One of the most common financial goals today has become financial freedom. This is especially true for the young generation, the millennials who wish to not only become rich but become independent to enjoy life. Financial freedom to them is all about freedom from the need to work to earn a livelihood. It is today easier for the younger generation to accumulate enough wealth. Many other individuals are also 'financially independent' today without even realising so. The question for these individuals really is what next? This article is about the post-financial freedom stage...

Financial Freedom: Congrats!

You are one of the very few, privileged individuals to be in such a financial position. You can be proud and happy about it. But there are also few other caveats you need to know or understand.

1. Its all about you & family: Do not wonder what your cousin or uncle or the person next door is thinking about you. You and your family should be comfortable with the important decisions taken and should support each other and happy to live a lifestyle you have planned to live.

2. Nothing is permanent: Remember, there have been many people who have been very rich and powerful in past but have lost it today. Nothing is permanent and there is no guarantee that you will be as financially strong as today forever. So be humble, grounded and careful in life.

3. You need to plan: Earning money is easy for most. However, financial freedom is not about earning money or how much money you have. One can be financially independent in very less finances than you. The real trick is in planning your finances post retirement such that you may continue to remain financially free. A backup plan, should you come in financial stress should also be planned.

4. Be Sure! The first and the last thing about financial freedom is to be sure that you can be so and also to ensure that nothing gets in between. The need for proper financial planning can never be overstated in such a scenario. You should also be sure that no possible event or scenario in future will be able to put you completely at risk.

What Next?

1. You need purpose: Being wealthy without any purpose or direction is not really desirable. You will be the same person but probably more lazy, less healthy /fit and even less happy than you were before. Remember, having a motivation, a passion, a direction and purpose is life is most important. Without it, you may feel a sense of emptiness with no agenda for the day /week.

2. Making decisions: Being in a privileged position, you would probably be able to take decisions more freely. Since money or wealth is not a big factor anymore, you need some basis for making your future decisions. Thus, your future decisions can be based on your personal values or in support of your purpose / passion in life or any other form of context. Deciding this context is important to give a sense of direction to your decisions.

3. Choosing a quality of life: Choosing the right quality of life is essential for you. You cannot say YES to everything. You also need to create a boundary for you and your family and say NO to things which can potentially negatively impact your status. Remember, some spending can be done when you can afford it but remember it adds value only to a point. Too much spending will only clutter your life, will not any value and negatively impact you.

4. Fix yourself first: The first and the best thing to do is to fix what is not good or broken in your life. Start with finances – clear all debt, ensure proper investments, ensure adequate insurance for all possible risks, ensure earmarked investments for all financial goals, ensure regular income flow. Once the finances piece is done, you can move on to other things in life like getting fit, living a healthy lifestyle, building networks, building social presence, giving more time to children, building strong relationships with your friends and family and so on.

5. Work after wealth: Many people will be happy to continue working in some form even if you don't really need to. Some people choose to be semi-retired where they may need to work but they would also be free to choose what kind of work they need to do and what portion of time they need to give. Working after wealth is a great idea as it will give purpose, make up for idle time, give income support, give additional financial comfort and surety while keeping you skilled and relevant in the industry.

6. Make world a better place: Making the world a better place is a great idea and you can lend your hand in many ways. Dedicating some portion of your time and/or money to some social cause can be a great way to towards satisfaction and happiness. You could also use your skills and knowledge to guide and help others who otherwise would not have access to same like for eg, legal, medical, financial or business advice, etc.

7. Make a list: The end point of what next question is preparing that one list you would ever need to make. This is a list that defines who you are and what you want from your life. So what can we include in this list? Here are a few things you can answer and keep updating this from time to time.

   1. What are your most important goals?

   2. How would you like spend the next 5 years?

   3. What are the key values and principles you wish to live life with?

   4. How would you like to see yourself in next 5 years?

   5. What are the skills and things you want to be good at?

   6. How would you live if you knew you are going to die in say next six months?

   7. What is your mission, purpose in life?

All investors have one common goal – get better returns or performance out of their portfolio. While not all investors can be successful, all successful investors do display some characteristics which can be followed by other investors. Mind you, these characteristics are easier said than followed. In this article, we will talk about the most common characteristics and approaches to be successful at investing.

