Dividend growth investing
- Thread starter Mr.G
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Why and How to start an emergency fund.
Personal advisors always mention if you have maxed out your PPF contribution, have all sorts of insurance done. Then they permit you to invest in equity. But they fail to mention the most important and often over looked aspect of personal financial planning. To have an emergency fund.
This is the money you HAVE to put away as a last resort use. It can be used for as the name says “For Emergency Only”. This reduces the need for high-interest debt such as credit card debt.
In todays uncertain environment where jobs are lost at the wink of an eye, Employed people are most at risk of not having an emergency fund. Financial Advisors suggest to have atleast 3 months of living expenses stored in an emergency fund. I as a conservative analyst always suggest to have MORE than 8 months of living expenses. That’s sounds like a scary target. But it will provide for a healthy buffer in your most daring times of need.
To build an emergency fund I suggest that you saved a fixed amount of money and put it into a secondary savings account other than your primary and daily use savings account. This will help you from unnecessary use of the money.
You should invest this money in short-term deposits and short-term Bank F.D. This mixture will help you minimize premature withdrawal charges. As short-term deposits charge much less than an F.D. for premature withdrawal.
Leave the money to get compounded within the account. And don’t forget to add to the INITIAL account money as your living expenses grow. There is an option with most banks, called auto-sweep, where they will automatically shift money from your primary to your secondary account every month.
http://ghanishtnagpal.com/start-emergency-fund/
Personal advisors always mention if you have maxed out your PPF contribution, have all sorts of insurance done. Then they permit you to invest in equity. But they fail to mention the most important and often over looked aspect of personal financial planning. To have an emergency fund.
This is the money you HAVE to put away as a last resort use. It can be used for as the name says “For Emergency Only”. This reduces the need for high-interest debt such as credit card debt.
In todays uncertain environment where jobs are lost at the wink of an eye, Employed people are most at risk of not having an emergency fund. Financial Advisors suggest to have atleast 3 months of living expenses stored in an emergency fund. I as a conservative analyst always suggest to have MORE than 8 months of living expenses. That’s sounds like a scary target. But it will provide for a healthy buffer in your most daring times of need.
To build an emergency fund I suggest that you saved a fixed amount of money and put it into a secondary savings account other than your primary and daily use savings account. This will help you from unnecessary use of the money.
You should invest this money in short-term deposits and short-term Bank F.D. This mixture will help you minimize premature withdrawal charges. As short-term deposits charge much less than an F.D. for premature withdrawal.
Leave the money to get compounded within the account. And don’t forget to add to the INITIAL account money as your living expenses grow. There is an option with most banks, called auto-sweep, where they will automatically shift money from your primary to your secondary account every month.
http://ghanishtnagpal.com/start-emergency-fund/
With a number of Banks paying quiet lucrative Interest rates on Savings Bank account balances, it can also be an option for Emergency Funds ! And this would be most accessible fund at any time.
Also have heard about Sweep In / Out facility , where the funds are very easily transferred from FD to Savings and vice versa !
Also have heard about Sweep In / Out facility , where the funds are very easily transferred from FD to Savings and vice versa !
The Bank F.D. is seen as a safe option in field of fixed-income. But people who can take a little higher risk can invest in corporate debt. In the past 5 years debt has yielded a higher return than F.D. and Equity portfolios. They give high rate for taking on a little higher risk. We will compare the F.D. and Debt on various grounds and see which one is better overall.
Rate of Return
Bank F.D. gives a fixed return between 7%-8.6% p.a. depending on bank and duration.
Debt gives yields of 9%-11% with mixture of GOI bonds, Corporate debt and deposits.
Taxation
Bank F.D. is taxed on basis of regular income tax slab. People in highest tax slab will get low return from F.D.
Debt is taxed at regular income basis if sold in first year. After that it is taxed at 10% or 20% with indexation. You will also get benefits of double indexation if held for more than 2 years. Tax obligation is nil.
Liquidity
Bank F.D. are fairly liquid and take a few days to be liquefied and they carry a premature withdrawal charge of 0.5-2%
Debt is extremely liquid and can be sold in secondary market at will. It does not cost anything other than brokerage to sell. Which can range from 0.1-0.5%
Capital Appreciation
Bank F.D. do not appreciate in value and only yield interest income. In a falling interest rate environment.
Debt starts to increase in capital value. This give capital appreciation and interest income.
Risk of Investment
Bank F.D. is insured by government up to Rs.1Lakh. After that it carry theoretical risk. But banking sector is tightly regulated so risk of capital loss is low.
As debt is a more risky and needs to be diversified to protect against capital loss. They are also exposed to interest risk.
