Posts tagged: economy

Why You Should Not Invest in Mutual Funds Based on Absolute Returns

mutual fund investmentsWith every investment decision, investors only seek higher returns. Considered as a preferred choice for many, mutual funds offer high returns at a lower risk compared to direct equities. An investment in mutual fund allows investors to avail of the benefit of compounding interest and helps them generate optimum returns in the long term. Additionally, mutual fund investments may be made in the form of a Systematic Investment Plan (SIP) and its returns carry tax benefits.

When it comes to determining the performance of a fund, investors are not aware of what to consider. Measuring the short-term performance of the fund may sometimes lead to wrong decisions. Many consider this short-term return as a benchmark and set wrong expectations. Therefore, it is important to assess the fund correctly in order to avoid wrong financial investment decisions.

Ways in which investment returns are calculated

If you want to check your mutual fund performance, you must first understand the different ways in which the returns are calculated.

• Point-to-point return or absolute return

This is the figure that, you arrive at by deducting the final Net Asset Value (NAV) from the initial investment amount. An absolute return does not take into consideration the period for which your money has been invested or the inflation during that period. For instance, if you invested INR 20,000 in 2015 and its current NAV is INR 30,000, then your absolute earning is INR 10,000.

• Annualized returns

Each fund shows returns that are compounded and not absolute. Mutual fund returns compound over a period and the Compounded Annual Growth Rate (CAGR) shows the year-on-year growth rate of the investment over a particular duration.

Why absolute returns do not reveal the right picture

Fund managers often ask investors to stay away from considering a point-to-point return. Let us delve deeper to find out why absolute returns should not be considered as a benchmark and may be misleading.

• Reflects an incorrect financial picture

For short-term mutual fund investments of a year or less, absolute returns may show the right results, but in case the investment is for a long-term, this does not hold true.Over a longer period, the fund may not be able to sustain the same or an increased return percentage. For example, if a fund outperforms in a three-year period, you may not be assured that it will perform the same way over a five-year duration. This also does not mean that you will not earn good returns over a longer period. The three-year return could be fueled by a positive market movement and a favorable macro environment. There could be a significantly higher return in a three-year period and an average or below-average return in the five-year duration.

• Performance depends on the type of fund

The performance of the mutual fund depends on the type of fund you are invested in. Equity funds are highly volatile and the returns on the same may vary from one period to another. It is also affected due to the market conditions. CAGR does not account intermittent volatility. The equity fund may have gone up by 40% in the first year and may dip by 25% in another, but the absolute return will not provide correct information about the fund. It might only show the upswing of 40% in a particular year and misguide investors.In fact, most top-performing mutual funds perform well in the first year and then slump in the next two years. Hence, the overall performance may be determined by considering a three-year or a five-year investment period.

In order to gain maximum return from mutual funds, fund managers insist investors remain invested in the long run in order to gain maximum mutual fund returns and to bring down the impact of the market changes to a minimum. Every investor should learn how to interpret the CAGR and understand the implications of three-year or five-year returns on the investment.

The biggest benefit of a mutual fund is the compounding of interest. CAGR is ideal for measuring performance over a longer period whereas absolute returns may only measure the performance for a year.

To invest in top-performing mutual funds, investors must use user-friendly tools like the Angel Wealth mobile application. It offers customized recommendations for your financial goals. It runs an ARQ investment engine, which has no human intervention and is powered by advanced algorithms. So download the Angel Wealth mobile app today and streamline your investments.

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Financial Steps To Take Now – For Early Retirement

retirement before ageThe age of retirement for most people has risen considerably over the last few years. In reality this means that you have less chance of enjoying your retirement whilst still fit and healthy. Although people are living longer, chronic ailments, although manageable can hamper your activity levels.

What if there is a way to ensure that you could retire early enough to still have an active lifestyle? Many people have asked themselves this same question and surprisingly there are solutions out there that could make early retirement tangible, rather than remaining a distant dream.

To retire early, with enough money behind you, you need an average of 40 years of savings. This sounds impossible, but with careful financial management started early enough in life, it is doable.

In this article we will visit financial solutions that will enable you to plan for an early retirement.

Plan

Early retirement means different ages of retirement to different individuals. It is good to pinpoint an actual age, so that you can accurately predict how much you need to have saved by this point. Do you intend to totally retire at this point or are you planning on working on a part time basis? Every bit of income helps, some people choose to make money from their hobbies such as arts and crafts. Effectively if you don’t plan on working for financial gain at all in retirement you will need to save a lot more.

Work out how much you need to save each year and how much it is possible to live on once retired.

