Greed is good. Review on Tips on Investment

Know Thyself: *

*The cardinal principal, and one that is even more important in today’s stretched valuations environment, is the investor must know three things about themselves:

i) What are my financial goals?(buying house, higher education, retirement corpus, children’s education, childrens marriage etc)

ii) What is my risk appetite?( what level of risk am I willing to take for higher returns)

iii) What is my time horizon?( my age, number of working years left till I retire, age of dependents etc)

1. Do your Tax Planning:*

1. Save More, Invest Well:*

*Indians are saving 29% of the GDP at present. In China this is as high as 42% . Every household must aim at saving at least 30% of their net salary/net income. If you are saving more, that is a big advantage on the path to a successful financial life. Even more importantly, after saving that 30% or more, you must invest all of it in a regular, disciplined, diversified and intelligent manner.

1. Dont Leverage for Stock Market Investing:*

*The one big lesson of May to July 2006 was this. While the large cap indices in 2006 went up by 45%, the mid cap indices were up a lesser 25%. And most of the margin traders, who were carrying leveraged positions in the stock market, actually made losses in a spectacular market like the one presented by 2006Don’t leverage to invest in the Stock market….the risk reward ratio at these valuations is skewed more towards risk, and the probability of wiping out your entire capital is high in the short term if you run leveraged trading positions.

. Buy Gold: *

*Even though on a 27 year basis, Gold has returned barely inflation equaling returns, Gold is a good hedge in times of geopolitical and commodity based risks. The last 5 years have seen spectacular returns for Gold, and it hit a 26 year high in May 2006 of USD 730 per troy ounce. Gold will continue to do well, there is a basic demand supply gap in its favour and as the currency markets get more volatile, we expect Gold prices to firm further.

Respect your Money:*

*Earning, saving, investing, the entire cycle is built on your talent, your hard work and your sacrifices. Don’t throw away your money by investing in fads or on tips. And as crucially, don’t let inflation eat away the money lying idle in savings or current accounts.Minimise taxes to the extent possible by utilizing all the exemptions available to you for tax planning. And remind yourself; there is an Rs 8000 crore advertisement industry out there, which is encouraging you to buy that latest vacation, latest mobile, latest LCD TV, latest car or bike. We are living in a booming consumption oriented society where the old virtues of thrift are being pushed back by the false promises of conspicuous consumption. Respect your money and spend it wisely, and only after investing 30% first.

Respect the Market:

. Like the Bhagvad Gita says, ” The Self is both the friend and the enemy of oneself “, the market can be ones best friend or ones worst enemy. The best way to make it your friend is to respect your money and respect the market. It is not irrational. In the long term it reflects the fundamental underlying realities. India is on a 25 year plus growth trajectory. However, many times the expectations will run ahead of themselves and cause turbulence in the markets in the short period. Safeguard yourself against this, by following a systematic asset allocation and by having a long-term perspective. Buy cheap and hold for the long term. That is the best way of showing respect to this market, which is benevolent, and a true friend of the long-term investor