Why everyone needs a financial planner……and I mean it when I say everyone!

A lot of people wonder “Why do I need a financial planner?” or “Why do I need a planner when all financial calculators are available online?”. Some people also think that “I cannot afford a financial planner as I do not have enough wealth!”. Many people who are not aware of the benefits of having a financial planner think this way. These thoughts and ideas are some of the myths that we shall address in this blog today.

With the abundance of information available online, the role of a financial planner becomes even more critical as every financial plan is customized to suit the needs and goals of the individual. A planner will give you a bird’s eye view of your financial situation because they are on the outside and can look at your finances holistically.

With the ever changing and dynamic global and domestic economic conditions and financial markets having a financial planner is of utmost importance. A prudent planner cannot predict, but will always guide you well to be prepared for global or domestic events which can have material impact on your financial goals.

A financial planner advises you on the following-

• How much you need to save while you are earning?
• How much would you need for retirement as per your lifestyle and nature of expenses?
• What type of loans you should have or payoff?
• How much and what type of insurance you need?
• How much you should have as contingency funds?
• How can you be more tax efficient in your investments?
• How much returns should your investments generate in order to achieve your goals?
• How inflation will affect your goals and finances? What projections and estimates are to be considered to account for inflation while planning for goals?

 

A financial planner helps you to organize your finances and assesses how prepared are you for your goals – for example – retirement. Professional financial planning goes far beyond just picking stocks or products. Hiring a planner arms you with the expertise and resources with which to approach planning your financial future.

 

A common misconception that people have when it comes to financial planners is that they will make you a millionaire overnight or advise you to invest in stocks which will give you multi-bagger returns. Financial planners help you to prioritise your financial goals and work with you to devise ways to achieve them.

 

A financial planner would be aware of appropriate financial opportunities and investments which will help you in taking wise financial decisions. Helping clients avoid ‘buy high and sell low’ is also one of the great benefits financial planning can bring. A planner will help you stay invested  in a bear market and at the same time will help you not get over-optimistic in a bull market.  A recent neuroscience experiment has proved that people with expert financial guidance are less stressed and better able to face challenges and absorb information relating to their own financial decisions.

 

So you may say that – “Why do you need a Financial Planner? I can do all this for myself”. For this you have to ask yourself these few questions-

• How prepared are you to spend hours to assess the fundamentals of a mutual fund or company whose stock you are buying?
• Can you spend hours analysing and building a portfolio that can give you retirement income and is tax efficient?
• Can you analyse the complexities of different PMS products, mutual funds, insurance plans and annuity plans and determine the best mix for yourself?
• Can you keep regular track of your goals and related investments?
• Can you objectively assess your portfolio and keep emotions out of your financial decisions?

Usually we find the answers to most of the above lead to the need of seeking the professional help of a financial planner.

 

A financial planner possesses specialized training, knowledge, certifications and the requisite experience to handle all the above possible options. A financial planner is therefore better equipped to plan for you.

To put all of this in a nutshell, a financial planner helps you set your priorities and financial goals, helps understand the corpus needed for each of them and guides in devising customised ways and means to achieve your set goals.

Even in the busiest or most stressful times in your life – be it marriage, birth of a child or job change or any such transition, the financial planner is able to safeguard and nurture your wealth with sound advice and experience. In such situations of transition, a planner instils a kind of financial discipline and diligence which is much needed.

When you normally want to get a job done right, you usually hire an expert, so why should the same not hold true in the case of your finances? Talk to Plan Ahead Wealth Advisors today to know how a financial planner can help you.

 

 

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Are you your own doctor ?

A few days ago, I had this terrible headache. My first reaction was to take a pain relieving pill thinking it must be a normal headache but my friend gently castigated me saying ,”Don’t take self-prescribed medicine. From the outside, it can look like a mere headache but you don’t know what’s within. There are myriad ailments with common symptoms. Your job is to go to the doctor and let him decide on the cause and remedy, so that you can go back to your job at the earliest.”

Let’s relate this example to our finances. We often think we know everything about finances. We have chosen star rated mutual funds, fundamentally good large company stocks, we are well informed traders, etc. Of course, we know that the medicine is good, but the key question is – are we taking the right medicine?

When it comes to our savings, we are saving in a disciplined manner. But do we know, what’s the optimum level of saving for ourselves and our family -are we saving less or more than we require? We are often under an impression that if we save a certain portion of our earnings, thats good enough. However, we still aren’t sure about the level of saving and types of investments that suit our age, goals, expenses, etc. As far as investment products are concerned we may be excited by some product which is apparently very attractive but, are we sure it’s really good? Or even if its good, is it suitable for our requirement?

If we admit that we need a specialist to handle our health, we need a specialist to manage the health of our finances as well. The specialist who will guide us through all our important transitions and be with us as a ‘FPG’ (Friend, Philosopher and Guide) for all our financial decisions.

Like a doctor who will first focus on your problem and not on the medicine to be sold, your planner will always be interested in you, your financial goals, needs, abilities, etc. and not on a product. Is it not time you stopped being your own doctor?

