Do you need a financial planner? In my opinion, not everyone needs financial planner. Only a few do. Basic financial planning is a very simple exercise. It is no rocket science.
Financial planning, at least as I understand, can be broken down into a few simple steps.
- Get your insurance portfolio right. Purchase adequate life, health insurance and accident covers. Identify events that can disrupt your financial well-being. Try to purchase insurance against those events.
- Create an emergency corpus.
- Purchase a house to stay in.
- Set financial goals. Start investing for your goals. Equity investments for long term goals. Debt investments for short term goals.
- Diversify across asset classes. Have some gold for protection against sharp inflation. Additional real estate depending upon your finances.
- Get your asset allocation right. Rebalance investment portfolio at regular intervals.
- Make sure your family gets the assets (as you planned) when you are not around.
You can see it is quite simple. For instance, a financial planner/advisor merely asks you to invest in a good mutual fund. He/she does not manage the fund. I am sure many people can do this themselves.
You don’t need financial planners to help you with execution beyond a point. Now almost everything is online. Insurance can be purchased online. Almost every financial product including mutual funds, bonds, fixed/recurring deposits, can be purchased/opened online. You merely need to set up an investment account once. Therefore, for the internet savvy, execution should no longer be an issue.
There are many people who can’t do it due to lack of time. They have been planning to start investing systematically. However, the plan keeps getting delayed for one reason or the other. There are a few who can’t do it lack of discipline or lack of knowledge. A few are not decisive enough.
If you are not sure if you need to hire a financial planner/adviser, here is the list of questions that you need to ask yourself. If the answer to one or a few of the questions is in the affirmative, then you need course correction. You can do that yourself or seek professional help from a SEBI registered Investment Adviser or a financial planner.
- If you have been planning to invest with purpose for a long time but can’t do it, you need a financial planner to guide you.
- If you think you earn enough but somehow there is little left at the end of month to invest.
- If you think financial planning is all about investments.
- If you want to save Rs 1 crore in the next 15 years, but don’t know what you need this money for.
- If you think equity mutual funds are too boring and nothing less than 25% p.a. is a good return.
- If you expect your investments to double in three years
- If you think one has to be an idiot to look at asset classes other than equity.
- If you think one year is long term.
- If you get jittery if your equity investments go down by 10%.
- If you check the value of your investment every day
- If you have started offering unsolicited stock tips to friends and family
- If you are bothered about “Rent vs. Buy” decision before you purchase your first house.
- If you have considered closing your PPF account after the Government reduced the PPF interest rate recently.
- If you use surplus funds to invest rather than prepay high cost personal loan or credit card debt.
- If you park the funds you need after 6 months in equity/equity funds
- If pre-approved loan offers excite you
- If you have to frequently think about paying only the minimum amount due on credit cards.
- If you have 90% of your assets in real estate and are still planning to purchase another house.
- If you have spent a week searching for the best mutual fund or best tax-saving mutual fund on Google.
- If your answer to the question “Do you have life insurance” is a confusing “Yes, I have LIC”
- If you hold 5 LIC policies and still take immense pride in your investment wisdom
- If your outstanding home loan amount is greater than your life insurance cover
- If your insurance portfolio is full of traditional life insurance plans
- If you think insurance plans with return of money are better than pure term insurance
- If you have purchased a life insurance plan where insurance is on the life of your child.
- If your answer to the question “Do you have health cover” is an emphatic “Yes, Rs 2 lacs from my employer”.
- If you are more concerned about tax benefits than your financial goals.
- If tax considerations guide your investment decisions.
- If you make your tax-saving investments in February and March.
- If you purchase life and health insurance just because insurance gets you tax benefits.
It is a generic list based on inputs from many of my clients and interaction with readers of this blog. Some of the points are case-specific and may not be applicable in your case. For instance, if you are 23 and investing your money in fixed deposit for higher education in two years, it makes perfect sense. You are doing the right thing. There is no need for you to invest those funds in equity markets.
Similarly, if you are a good stock picker, you may actually do better with direct equity than mutual funds.
You can see most of these aspects are related to investment discipline and a little awareness about financial products. At least the awareness part can be taken care of by visiting good personal finance blogs regularly or reading personal finance sections in business newspapers.
Building up investment discipline takes time and experience. This is where you could do with professional help. A good planner can help you ramp up faster.
What do you think of the list? This is in no way a holistic list. If you have some additions in mind, do leave your inputs in the comments section.
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