In my conclusion is that for those who have higher capital to be invested in fixed-income for medium to long-term. They can thoroughly diversify their debt holdings and take benefit from higher interest rates and capital appreciation in investing in debt portfolio.
http://ghanishtnagpal.com/comparison-bank-f-d-vs-debt-portfolio/
Rate of Return
Bank F.D. gives a fixed return between 7%-8.6% p.a. depending on bank and duration.
Debt gives yields of 9%-11% with mixture of GOI bonds, Corporate debt and deposits.
Taxation
Bank F.D. is taxed on basis of regular income tax slab. People in highest tax slab will get low return from F.D.
Debt is taxed at regular income basis if sold in first year. After that it is taxed at 10% or 20% with indexation. You will also get benefits of double indexation if held for more than 2 years. Tax obligation is nil.
Liquidity
Bank F.D. are fairly liquid and take a few days to be liquefied and they carry a premature withdrawal charge of 0.5-2%
Debt is extremely liquid and can be sold in secondary market at will. It does not cost anything other than brokerage to sell. Which can range from 0.1-0.5%
Capital Appreciation
Bank F.D. do not appreciate in value and only yield interest income. In a falling interest rate environment.
Debt starts to increase in capital value. This give capital appreciation and interest income.
Risk of Investment
Bank F.D. is insured by government up to Rs.1Lakh. After that it carry theoretical risk. But banking sector is tightly regulated so risk of capital loss is low.
As debt is a more risky and needs to be diversified to protect against capital loss. They are also exposed to interest risk.
In my conclusion is that for those who have higher capital to be invested in fixed-income for medium to long-term. They can thoroughly diversify their debt holdings and take benefit from higher interest rates and capital appreciation in investing in debt portfolio.
http://ghanishtnagpal.com/comparison-bank-f-d-vs-debt-portfolio/
SIP Systematic Investment Plan - Don't Be Fooled By Your Advisor!
SIP or systematic investment plan is nothing but a system in which you invest a small sum of money at regular intervals in a security. This was made famous by the AMC industry. And is lauded as the safest and sure way of building long-term wealth. It is only safe the them as if something goes wrong they can readily blame the SIP, and they make commissions and brokerage on your investments.
We will examine whether SIP is really better lump sum investing.
Stated benefits of SIP include Cost Averaging and compounding of investments. It is common knowledge that SIP helps catch bottoms. But everyone fails to realize that it catches tops with the same efficiency.
If you were having SIP in NIFTY50 you had the same chance of buying at 5500 aswell as at 6200. This means that most of your gains get wiped out when you buy at the top.
The only condition where SIP will make money is in a Bull or rising market. But will you want to cost average up in the rise? Buying in lump sum is better suggested in a bull market.
In a ranged market or sideways market, neither lump sum nor SIP will work better than the other.
In a falling market again both will give negative yield. SIP will fare off than lump sum as each new investment will be into more negative price, downwards cost averaging.
In case of temporary downward movement and then upward correction lump sum will give the most profit as SIP will again average out both bottom and top.
We should note that:
SIP will not generate better return than lump sum in most cases.
Cost Averaging in SIP is a double edged sword. It can bring positive aswell as negative result for the investor.
In the end I conclude that, it may not be the safest route for investors but is is definitely the safest way of making profit for AMC industry.
http://ghanishtnagpal.com/sip-systematic-investment-plan-dont-fooled-advisor/
SIP or systematic investment plan is nothing but a system in which you invest a small sum of money at regular intervals in a security. This was made famous by the AMC industry. And is lauded as the safest and sure way of building long-term wealth. It is only safe the them as if something goes wrong they can readily blame the SIP, and they make commissions and brokerage on your investments.
We will examine whether SIP is really better lump sum investing.
Stated benefits of SIP include Cost Averaging and compounding of investments. It is common knowledge that SIP helps catch bottoms. But everyone fails to realize that it catches tops with the same efficiency.
If you were having SIP in NIFTY50 you had the same chance of buying at 5500 aswell as at 6200. This means that most of your gains get wiped out when you buy at the top.
The only condition where SIP will make money is in a Bull or rising market. But will you want to cost average up in the rise? Buying in lump sum is better suggested in a bull market.
In a ranged market or sideways market, neither lump sum nor SIP will work better than the other.
In a falling market again both will give negative yield. SIP will fare off than lump sum as each new investment will be into more negative price, downwards cost averaging.
In case of temporary downward movement and then upward correction lump sum will give the most profit as SIP will again average out both bottom and top.
We should note that:
SIP will not generate better return than lump sum in most cases.
Cost Averaging in SIP is a double edged sword. It can bring positive aswell as negative result for the investor.
In the end I conclude that, it may not be the safest route for investors but is is definitely the safest way of making profit for AMC industry.
http://ghanishtnagpal.com/sip-systematic-investment-plan-dont-fooled-advisor/
The myth of passive income businesses.
