Investing is a risk-versus-reward game. Where some have made millions, many more have lost. What are the characteristics that differentiate a successful investor? Successful and exceptional investors, such as Warren Buffet, Benjamin Graham, and Rakesh Jhunjhunwala, exhibit critical character traits that set them apart from the crowd. Have you ever thought about what all great and successful investors share in common? What distinguishing characteristics do these investors possess that you do not?

Successful investors aren't necessarily the brightest people on the planet. Being successful in your investments may have little to do with intellectual prowess and almost everything to with your investing mindset. Let's take a look at the key personality traits you'll need to be a successful investor.

1. Patience 

Patience is an essential trait of successful investors. When they decide to invest, they do so by keeping the long-term picture in mind rather than making quick gains. Some of the investments may not perform at all for quite some time but if one is confident in the fundamentals, sooner or later, results will follow. In the long term, the prices will eventually follow and catch up with the profits. Even the corollary is true. We get tempted for a very high-performing stock where the fundamentals may not be that strong. There is a test here too. However, many of us fail the test of patience. All we need is some patience and the ability to remain calm in the face of turbulence.

2. Passion and Determination

The road to success in investments is paved and simple, yet difficult to follow. One of the key differentiating trait is consistency in what you are doing. All successful investors have their own science which they have practised over and over again and perfected over the years so that it now looks more like an art. One has to be committed and stay focused to practice your approach towards investments. Keep learning and improving your investment approach. If you are investing in say mutual funds, you may have saved a lot of time and effort in analysing stocks. However, still there is a need for you to be passionate about and focused on wealth creation and to follow your investment objectives /asset allocation regularly, with discipline.

3. Keep Emotions in Check

Sentiments are always present in the stock market. The stronger they are, the sharper is the market movement moves. Sentiments can cause a financial storm in the investment world. . That is why the risk of getting sucked into the market ‘mood’ is as dangerous as it is real. Beware of the two most powerful emotions in the market - Fear and Greed. Successful investors though can identify and differentiate the real from the hype and see beyond these emotions. They tend to get very active at such times since the market throws up many opportunities during this time and they act decisively during such irrational times and make the most of their investments. To be a successful investor, you must be emotionally neutral when it comes to winning and losing what. Winning and losing are just part of the game.

4. Understand and accept volatility

There are two way of dealing with volatility. One, the trader’s mindset which drives people to react to the volatility. Second, is the investor’s mindset where you avoid the volatility altogether. Many investors become concerned during volatile times and begin to question their long-term investment strategies. This is especially true for new investors. Experienced investors know that market volatility is unavoidable and designed to move up and down in the short term. More importantly, it is extremely difficult to time the market. Riding the volatility waves while staying afloat without getting wet is what would differentiate the successful investors from the novice ones.

5. Avoid Speculation

A speculation is a guess or a hope of something happening which is not well researched. Such speculations can be in form of tips from friends and from so called social media experts which we find floating around almost everyday. This should be taken with extra bit of caution as it can possibly be to lure unknowing investors. The opposite of speculation would be well-researched, future projections based on sound fundamentals and good assumptions. One can’t really replace speculation with such a well-researched projections. Successful investors do not engage in speculation and see it more like a gamble with a known outcome with time. Some novice investors may get excitement and fun in speculating but, it is a sure way of losing both peace of mind and money.

6. Ask Questions

Good investors understand that it’s better to ask a few additional questions than to regret or be locked into a bad investment. They are inquisitive and ensure that they understand all of the “fine print” of any investment product or asset. Any financial /investment product has its’ own positive and negative factors. Should it meet your expectations, needs, risk appetite, liquidity needs and costs, is something you must question. Before making any decision, successful investors ask questions and consult with unbiased sources. To put it another way, they educate themselves and invest only in products which they are very familiar with.

7. Listen to what is important!

Good investors keep themselves updated just enough on the major economic, geopolitical undercurrents that may impact the markets on the long run. There is no need to track daily movements of markets and listen to every little noise happening on a daily basis in the market. With experience, successful investors learn to pick up only the meaning information and avoid the rest as just noise. With information so easily available and in such a huge quantum, this is an essential skill we should master.

