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The 3-step investment matrix

Following a well-crafted financial plan helps avoid many pitfalls. Like any successful plan, this too begins with having a basic structure ready before you start investing and this quick reference will help you design yours.

List the objectives –You need to be very clear about the objectives that you want to achieve with your investments. List out your life goals, for example, preparing for big ticket expenses like buying a car or a house, childrens’ wedding or their higher education, funding expenses after retirement etc. Each of this objective will have an expense figure attached which will need to be adjusted after factoring in the inflation in that line of expense. The following chart explains this part of drawing up your objectives and expense table:

Chalk out portfolio & execute –Once the objectives are clearly stated and inflation adjusted expense figures calculated for the plan year, the next step is to design the portfolio. Be thorough in Asset Allocation and portfolio diversification. Allocate asset classes based on the time to plan year available and your risk profile. Based on the expected return from each asset class you can calculate the amount of money required to be invested every month until plan year (less cushion to avoid fag end volatility related lows).

There are quite a few options available to execute the portfolio designed above. A lot of companies are offering online investment platforms and you can avail them if you are sure you can monitor and manage your portfolio yourself. Make sure to assess the transaction charges or any other hidden expenses for the services offered and use it to compare the different platforms. You could also always walk up to an investment advisor who will execute and manage the portfolio for you.

Contingency Plan –Life insurance and Health insurance. It is absolutely essential to have an emergency plan ready to cater for any contingencies. Should in case a situation arise where you as primary bread winner of the family are not able to provide for them anymore, due to loss of life or any other physical incapacity, this emergency fund will ensure that your family’s living expenses as well as the monthly investment you were making are accounted for. While calculating the amount of money your life should be insured with be sure to factor in expenses as well as investment that you were making for future because most of the objectives you were preparing for will still need to be funded. A pure Term Plan for life cover and a Health Plan for medical expenses are absolute essentials. It is pertinent to note here that you should not confuse insurance with investments. A life cover to fund the monthly expense and investment requirement (out of insurance proceeds reinvested in say an FD@6%) will be a substantial sum of money that only a pure term plan can provide at affordable premium.

Once the plan has been executed, monitor and keep a regular check on your portfolio. There will be requirements to make calculated interventions in the same depending upon financial and economic environmental factors where you will need to course correct.

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