• Set realistic goals and investment objectives:

Having a fair and reasonable expectation from your investment is the first thing that investors should learn about. The investment objective should be aligned to the investment asset class, risk appetite and your expectations from the portfolio. Any imbalance in these key elements is bound to find friction and conflicts. If one is unreasonable, he/she will probably end up making the wrong decisions. While working with an advisor, it also becomes important that you share your expectations and investment objectives and then arrive at mutually acceptable details of the same. Having the right expectations from your advisor is also an important element of successful investing for investors.

• Be disciplined and patient:

As investors, we should understand that not doing anything in the markets is also counts as a decision or strategy. There have been many studies which have showcased that rather than attempting to time the markets, just spending time in the markets is much more beneficial to the investors. Making steady but low returns is much more preferred in the long run than making random high and low returns over the long term. This patience becomes very important if you consider yourself as a long term investor. Discipline in your investment approach or strategy is another very key success factor. If you are investing in a disciplined fashion, market movement and levels will no longer be important for you over time. Small investments, made regularly can deliver exemplary returns as compared to unplanned, random lumpsum investments. Being disciplined and patient also involves ignoring market distractions and noises.

• Look at diversification and asset allocation

Diversification and asset allocation are a couple of investment strategies which have proved themselves to be indispensable to the investors. Having the right asset allocation on your total portfolio is perhaps the most critical factor for deciding your portfolio performance. How would a 15% returns on your equity portfolio matter if it is only 10% of your portfolio? The right mix of asset allocation – say into equities, debt and real estate or other physical assets should be appropriately managed in accordance with your risk appetite. Similarly, diversification is also important but one should be careful as to not to over-diversify into too many asset classes, products or AMCs or schemes. Only a reasonable amount of diversification would be beneficial for your portfolio. An investor should periodically review his/her portfolio asset allocation and diversification with the advisor.

• Minimise the number and intensity of your mistakes

Warren Buffet strongly advocated making fewer investing mistakes to be successful at investing. While some of your investment decisions will surely help you reap good returns, it is often the mistakes that you do that destroy your returns. A good investment portfolio in quality mutual fund schemes will definitely help you create wealth. However, if you make some financial mistakes, that will surely eat up all your progress. Hence, it pays if you play it safe and not make mistakes. Also, the quantum of money put at stake for risky financial decisions bears huge significance. Make sure that any risk you are taking is only with money which you could afford to lose without any significant impact on your portfolio. By rule, know that any investment “guaranteeing” high returns is too good to be true and is not possible in the market. If you want high returns with risk, equities should be your go-to asset class.

• Know your expertise and your limits

The great Sachin Tendulkar once realised that his cover drive was not working against the Australians. He decided to not play that shot, a very common one, in his entire innings in that one match and ended up making a very good score. The point being, one has to know one's areas of expertise and your limits and work accordingly. If you are good in your profession, business and making money out of it, stay focussed and continue doing that with all passion. If you are not so good at identifying stocks, leave that work to the fund managers, don't try to become one. The idea is not to stretch ourselves and try and become experts at everything. Managing wealth or money requires a certain amount of time, knowledge, efforts, market awareness, product familiarity and freedom from personal bias. It would be great if you have everything, but it would not be so great if you are overconfident of your skills and expertise. You will only end up hurting your wealth.

• Be responsible:

Being responsible for your investments would mean a certain level of seriousness and commitment to your financial plans and investment strategies. It would also mean that you value your money and would not take undue risks or decisions which are not in line with your stated objectives or contrary to the advice from your advisor. Being responsible would also mean that you are professional and adopt an unbiased, ego-free, open attitude and approach to managing investments. Being responsible would also mean that you share the important things with your advisor that directly or indirectly may impact your finances. Lastly, being responsible would also mean that you listen and follow the mutually decided decisions with your financial advisor, in a time bound manner, giving it the priority it deserves.

