Why do we need a Financial Advisor???

With globalization and open trade and economic policies, there is a consistent rise in India’s per capita earning. With this, we have the biggest pool of middle and upper middle class households. As a result there is an ever increasing need for better management of individual’s funds, resulting in a need (hype?) for financial advisors. The real question is, ‘do we need a financial advisor?’. I do not think so. I happened to read an analogy for justifying the need for financial advisors. A TV manufacturer, say SONY, can manufacture a TV for a few hundred dollars whereas if we want to individually assemble a TV, we can do that with a lot of efforts but the end result far from what we can go and buy from a SONY showroom. I think this analogy is too far stretched for a extremely specialized area. When it comes to managing our own funds (and making sure they work for themselves), I do not think there is a need for a professional financial advisor.

Here are the reasons – 

     1.       Financial advisor is a human being who tends to make mistakes.

     2.       A financial advisor is not a saint; his ultimate goal is to make money for himself. His advice may be biased     towards improving his own bottom-line.

     3.       Why do we want to open our personal financial books to someone else; if there is a potential of managing our own funds ourselves?

     4.       There is a plenty of information available online, if we know how to make money, we can also learn how to manage it. I am still talking about middle class and upper middle class income levels here.

     5.       Ultimately, the money we make and retain has a direct link (sometimes invisible) with our Karma. Always have a feeling for poor and help them some way or the other, your financial plan will not fail. 

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Here are some of the tips for moderate risk appetite. 

1.       Invest in real estate about 35% of your monthly take-home income can be diverted towards EMI.

2.       Invest 15% of your monthly take-home income into 2-3 mutual fund schemes through SIP.

a.       Spend some time online doing research into good rated mutual funds. Do not get carried away by the marketing.

3.       Invest 10% of your monthly take-home income into a Gold ETF.

a.       Spend some time online doing research into Gold ETFs and choose yourself by verifying all the facts.

4.       Invest 5% of your monthly take-home income into equity.

a.       Buy only blue-chip company shares.

b.      Have a long term perspective.

c.       Buy on dips with appropriate stop losses.

d.      Book profits at appropriate times.

e.      Do your own research online and do not trust any tips against some facts you see for yourself.

5.       Spend 10% of your monthly take home income on health/life insurance.

a.       Treat insurance as insurance and not as an instrument of investment.

                                                               i.      Buy term insurance only.

b.      Carefully check the health insurance provided by your employer and add adequate coverage if necessary on top of that.

6.       Spend rest of the money to take care of your expenses.

7.       Spend some quality time consistently, every day on your health. This is an absolute must. As they say, you do not want to spend all your health to make wealth and then all your wealth to earn health. 

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