People believe that passive income is the best what to make wealth over the long term without doing any work themselves. It is defined as income generated without much personal interference for work. I believe that there are many pitfalls to passive income and today I will details some of them to you:
1. You can’t stay ahead of the active competition in any field if you do not maintain a watchful eye on your income source. This results in loss of edge in the long term and loss of market share. If there are people who are more active and provide a better service than you. You will lose you r market share in an instant.
2. You can’t maintain loyal costumers passively as soon as your costumer/clients find out that you don’t care about them (which you don’t) then they will eventually leave your firm and go to someone else who provides them with a more personal experience. You’re not going attract good costumers this way.
3. You will not get great employees if you passively manage a business. It will only attract the lowest rung people from the worker pool. Your workers will be a bad reflection into your own business ruining any future prospects of getting new costumers. Employees will be a reflection of the person hiring them; they will be least bothered and caring.
4. You will not create any specialization or goal for yourself. You will be without a particular goal or passion. There are people living the dream through use of passive income, but we should ask ourselves, whether passive income will give us a pursuit or not? With following passive income you will be jack of all trades and master of none. It is better to stick to a particular niche. Or if you own more businesses then take a more active part in them as no income is truly passive income.
http://ghanishtnagpal.com/myth-passive-income-businesses/
People believe that passive income is the best what to make wealth over the long term without doing any work themselves. It is defined as income generated without much personal interference for work. I believe that there are many pitfalls to passive income and today I will details some of them to you:
1. You can’t stay ahead of the active competition in any field if you do not maintain a watchful eye on your income source. This results in loss of edge in the long term and loss of market share. If there are people who are more active and provide a better service than you. You will lose you r market share in an instant.
2. You can’t maintain loyal costumers passively as soon as your costumer/clients find out that you don’t care about them (which you don’t) then they will eventually leave your firm and go to someone else who provides them with a more personal experience. You’re not going attract good costumers this way.
3. You will not get great employees if you passively manage a business. It will only attract the lowest rung people from the worker pool. Your workers will be a bad reflection into your own business ruining any future prospects of getting new costumers. Employees will be a reflection of the person hiring them; they will be least bothered and caring.
4. You will not create any specialization or goal for yourself. You will be without a particular goal or passion. There are people living the dream through use of passive income, but we should ask ourselves, whether passive income will give us a pursuit or not? With following passive income you will be jack of all trades and master of none. It is better to stick to a particular niche. Or if you own more businesses then take a more active part in them as no income is truly passive income.
http://ghanishtnagpal.com/myth-passive-income-businesses/
Common Myths About Dividend Investing That You Believe!
Many investors don’t take up dividend investing, because they associate them with these myths:
Some investors believe that instead of waiting up for a full year to get a 6%-8% dividend, you’ll make 6-8% per day with trading volatile stocks. The very fact of the matter is that few if any investors may accurately forecast securities market moves within the market nowadays. Dividend payments on the opposite hand are a lot of less volatile than stock prices, that is what makes them perfect for investors who have decided to live off their investments. The soundness of the payments makes them a reliable supply of financial income in nearly any market, while not having to sell some of one’s stocks and exposing yourself sudden fluctuations.
Investors believe that you have to begin with an outsized portfolio size as to come up with any good financial gain off your investments. The fact is that you don’t need an outsized portfolio to profit from dividend income – you’ll begin tiny and work your way thanx to compounding over time. By beginning tiny, investors might lose tiny amounts while learning their financial methods till they are excellent at them to a tolerable degree to suit their personal investment goals and risk tolerances. Investors who begin massive and make mistakes have way more to lose more.
People say that dividend investing is for retirees and older people who can’t afford to take much risk. But infact it is the perfect strategy for younger people. As power of compounding (the most powerful force in the financial universe) is on their side. If a young investor takes a low risk method right from the start he will surpass in financial health, any other investor taking high risk. As the high risk investor will lose more and will take more time to cover up loses. Where are low risk investor is already compounding profits.
Investors believe that a high dividend stock is better to get decent long-term income on your investment. Truly you don’t have to be compelled to choose the corporate with the very best dividend yield so as to achieve success at dividend finance. Actually firms that have a line of consistent dividend increases for over 10 years might generate higher yields on value within the future that might surpass even the very best yielding stock of nowadays. Such firms have achieved an ideal balance between the requirement to fund the expansion in their business and give money to shareholders. This is often a strong combination that ensures that investors have a solid foundation for future distribution growth and conjointly the chance to get capital gains as well.