Most of us are aware of what a will is and how it works. Most of us are also under the impression that the will is only for people who are of old age. Also, that a Will and estate planning is not important.

Before we explain why estate planning is important, let us look at what happens when you die without making a will. When an individual dies without making a will, then he/she is called to have died “Intestate”. Incase of death of an individual intestate, succession is then governed by personal laws of succession. When governed by personal laws, the division or transfer of estate may not take place as wished by the deceased.

For example, if a Hindu individual wishes to transfer some of his estate to his father or brother but doesn't make a Will, in succession by Hindu Succession Act, the father and brother will not get anything as they are not Class 1 legal heirs under the law.

Thus, as an individual, if you wish that your assets are distributed and divided not only according to your wish but also in a manner where it goes to the right beneficiary, estate planning becomes important.

Estate planning refers to the organized approach to managing the accumulated assets of a person that will be transferred to the intended beneficiaries. It covers the structural, financial, legal and tax aspects of managing wealth in the interest of the intended beneficiaries. The term estate includes all the money, assets, property owned by a person before death, and also all the liabilities the individual had before passing away. Estate also includes all the claims that the deceased was entitled to receive or pay.

Estate planning is important as without formal structures that ensure that these purposes are met, there could be disputes, conflicting claims, legal battles, avoidable taxes and unstructured pay-offs that may not be in the best interest of the beneficiaries. The estate of a deceased is generally passed on to the legal heirs of the individual, however, they can be transferred to any individual the deceased wishes to receive his estate or a part of the estate. The estate can also be passed on to a trust and be managed by trustees where the ownership is with a distinct entity.

One may argue that he/she has done nomination in financial assets. But one needs to understand that in case of nomination, someone has the right to just receive the investment or asset proceeds as an agent or trustee as per law and such a person is not a beneficiary of the same. The assets may be required to be transferred from the nominee to the legal heir as per the law.

Advantages of Estate Planning

1. Minimise delay, costs and legal hassles

After the demise, the legal formalities and transfers take time and the family generally has to wait a long time to get everything in order. With proper estate planning and a valid Will in place, you can avoid this delay for your family and they can get everything in order quickly and without legal hassles. A lot of money can also be saved which may go to lawyers and legal expenses in case of absence of an estate plan. An even higher amount of money is spent in case there are family disputes. One can avoid this hassle by simply creating a will and ensuring that a proper estate plan is in place.

2. Disclose all assets /investments

Most of us may not know the full details of the assets belonging to our spouses and similarly they too would not know all of our assets. This becomes even more important if you are the bread earner of the family. Your dependents will not be even aware of your entire estate and investments that you must have made. A detailed Will helps them by disclosing all assets/investments properly and getting all the affairs in order.

3. Avoid Disputes

Making a valid Will clearly states out your preferences in distribution of your estate. This will clearly help in avoiding any legal disputes in the family. In absence of any Will, disputes are most likely to breakout in distribution of properties and businesses. A valid Will signed by all beneficiaries /legal heirs will go a long way in keeping the family intact and together.

4. Plan for incapacity

While most people are convinced that estate planning is for old age, that is not true. Life is unpredictable and anything can happen at anytime. It is possible that one becomes incapacitated because of some unfortunate accident or sudden medical condition which leaves them unable to manage their financial affairs.

While estate planning, one can create a power of attorney for both financial and healthcare decisions in case of incapacity. This can help you and your family in difficult times.

5. Support your favorite cause

An individual can leave a fixed amount as donation or as charity to a cause he or she wishes. In often cases, where a proper will has not been made, these causes go unnoticed as the family is unaware of the deceased wishes.

6. Assign a legal guardian for your children /dependents

In unfortunate cases where both the parent pass away and the children are still minors, the court decides who the legal guardian to the kids will be. However, with estate planning, you can assign a legal guardian in case of any unfortunate incidents and make sure that your kids and dependents, if any, go into safe and trusted hands.