Bottom Line

Becoming a successful investor takes time, patience, efforts and learning. There is no shortcut to success but knowing the mindset and the characteristics of successful investors can surely help us in our journey. Surely, even we can and be as successful as our investment gurus, at least by our own standards.

The pandemic has come as a wake-up call for many of us. People are now giving a lot more priority to the quality of life, living and not just working their entire life. Early retirement may be a recent phenomenon, but it would have crossed the minds of almost everyone today. However, retirement in India is not as easy as it looks. In absence of social security, lack of adequate savings towards retirement and the uncertainty of the finances makes retirement planning very challenging.

What are the retirement solutions available?

The most popular solutions for retirement solutions today are the schemes offered by government namely the NPS, the PPF, the Employees Provident Fund (EPF) and the Atal Pension Yojana (APY). However, being government schemes, they have their own set of advantages and disadvantages. A lot of investors do find they helpful but many also find them inflexible and constrained with limits on the maximum amount. Apart from this, many investors also invest in mutual fund schemes – both as a tool to create wealth and to manage retirement kitty. People are now also increasingly attracted to lifetime income products which are less volatile and are not market-linked. Such products are offered by life insurers and are popularly known as Annuity or Pension Plans. Let us explore them.

What are Annuity Plans?

Your retirement kitty, irrespective of where you save it, runs the risk of being exhausted in old age. Annuity plans are plans offering you a guaranteed income either for life or for a stipulated duration. By design, they protect an individual against the risk that he may live longer and exhaust his resources. Under an annuity plan, the investor normally pays either a lump sum or regular instalments in the accumulation period and then get regular payments as long as you are alive or for a pre-specified fixed period.

If you think about it, both an Annuity Plan and a Pure Term life insurance plans are complementing each other. Pure term insurance covers the financial risk of 'unexpected death' leaving the family without any financial support. An Annuity plan, on the other hand, covers you by providing adequate financial resources if you continue to live long!

Types of Annuity Plans:

Depending on when you buy them, annuity plans can be divided into two categories: Deferred Annuity and Immediate Annuity. An immediate annuity is one for which you pay a lump sum amount, rather than instalments over time, and then the plan pays you a regular guaranteed payout. An immediate annuity plan is mostly purchased by individuals who are about to retire and would like to receive a monthly income right away. A deferred annuity plan, on the other hand, may allow you to either pay a lump sum or pay premiums /instalments and build a corpus over a specified period. Post this, your annuity will start giving you fixed periodic payments for a chosen period or for life.

Advantages of annuity plans:

• First, annuity plans come with the assurance that you will continue to receive money for the rest of your life. The insurance company takes on the risk of paying you for a lifetime. 

• Second, annuity plans eliminate reinvestment risk. Reinvestment risk is where you have to invest in future but the interest rates/returns available at that point of time in future may be very low compared to today. As you can imagine, there is a trend of falling interest rates in India which is already causing a lot of trouble to the senior citizens today. However, annuity plans with guaranteed rate of payout eliminate this risk.

• Third, while there are investment caps in many other retirement plans, especially the government-backed schemes, there is no such investment caps/limit on annuity plans.

• Lastly, annuity plans offered by insurers offer a lot more in terms of features and payout flexibilities. There are plans allowing you to add your other family members too (joint life) where your family member /spouse will receive the money after you. Some plans also offer you to receive lump-sum amounts, typically return of premium, after certain periods as per choice. There are also options available to add death benefit, critical illness, permanent disability benefits, etc. You may also have the option to add top-ups to the plan, typically available in a deferred annuity plan during your premium paying term.

How much will you get?

The ROI or return on investment on annuity plans often depends upon whether it is an immediate annuity plan or a deferred one and the duration of delay before the start of the annuity. Typically, insurers presently are offering between 5.1% to up to 5.9% for immediate annuity plans and up to 11.50% plus for those with deferment period. The longer the deferment period, the higher would be the promised returns. Please note that these are indicative rates and are dynamic in nature with changes normally happening every quarter for the new buyers. The simply put, it is a question of how the cashflows are planned. One can smartly create a smart ladder of multiple annuity plans too where your annuity income would increase /grow after every few years! It would be interesting to work that out with your insurance advisor...

