Remember the silver rush?

Remember the silver rush earlier this year? There was widespread euphoria that silver was the next gold, it has much more industrial use than gold and a thousand reports on how silver was still undervalued and why you should put your money in there. Silver prices touched Rs.70000 a kilo in April and then what happened? Humpty dumpty had a great fall and hasn’t yet gotten up. In 2012, remember that precious metals and commodities are better bought for consumption, on a need to own basis. Don’t run after the latest fad, more importantly not with all your money.

Timing the market?

The equity markets in the last 5 years have come a full cycle. Starting earlier than 2006 to end 2007 it was the great bull run. 2008 saw it all crumble and marked the beginning of the still underway recession. 2009 and 2010 were years of hope when markets recovered smartly and forced people to believe that the worst was behind them. Like Warren Buffet once said, “there is never one cockroach in the kitchen” one by one the PIIGS started showing up and falling down, markets just mirrored the overall gloomy sentiment. But note, investors who had invested in good diversified equity funds in 2006 and just sat there through these ups and downs in the market, looking out of the window, did make something like 15 – 16 per cent compounded annual returns. Can’t say the same for those who sat looking at their TV screens showing stock prices. So, this coming year switch off that TV and look out of the window.

FDs are best

2011 was bumper year for conservative investors with interest rates going up many times. Post office deposit schemes are earning lot more, banks are vying with each other to pay more on the saving bank balance, there is more incentive to invest in instruments like PPF, debt mutual funds are earning in the range of 10 – 12 per cent and even the usually boring liquid funds touched two digit returns. These were good times. But remember the hole in your pocket now is bigger. How much ever money you put into it seems to be slipping away and falling into the high inflation black hole. Higher interest rates have not made us wealthier. In 2012, don’t carry the impression that fixed income is best. Don’t forget asset allocation.

Don’t ignore communication from lender

Interest rates going up could be cause of cheer or sorrow depending on which side of the table you had been. Tell me, who was paying these fixed deposit investors? At whose cost where they rejoicing? You and I - the home loan, car loan, personal loan, credit card borrowers. We bought that nice large house, even if it meant a little stretch assuming that EMI would remain constant but our income wouldn’t. It would go up, right? Wrong. Your EMIs have gone up, they haven’t remained constant. Or if they haven’t gone up, you are a few year away from being debt free, your retirement will have to be delayed a few years. How does that sound? In 2012, don’t ignore that communication from the lender about changes in interest rates. Act on it, get yourself a debt reduction plan.

Get yourself a badly married product

Hey, why don’t we get those tele-calls we used to, about equity linked insurance plans that can double our money in five years. Actually I miss them. These days it is about boring guaranteed return insurance plans. How has time changed? Or have they? I think, it is just the garb that has changed. Insurance and investments seem to be in an uncomfortable marriage but are not yet applying for divorce. These plans are designed to keep the agency channel in good humour; not really benefit the insured or customer. It is only when we stop investing in insurance plans are we going to do justice to our families. This year, don’t fall for any marketing gimmick that sells investments and insurance together. Take a term plan and invest through a diversified portfolio.

Hesitant to pay your advisor?

What if you stop ignoring those calls from financial planners? What if you meet a few of them and see if you can get somebody who will guide you without bias, through this complex maze of financial markets. What if you start paying for quality advice? What if you approach your personal finance with as much diligence and involvement as you would your profession or job? After all, doesn’t your family deserve it? In 2012, don’t ignore this advise.