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The NRI guide to retiring in India

Siddharth (all names changed) left India for his masters in the US when he
was 21. Whilst he loved the quality of education and the freedom that he
had, he was sure that he would return back to India once he was done with
his education. Whilst still completing his masters, he found a job with a
Fortune 500 company, offering him a very exciting opportunity and an ability
to earn a handsome salary. He decided to take up the offer and deferred his
plans to return to India for another couple of years. One thing followed
another – he started to go out with a colleague at work , Amrita, and before
long, they were in Chennai exchanging wedding vows. Kids followed and Sid
suddenly found himself on the wrong side of 40, living the great American
dream with a nice house, nice car and a happy family. All of a sudden,
whilst speaking to some friends one evening , Sid and Amrita realised that
besides paying down their home loans and cars, they also needed to plan for
the education of their children and their own retirement. Since they were on
their way to India for their holidays in a couple of weeks, they decided
they would discuss it in greater detail once they were in India.

Since I was the financial planner for one of his friends, Sid called me when
he was in India to understand how he could get started with his investments.
As we started to discuss his financial goals, I asked him what his future
plans were.  Was he looking to retire to India or was he likely to continue
to be in the US? Well, well, Amrita and me have discussed this a lot. Its
always wonderful to spend time with friends and family. Life is good in the
US – its convenient, its comfortable and we have a great work life balance.
But if I put my hand on my heart and ask myself where it feels like home,
its when I land back in India. So India it is for us, where we finally wish
to retire.

Thats great, I said. In our experience, this is one of the most difficult
decisions to make for a large number of NRIs, irrespective of which part of
the world they are currently based in. Having clarity on where you are going
to retire to is one of the most crucial decisions to make before you decide
on how your investment portfolio needs to be constructed. Sid was surprised
to hear this and asked me to explain this in greater detail. Why would that
be?

There are two critical reasons for that, I said.

1. Inflation levels in India tend to be much higher than most other parts of
the globe. Whilst the current inflation rates in the region of 10% as per
the consumer price index may be a little higher than normal, they have
ranged between 7.5% to 8% pa over the last couple of decades. Thus, going by
historical trends, portfolios for investors looking to retire in India need
to be designed keeping these high inflation rates in mind, rather than the
low inflation rates that are prevalent in the developed world.

2. Costs of maintaining the lifestyle that NRIs have got used to overseas,
can end up being significantly higher in India. Take for example, the sizes
of homes. An NRI moving from most cities in the US will not only find it
difficult to find houses of the size that he has got used to, but also find
it far more expensive in large cities in India. Thus, he could end up having
to buy more than one apartment and then look to consolidate them, so that he
has more living space. Alternatively, he may need to look at gated
communities in certain locations, that will allow him to get a feeling of
the lifestyle that he has been used to.

So whats a good way to begin, asked Sid.

First of all, its a great idea to get a good estimate of what your
retirement in India are likely to be, as of todays cost. For a lot of NRIs,
this may not be easy to do , as they may not be completely aware of multiple
living costs in India. They may either need to sit down with a close family
member to go item by item in terms of expenses, both recurring and annual,
or sit with a financial planner who can guide them on the various components
and estimates that make up the cost of living for a particular lifestyle in
India.

Once these cost of living estimates have been made, an appropriate
retirement age will need to be established. This choice could either be
driven by the retirement age in the country of residence of the NRI, or by
other parameters such as the ages of children or dependent parents.

Post establishing both the likely costs and retirement age, by using an
appropriate inflation rate, the quantum of the retirement portfolio needed
can be established. Post this,the investment portfolio can be created
keeping in mind the risk profile, expected rate of return,and product
restrictions if any. For example, some investment products are not available
for NRIs or may have restrictions for NRIs from certain geographies to
invest in them.

This portfolio could be a blend of real estate, equities, fixed income and
commodities and could be created using managed solutions like mutual funds
or portfolio management services, or can be created through directly buying
an investment product like a stock, or physical real estate or a bank
deposit.

There are a few more things to be kept in mind if you are planning to retire
in India

1. Establish the location in India that you would like to retire to, so that
you can start to plan to purchase the ideal home that you would like to
retire to. It is not critical to make the purchase today, if you wish to
retire after 20 years. However, it is crucial to plan for this purchase as
well, so a portion of your investments need to go towards supporting this
goal.

2. Start thinking about your plan for some of the assets that you own for example, whats your exit strategy for your current home in Singapore. Its

great for you today because you are working there but what happens to it
when you retire.

3. Different countiries have different tax treatments for global income and
reporting of global assets. Be sure to consult with a tax advisor in both
India and your current country of residence.

4. There may be retiral plans that you are contributing to, in your country
of residence. Please understand how they would work when you would leave the country and go back to India.

5.  Since you will need medical coverage during your retirement, start
buildng a medical corpus or look for a medical insurance cover that will
support medical treatment in India as well.

Sid and Amrita now have their retirement plan in place and are looking
forward to spending their golden years in India. Start thinking about your
retirement location and plan accordingly, if you have yet to decide. I
promise, it will throw up many more questions than I have covered.

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