Choosing An Annuity Plan:

Annuity plans, should not be seen as a substitute for mutual funds as both are very different in nature and have their own reasons to buy. A smart investor could club both of together – contribute a 'part' of the portfolio as a lump-sum in annuity while the remaining portfolio will continue to grow and will be freely available. You can even continue with your SIPs. While annuity will give the guaranteed cashflows, your mutual fund investments /SIPs would work at building your wealth – both different objectives. Further, they cannot be also readily compared with traditional insurance plans which mix insurance benefits with investments, often compromising both. Annuity plans are designed as cash-flow oriented plans and hence are a different breed altogether.

Like any other financial product, the key parameters for selecting the right annuity plans are safety, returns, and liquidity. We strongly suggest that if you are planning for retirement to explore the annuity /pension products offered by the insurers. They do score over many traditional, government schemes on many points. Before buying an annuity plan, please do take a look at the track record of the annuity provider, their reputation, financial strength and not just product features. It would be best to consult your insurance advisor on the same. For us, the elimination of uncertainty and having a guarantee in your sunset years wins the argument for annuity plans.

Budgeting is simply creating a plan to spend your money. This plan is the “budget” which allows you to determine in advance how much will you spend, where will you spend, and if you will be left with enough money by the end of it all. In simple words, budgeting is simply balancing your expenses with your income or cash outflows with your cash inflows.

Needless to say, budgeting is the single biggest tool you have to take control of your money, achieve your financial goals, and set yourself up for long-term success. You must already have been advised many a time to follow a proper, detailed budget. But do you? It is very rare to find any person who religiously follows budgeting. Perhaps only one in hundred may do some sort of budgeting exercise on paper every month. Is there a better, much easier way? In this article, we will attempt to take a short-cut to the entire budgeting exercise to encourage you to start on the path…

The guiding rules:

The idea is to create simple money boxes to bifurcate your spendings. To begin with, keep the boxes simple and easy to understand and bifurcate. As you progress and enjoy the journey, you may go into details and increase the type or number of boxes.

You may ask, how to manage? Well, to begin with, you may simply allocate money to the boxes in your mind. You may also keep a rough track of the boxes on paper - just to ensure that you are not way off the mark. In the starting month, you may skip minor expenses and record only major ones. However, the proper way to do will be to put your expenses on paper, at least once a week under different boxes. In the first month, you may also skip pre-deciding the allocation into different boxes and simply observe your expenses and then decide allocation from the new month onwards.

Remember, it is not important how elaborate plans you have made. What is more important is what you can track religiously. It is like running a marathon, your timing, speed is not important, what is important is that you cross the finish line.

Spending Boxes:

Let us start by making four simple boxes to account for all your cash outflows.

1. Box One: What you Owe:

Perhaps the challenge for most households would be payments towards your monthly commitments. This is the box you cannot avoid and has to be accounted for anyhow. This would include your home rent, home /car /personal care EMIs, society maintenance, etc. Consider yourself lucky if such expenses are below 20% of your income. However, you are in the red zone if it is over 50%! If it is so, you will need to immediately start thinking of reducing your loan burden and/or look at increasing your income sources over time.

2. Box One: Living Expenses:

Next comes the living expenses which again one may not compromise. School fees, groceries, utility bills, medical care, maid salary, tuition fees, mobile/cable/internet recharges, etc are the expenses falling under this box. These expenses are relatively stagnant /fixed for the month and do not change often or by a big margin. This box should ideally not take more than 20-30% of your cash inflows. Again, if it is more, it would simply mean you are living beyond your means.

3. Box Three: Savings:

Next in priority would be all your cash outflows towards the non-expenses, ie., insurance and investment payments. Club all your yearly /monthly expenses together to arrive at a fixed allocation every month and save accordingly. This would include your life /health /motor insurance premiums, mutual fund SIPs, bank /post office recurring, PPF savings, etc.

Among investments and insurance, priority should go to insurance as protection is for today’s financial security and survival while wealth creation is for tomorrow’s financial well-being. Ideally, everything left after the first two boxes should fall into this last box. A minimum of 20% allocation should be made to this box and if it is over 50%, consider yourself fit for the next level of planning. 

4. Box Four: Optional Expenses /Discretionary:

Now we have reached the most interesting question. How much is left in your pocket by the month-end?