Dividend Growth Stock will give a positive real return in Bull aswell as Bear markets. Making them superior to common stock.
http://ghanishtnagpal.com/common-myths-dividend-investing-believe/
Many investors don’t take up dividend investing, because they associate them with these myths:
Some investors believe that instead of waiting up for a full year to get a 6%-8% dividend, you’ll make 6-8% per day with trading volatile stocks. The very fact of the matter is that few if any investors may accurately forecast securities market moves within the market nowadays. Dividend payments on the opposite hand are a lot of less volatile than stock prices, that is what makes them perfect for investors who have decided to live off their investments. The soundness of the payments makes them a reliable supply of financial income in nearly any market, while not having to sell some of one’s stocks and exposing yourself sudden fluctuations.
Investors believe that you have to begin with an outsized portfolio size as to come up with any good financial gain off your investments. The fact is that you don’t need an outsized portfolio to profit from dividend income – you’ll begin tiny and work your way thanx to compounding over time. By beginning tiny, investors might lose tiny amounts while learning their financial methods till they are excellent at them to a tolerable degree to suit their personal investment goals and risk tolerances. Investors who begin massive and make mistakes have way more to lose more.
People say that dividend investing is for retirees and older people who can’t afford to take much risk. But infact it is the perfect strategy for younger people. As power of compounding (the most powerful force in the financial universe) is on their side. If a young investor takes a low risk method right from the start he will surpass in financial health, any other investor taking high risk. As the high risk investor will lose more and will take more time to cover up loses. Where are low risk investor is already compounding profits.
Investors believe that a high dividend stock is better to get decent long-term income on your investment. Truly you don’t have to be compelled to choose the corporate with the very best dividend yield so as to achieve success at dividend finance. Actually firms that have a line of consistent dividend increases for over 10 years might generate higher yields on value within the future that might surpass even the very best yielding stock of nowadays. Such firms have achieved an ideal balance between the requirement to fund the expansion in their business and give money to shareholders. This is often a strong combination that ensures that investors have a solid foundation for future distribution growth and conjointly the chance to get capital gains as well.
Dividend Growth Stock will give a positive real return in Bull aswell as Bear markets. Making them superior to common stock.
http://ghanishtnagpal.com/common-myths-dividend-investing-believe/
Weighting Asset Allocation
This is the classic buy-and-hold strategy for investing. Once we establish a basic mix we do not deviate from it, with time as prices of our assets rise and fall. The weight age of each asset changes, We then rebalance our portfolio by selling the assets that have risen and buy the assets that have fallen. When to do rebalancing is a matter of personal choice and economic viability. Our goal is to rebalance and bring out portfolio back to the initial weight age for all assets.
Strategic asset allocation
In this strategy we use the historic returns of assets and expected returns in the future to make a base combination of all the assets. This strategy may not be all that rigid as we also your tactical allocation of our portfolio to benefit from occasional short-term investment opportunities by deviating from our base combination. This flexibility creates a mixture of buy-and-hold and market timing.
Insured base asset allocation
We create a base for our portfolio that will bring fixed and guaranteed income and try to gain further capital appreciation with the remainder of the portfolio. This method is suitable to for investors who desire less risk and still want the advantages of an equity portfolio. This establishes a minimum base return for the assets should your equity portfolio ever drop in value. The rest of the portfolio is actively managed to bring in better gains over and above the base return. This is the method of my recommendation and choice.
In degrees of risk tolerance:
Weighting asset allocation: Average Risk
Strategic Asset Allocation: Above Average Risk
Insured Base Asset Allocation: Low Risk
http://ghanishtnagpal.com/asset-allocation-works/
This is the classic buy-and-hold strategy for investing. Once we establish a basic mix we do not deviate from it, with time as prices of our assets rise and fall. The weight age of each asset changes, We then rebalance our portfolio by selling the assets that have risen and buy the assets that have fallen. When to do rebalancing is a matter of personal choice and economic viability. Our goal is to rebalance and bring out portfolio back to the initial weight age for all assets.
Strategic asset allocation
In this strategy we use the historic returns of assets and expected returns in the future to make a base combination of all the assets. This strategy may not be all that rigid as we also your tactical allocation of our portfolio to benefit from occasional short-term investment opportunities by deviating from our base combination. This flexibility creates a mixture of buy-and-hold and market timing.
Insured base asset allocation
We create a base for our portfolio that will bring fixed and guaranteed income and try to gain further capital appreciation with the remainder of the portfolio. This method is suitable to for investors who desire less risk and still want the advantages of an equity portfolio. This establishes a minimum base return for the assets should your equity portfolio ever drop in value. The rest of the portfolio is actively managed to bring in better gains over and above the base return. This is the method of my recommendation and choice.
In degrees of risk tolerance:
Weighting asset allocation: Average Risk
Strategic Asset Allocation: Above Average Risk
Insured Base Asset Allocation: Low Risk
http://ghanishtnagpal.com/asset-allocation-works/
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