Your Investment Goal :
The beginning point of any investment has to be you and your needs. Having a predefined goal or objective is crucial for shaping your portfolio and if you haven't given it a serious thought, we suggest that you do it as a mandatory exercise. A goal setting exercise can normally be anything from the following list and even beyond...

• Saving for a life goal like retirement, child's
• marriage, purchase of house, etc.
• Creating X amount of wealth in future...
• Arranging for regular income
• Protection of wealth over time
• Parking of funds for brief period of time
• Tax savings coupled with wealth creation

Scheme Category/Style Universe :
After finalizing the investment goal and objective, the next task is to shortlist the mutual fund scheme category/style depending on the investment horizon and your risk appetite. The scheme risk classification, based on uniform standards in the industry, can be used as a reference point to match to your personal risk profile. There are many categories of mutual funds available with primary underlying asset classes of debt and equity and varying mixtures of both.

The allocation between equity and debt should match your risk appetite and time horizon. Investing across different schemes and asset classes is a good idea for diversification of risks as they have their own risk-return trade-offs and advantages /disadvantages. If you are planning for specific investment /financial goals, they are however likely to dictate the type of schemes you will have to invest in. Once the investment objective is defined, it is now important to select the schemes and the investment/ withdrawal options to match the needs.

Fund House Universe :
There are around 40 fund houses in India offering their services. A fund house is at the heart of your mutual fund investing experience and performance of the schemes. When we invest in a scheme, we give a mandate to the fund house to manage the money on our behalf. There are fund houses specializing in different asset classes and also the scheme performance of the top and the bottom fund houses differs significantly. Knowing and selecting the right the fund house universe is thus important.

The fund selection focuses on the parentage, management quality, experience and investment philosophy. The quality of the team, investment processes, risk measures and operational efficiency are also important attributes that ensures good performance. While most of us may find it difficult to assess fund house on all these parameters, we can certainly get an idea of the fund house by visiting their websites, reading basic details in scheme documents or accessing on-line research articles /reports. We should try to shortlist fund houses that have a strong presence in the financial world and provide schemes that have a reasonably long and consistent track records.

Scheme Performance :
The performance of the scheme is benchmarked against comparative indices and most schemes provide performance comparison against these benchmarks. However, they may not be appropriate for us and we should look at performance against similar/peer-set schemes to get a better idea of performance. This exercise will enable us to differentiate the good performing schemes from the laggards in our universe of fund houses.

Within performance, a fund delivering the highest return in a particular period or recently may not necessarily be the best. One has to look for consistency in good performance over different periods of time. By consistency we mean that the returns are not over volatile over different periods while giving good returns steadily. We should also keep in mind that the past performance is no guarantee of future results.

Scheme Objective & other attributes:
At this final stage of selecting a mutual fund scheme, we are now evaluating between few schemes which we shortlisted in the previous step. Among the things we can check are...

Investment objective: which talks about the scheme's goal, investing rationale and asset class composition. We should check that the scheme matches our own financial objectives and needs.

Other attributes: Entry and exit loads, management fees /expenses, fund manager, size of the AUM, portfolio concentration, turnover ratio, are some of the other things can one can give attention to. These may not play as important role as the other factors but some of these attributes may carry significance depending upon one's needs /preferences. To know about the above information one may need to look into the scheme documents and other literature available.

Conclusion:
For success of any investment goal, there are many factors that play a crucial role. Most important is that of setting the right goals and having a portfolio with the right asset allocation. This is where most of investors are more likely to go wrong. As we have many times in past reiterated, asset allocation is the primary determinant, almost 94%, of long term performance of a portfolio as opposed to product selection and timing. Though we have talked about scheme selection in this article, investors having good financial advisors can rely on their expertise to recommend and suggest schemes and on which they can further seek clarifications as discussed here. As educated investors though, we should all know what important things should be known before investing under any scheme.