Ideally, if you have allocated all your money smartly, less than 10% would have been left. If it is more, there is a clear indication that more allocation needs to go to the Savings box. Ideally, 5-10% would be sufficient for you to spend on entertainment and other things. Simply put, if you are earning a lakh rupees, not more than Rs.5,000 should be spent on food or movies or shopping, etc every month. You can stretch it to max 10,000 but only if your savings box is over 50%.

If you have exhausted all your cash flow and are in fact in the negative, it is a big red zone! You need to immediately sit with your financial guide /advisor and find out how you can plan your finances better.

Saving Boxes:

If you feel you are putting a good amount of money into this box, it should be interesting to peep inside and try to further define another set of boxes within this savings box. Why? Because the savings box is a very important box which is directly associated with your continued and future financial well-being. This box deserves a further breakup to ensure that you have covered all aspects of your financial well-being adequately.

1. Box One: Insurance /Protection

The most import box comes first. Ideally, if you are saving over 20-30% of your income and out of that insurance premiums are over 30% (of savings) then perhaps your choice of insurance policies needs to be seen closely.

Traditional life insurance plans (like endowment /money-back /return of premium + bonus plans, etc) offer little in terms of protection cover /sum assured and but comes at a very heavy cost of low returns on the heavy premiums you pay. A good insurance portfolio would comprise of Pure Term plan + Health Cover + Personal Accident Cover + Critical Illness cover. Sit with your financial advisor today sort out this box

2. Box Two: Long-term wealth creation

This is the box, where your ‘real savings’ for a better, secure future where you desire to spend towards your life goals like marriage for children, home purchase, second home and most importantly - towards your peaceful and financially secure retirement. Needless to say, the more you save, the better it is. Ideally, you should at least aim to save 20% of your income towards this box.

The best way to plan for this box is to go into reverse! Start by first identifying your life /financial goals and then by estimating how much of mutual fund SIP would you need to fulfil those goals? That should be your allocation to the box - it should be pre-decided and not left as the result or output after everything else. Ideally, it should be over 60% of your savings box.

3. Box Three: Short-Term money deployment

Finally, we come to the box wherein you would like to keep some money handy. These would count your cash holdings at holding, bank balance, savings towards emergency fund (if planned), etc. This should also cover money you wish to keep aside for upcoming big expenses like purchase of electronics /holidays /festivals /family events and so on.

Instead of dipping into your long-term savings, which is a strict ‘no’, to meet such expenses, we highly recommended that you plan in advance and save in parts in the preceding months before the expense happens. This is help you do two things - (a) avoid cutting your long-term money tree when they are young and (b) avoid taking loans /credit. Ideally, 10-20% of your savings box may be allocated to this box.

Conclusion:

Those who fail to plan, plan to fail. The money box approach is a good way to begin planning your finances in an interesting and easy fashion. Again, what is important is that you actually begin, do this consistently for a few months, develop the ‘budgeting’ habit and then move on to detailed plans, if required. We are confident that such an exercise will surely help you understand your own status and also help you set targets to achieve in the coming months.

The Covid-19 pandemic has led to a vivid change in people's attitude. With time spent at home and the growing uncertainty of life, people have realised that they need to balance their work-life with personal life. A lot of awareness has also spread on the importance of savings and financial well-being. Interestingly, people have also started setting some unconventional goals for themselves as they recover from the pandemic.

Generally, when we talk of financial goals, the usual life goals like education for the child, purchase of home, retirement, marriage for your children, etc., come to mind. However, now with changing times, the goals are also changing. In this article, we will explore some of these new unconventional goals and life-style changes people are increasingly adopting and how to plan for the same.

The unconventional goals:

1. Early retirement: This goal has topped the list for most of the well-earning employees and professionals. There is a realisation that conventional retirement at age of say 60 years leaves us with little time to enjoy life and/or do something which we really want to do. The new age for retirement for many is now 50 years or even 45 years. Needless to say, this bold step requires a lot of planning and is easier said than done.

2. Follow your passion as a career:We have seen a huge rise in the popularity of unconventional careers in the last decade. Such unconventional careers have also gained societal acceptance which was missing in past. We now see people following their passions with careers as social media entertainers, YouTube bloggers, fitness/yoga coaches, stand-up comedians, travel guides, trekking companies, adventure sports, authors, and so on. Surprisingly, even people with established careers are now looking to follow their passion and do what they like. Obviously, such a career switch, followed by success is not easy and takes time.

