Karat Gold, Bonds, and more. The platform is renowned for its unique value-added services like Flexible Systematic Investment Plans (SIPs), Value-averaging Investment Plans (VIPs), Smart Solutions, Ready-to-go Portfolios, expert investment advice, and more that help investors get more out of their investments.

Why are the above financial services any different from traditional financial advisors? These new era financial services (Wealthfront, Betterment) rely heavily on data-driven, machine learning algorithms to recommend investments. They also rely on automation to execute the above recommendations in a timely fashion while being sensitive to market conditions thus drastically cutting down on personal biases, broker interests, and human errors. Since these platforms are fully automated, they cost little when compared to real world investment advisors. These platforms do not charge other ludicrous fees like account opening fee, journal fee, transaction fee.

I personally believe in saving for the rainy day. Once this emergency fund meant to last at least 6 months is put aside, I invest any idle money in a retirement portfolio. Many leading economists and Investment gurus recommend ‘Dollar cost averaging’ as a less risky but good wealth building strategy and the above platforms help achieve the same without adding additional costs and complexities of wealth management. One should always consider the following investment options (especially for Indian investments) –

  1. Fixed deposits/ bonds – for short term and long term investments with low risk and moderate returns.
  2. Stocks/ Mutual Funds/ ETFs – for short term and long term investments. Might provide higher returns but come with a higher risk.
  3. Gold/ Stable currencies – Gold is one of the safest investment options out there followed by stable currencies. However both commodity and currency trading are risky options providing high returns. These are suitable for active investors.
  4. Life Insurance policies – Something everyone should consider, to safeguard the future of their loved ones. This is a great option for both active and passive investors.

If you are interested in being financially prudent, make sure to follow these tips –

  1. Always make a budget – Even the world’s biggest economies run on a budget!
  2. Write down your expenses – This will help you to track and cut down unnecessary expenditure.
  3. Move your money to savings automatic transfers
  4. Remember Dollar cost averaging – passively invest in a variety of instruments. Let these financial platforms take care of your portfolio. Over a long period of investment, most active investors cannot beat passive investment returns.
  5. Invest in a diversified portfolio – do not keep all your money in one basket.

Wealthfront provides services free for the first $10,000 you invest and charges a flat 0.25% advisory fee for additional investments beyond the first $10K, which is extremely low when compared to what other financial advisors and big investment firms charge for similar services.

If you’d like to try it out for yourself, signup using this link to get $15,000 managed for free.

Did you know?

  1. U.S. paper money is not paper, It’s cloth. In Ben Franklin’s day, people repaired torn bills with a needle and thread.
  2. There are more credit cards than people in the U.S.
  3. $100 in 1970 is worth more than $622 today.

Disclaimer :- This is not a paid advertisement/sponsorship for any products or services mentioned above. I am a customer of some of the above services and all comments/ recommendation in this post reflect my personal opinion. Please understand the services throughly prior to investing.

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