What not to Buy (or) not to Invest in….

The stock markets are at life-time highs. The economy is showing signs of recovery. I am receiving lot of queries from retail investors on what to buy in financial markets now..

Is this the right time to buy mutual funds? Is it good to enter the stock markets now? Is this the right time to invest in real estate market? Can I buy gold?

Whether the sensex ( stock market index) is at 27000 level or at 7000 level, the question is same – ‘is this the right time to buy?”

It is very tough to time the financial markets. Whether the economy is in growth phase or recession phase, we have to plan for the financial goals. We cannot afford to wait and watch. We have to search for the right financial products and stay invested.

For a change, in this post let’s understand ‘ What not to buy..’ (or) ‘ What not to invest in…’What not to buy

Life Insurance :

  • Do not invest in Money-back or Endowment insurance plans. The expected investment return on these type of plans is 5 to 6% in most of the cases.
  • Do not invest in ULIPs (Unit Linked Insurance Plans) if your investment duration is less than 10 years.
  • Do not invest in Child plans. (Term insurance + mutual funds combination can be a better option).
  • If your dependents are financially independent, you are not the earning member and you do not have any liabilities then do not buy any type of life insurance.
  • Do not buy Life insurance just for the purpose of tax benefits.
  • Do not buy Pension plans or Annuity Plans ( if you are a retiree). The post tax returns from annuities may be around 5 to 6%.

Non-Life Insurance:

  • If you are planning to include your parents in a mediclaim policy then do not buy a Family Floater Plan. In a family floater policy the premium is calculated based on the eldest member’s age.
  • Do not buy home mortgage insurance if you have sufficient Term insurance Coverage.

Loans:

  • Do not take personal loans. The interest charged on these loans is around 15%.
  • Do not roll over your credit on credit cards. Do not utilize your total credit limit consistently.
  • Do not take home loans just to avail tax benefits. Analyze your EMI paying capacity, job security and other financial goals.
  • Do not withdraw amounts from your EPF a/c or PPF a/c to fund down payments. Retirement planning is more important than buying a property through a loan.

Stocks & Mutual Funds:

  • Do not invest in stock markets or Equity mutual funds if your time horizon for financial goals is short term.
  • Do not invest in Mid-cap or Sector oriented Equity Mutual Funds if you are risk averse
  • Do not invest in options and futures. They are highly risky.
  • Do not invest in stocks based on rumors or tips.
  • Avoid doing Day-Trading in stocks
  • Do not invest in Penny stocks

Fixed Deposits:

  • If you are young, earning and can afford to take risk then do not invest heavily in Bank Fixed Deposits (or) Post Office Saving Schemes
  • Do not park surplus income in FDs. Invest judiciously.
  • Do not opt Bank FDs, RDs etc., for long term Financial Goals
  • Do not invest in Corporate Fixed Deposits which have a low credit rating.

Real Estate:

  • Do not invest in property for short term gains. It can be extremely risky.
  • Do not invest in real estate based on speculation
  • Do not invest in properties which do not have proper approvals from authorities

Gold & Silver:

  • Do not buy gold jewellery for investment purpose.
  • Do not buy gold coins at banks. They are charged at a premium rate.

And finally..

i-Phone 6 🙂

Are you planning to buy i-Phone 6 or for that matter any high-end products. You may have the purchasing power but do not buy (by cash or credit) just because you can afford to. This phenomenon of increasing your spending when your income goes up is called as LIFESTYLE INFLATION. There is nothing wrong in aspiring for a comfortable life. But do not create a NEED out of a WANT. Let us follow this simple principle : Income –( Savings/Investments) = Expenses.

Kindly add your list of ‘ what not to buy….’ in the comments section..

( Image courtesy of 1shots at FreeDigitalPhotos.net)

  • Prem says:

    Sorry for ULIP question here as it may not be best plateform to ask but I would like to know about “icici prudential elite plan life II”
    According to this my agent says you invest 2 lakhs/year for 5 years (total 10 lakhs from age 31-35 years) and then from age 36 on-wards you will get 1.5 lakhs each year till 60 years and 39.5 lakh as maturity amount at the age 60.
    Does it make sense Sreekanth? I have read almost all of your blog and often you prefer not to support for these plan. I am unable to calculate exact % of return in this case, What will be approximate return during these years?

    Could you please guide something related with that?

    • Dear Prem,
      ICICI prudential elite plan life II is an ULIP plan. The returns can be dependent on the type of Fund you opt for.
      Its better to avoid investing in it and you may consider investing in equity mutual funds for longer period.
      If your requirement is insurance cover then you may buy a Term plan.

  • Prakash says:

    Very nice… For tax saving purpose don’t buy a housing loan ; analyse your paying capacity and job security…superb

  • Vazeer says:

    Good one Sreekanth! Your statement in this article “Retirement planning is more important than buying a property through a loan.” has caught my attention! Have you written any article on retirement planning for 40+ age group corporate world employees who are left with 10 to 15 yrs of service left? If yes, please share it with us.
    Thanks
    Vazeer

  • sivaram says:

    Thanks much Sreekanth for the advises. I got answers for my many questions. – Sivaram

  • Vikky says:

    Hi Sree !! I have just joined the bandwagon of Mutual Fund and while just browsing for some education on subject, I came across your articles and blogs on ReLakhs !! At first instance I think I have become your fan because of two reasons:-
    Your simple and effective way to educate Aam Aadmi like us and secondly, your selfless attitude to promote such awareness.
    May God Bless you with Best in Life
    Please guide me how much %age of income I should contribute towards Provident Fund monthly and also please suggest few good equity based MF for SIP

  • Sandip Sabnis says:

    Nice one..!
    Last one is best 🙂 “LIFESTYLE INFLATION”

    • Sreekanth Reddy says:

      Sandip – Good to know that you liked the article. Share this with your friends too. Thank you!

  • vaibhav says:

    Simple yet effective article….

  • Ramesh says:

    Do not buy / accumulate assets with a high depreciation value and low resale value. E.g. Car, mobile phones, laptops, etc.

  • jagadish says:

    A very interesting article. Do not invest in any fancy schemes which promise risk free high returns- http://tinyurl.com/kvsz7tl, Beware of ponzi schemes (visit http://tinyurl.com/leq6lt5) which feed on investors greed and stupidity (http://tinyurl.com/msbuaqr).

    • Sreekanth Reddy says:

      Jagadish – Thank you for sharing the links on NSEL scam, Citibank fraud and Emu Farm scam..Keep commenting and share your knowledge.

  • Rakesh says:

    Article is on what not to do…. Now also post an article on …what to do ?

    • Sreekanth Reddy says:

      Rakesh – Thank you for the comment. Most of my other posts are on ‘ What to do..’ only. Keep visiting the blog.

  • Prateek says:

    Simple but effective article. Do not buy multiple cars. Do not overspend on furnishing the home.

    • Sreekanth Reddy says:

      Prateek – Thank you for expressing your views. Best way to live is ” Live within your means..”

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