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…’
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%.
- 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.
- 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
- 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.
- 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.
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)