3. Farming: Across India, we now increasingly find people drawn towards simple living close to nature. Natural or organic farming has a huge draw especially given the health benefits such a lifestyle promises. Many have also explored this option as a substitute or a side-by-side project while continuing with existing career. With the growing awareness for good quality food and healthy living in a natural environment, this has now become a popular goal.

4. Start a Startup /Own Business. Another increasingly popular goal is to have your own startup. People are now passionate to leverage their skills, knowledge or entrepreneurship in new ideas and businesses. Not everyone wants to work for life as an employee. However, not all ideas get easily funded in advance and a lot of startups are bootstrapped, meaning funded by their own funds.

5. Break from Career: Earlier, this idea may have raised eye-brows but not now. Especially popular with millennials, the idea is to take a break for a year or two and try to either follow /test your passion or just do what you always wanted to do. After this sabbatical/break is over or enough, one would go back to their career of choice.

6. Education from reputed college: People who have now gained some experience and are looking to grow in their careers, are now increasingly looking for an education from reputed colleges across India and even beyond. Especially popular are MBA courses for experienced professionals which, even though expensive, looks a good deal from the perspective of getting a brand name, networking and a career boost.

7. Medical Kitty: There is now a realisation that you need to have a backup plan in case of any emergency. While acceptance and awareness of health insurance plans have greatly increased, people now also realise the need for corpus for medical expenses, especially for the elderly.

8. Continued education & skill development: With growing competition and rapid advancement in business environment, there is a need to keep updated. Professionals and employees today are will willing to spend money to stay up the curve. This means completing short courses, attending seminars on knowledge, skills development and networking. This too is now becoming very common, especially in metro cities.

9. Pursue a hobby seriously: Whether be it bike riding, trekking, scuba diving, cycling, fitness or just travelling, people are now increasingly spending a lot of time and money in pursuing such hobbies. People want to pursue them to reach somewhere where they can be considered as 'pro' in such activities. It wouldn't surprise you how many people are now planning for all India tours and even multi-national tours in their cars and bikes. There are many who go on Himalayan treks every now and then. People are now pursuing certificates in activities like fitness, yoga, scuba-diving, sky-diving, para-sailing and so on.

Planning for such goals:

Obviously, apart from deep passion and interest, finance is something that is core to any unconventional goal that you may have for yourself. Various goals need a different kind of planning depending on factors like (a) time horizon (b) frequency, if not once and (c) funds required. Obviously, the need or necessity for any goal is something intangible that you need to decide.

The starting point of all goal planning is a clear understanding of what is needed. There can be two broad variations in the goals discussed above, one which is a one-time goal and the second, which is a recurring goal. For both these type of goals, we must sit and discuss them with an expert so that things can be put on paper.

There is no short-cut and if you are really passionate about pursuing any goal, whether conventional or unconventional, there are few things that you should keep in mind.

1. Save and invest: There is no doubt that you must aggressively start saving else you will keep burning whatever you have in pursuing your passions. Depending on your personal goals, the choice of the asset class and product will be made where such savings will be invested in.

2. Control Spendings: While aggressively saving is one side of the coin, cutting down on avoidable /unnecessary expenses is another side. Obviously, your love for a passion or commitment to a goal will determine the extent of how much you cut down on your spendings on shopping, entertainment, gadgets, etc.

3. Create multiple sources of income: Having alternate sources of income is one of the greatest secrets to wealth creation. The alternate income can easily be directed towards funding your passion so that your usual income is safeguarded and saved towards your usual life goals. Focus on creating multiple sources of income, even with whatever passion you are pursuing.

Conclusion:

There can be no judgements on whether any goal is too unconventional or not. It is your life and you will want to live it fully without regrets. It is important that you have a clear understanding of what you want to do and to pursue it with all your passion. However, it is also important that you do not lose track of your responsibilities and commitments to your family. Striking balance is not easy and that is where planning comes into the picture. Sit down, take the help of your advisor, plan what is feasible and go ahead with the same. There is no stopping you to achieve whatever dreams you may have.