Invest

Once you have worked out how much money you need to retire early you can start to plan how you can invest your money in order to reach your goal. Investment sounds risky, but even retirement plans involve investment. It is good to educate yourself on the many forms of investments available. If trading on the stock market is really not a viable option due to risks involved you could consider investing in real estate, Fundrise is a platform which allows investing in real estate to be accessible to the general public. Your investment can be relatively low cost and fundrise fees allow you to invest for as little as $500.

Although investing in stocks and shares has the potential to be extremely lucrative, there are risks involved. Before you embark on investing your money you should take professional advice from trading experts and independent financial advisors. In addition to investing in stocks and shares there are many financial products available to invest your funds in from providers on the high street. Always take advice.

Property

Property is a great investment for the future. Capital you have in your property can help fund your early retirement by selling your home and downsizing. If you wish to invest in property for the rental market or to renovate and sell on, ensure you carefully research the location and potential pitfalls in the property, otherwise you could be potentially investing in a money pit.

Ensure that you have paid off your mortgage at the point in which you want to retire. Most mortgage lenders will let you make over payments without penalties.

By following this guide you will be well on your way to planning for an early retirement.

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The Most Cost Effective Way to Have a Car

car financeIf you’re like most people used to driving, then the prospect of not having a car would be akin to the feeling a child has when they are sent to their bedroom and grounded – cars offer us freedom and huge convenience, yet they are also considerably expensive to run and own. Your vehicle can make up a large part of your household finances, so this article looks at the three most common ways of having a car; leasing, renting and owning – in order to work out which is the most cost effective option for you.

OWNING

This might seem like the most sensible choice, as at the end of the day, whilst buying a car outright – whether in cash, or on finance, is a significant expense, it is at least an ‘asset’ you own yourself. However, a car is a depreciating asset that loses its value each mile you drive and each day that passes by – it’s not like a house which appreciates in value. If you are to buy a brand new car, then as soon as you drive off the forecourt, the financial hit you can expect in terms of depreciation is in four figures!

Buying a second-hand car, particularly one that is just a few months old, seems to be one of the smartest moves you can make if purchasing a car… however, even then, the cost of insurance, road tax, MOT, servicing, maintenance and repairs can mount up to the point any ownership of a car will take its toll on your finances. This is where the less popular option of renting a car can pay dividends.

RENTING

It might seem a strange idea to rent a car, as an alternative to owning one, but if you don’t always use a car (e.g. you live in Central London or travel a lot for work) then hiring a car could prove to be the most financially beneficial to your situation. This way, you are only paying for the car when you actually need it (there’s nothing more annoying than paying for a 24 month lease, when you’re out the country for a few months, and the car is sitting in your driveway)… but more than anything, the insurance is included. When you consider how much insurance costs – renting a car that comes with fully comprehensive insurance can actually end up saving you money, particularly for inexperienced drivers or those without no claims bonus.

LEASING

The middle ground between owning a car and renting one is to look into long-term leasing; indeed, you may wish to visit intelligentcarleasing.com in order to consider your options and see what deals are available – as you can find some incredible offers particularly at this time of year. The great thing with leasing is that you aren’t always responsible for maintaining the car in terms of servicing, and if something goes wrong with the car, you can simply go back to the leasing company and they’ll replace the vehicle. Leasing offers a hassle-free option but the downside is you never end up owning the car, so a bit like renting a property – you’re not building any equity in an asset, however, with a car… it’s a depreciating asset anyway, so this shouldn’t be too offputting.

In summary, there are three main options to consider in terms of having a vehicle; and the right option for you will be heavily dependent on your individual circumstances.

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Four Simple Solutions To Help You Sort Your Financial Situation

financial statusSome say that money is the root of all evil. And there are definitely certain circumstances in life that would make us all believe that at some point or another. But when you find yourself with financial problems, you can definitely feel like dollars are the devil on your shoulder. While they’re there dancing away, you know that you really need to work on something to make them go away. Although it’s tempting to bury your head with everything, that’s never the best solution. You’re definitely going to want to tackle this issue face on, but you don’t always know where to start. And that’s where this post comes in.

Suffering financially can be really scary. You often worry if you’re ever going to get out the other side. And you will – but you have to make it happen. This means being transparent with your finances, being frank, and also committing to making changes. Because when you can do all three, you will be able to sort your current financial situation. Whether you’re in debt, not earning enough, or just in a bit of a muddle with everything, then it’s time to strip it all back. So let’s take a look at the four simple approached you can take to achieve this.

Budgeting Better

When you’re in a less than ideal financial situation, you have to be really honest with yourself. And this always means considering your current income and expenditure. By working on a better budget, you should be able to get things under control.

Understanding What You Earn

The first step here is all about getting to know your earnings a little better. Because we always tend to assume that we make X amount each year or month, without really knowing what we get. So if you’re employed by one company, it’s time to go through your paycheck. Then, you’ll be able to understand the income you get each month. If you’re self-employed, you should definitely start to track your earnings so that you can be more aware of the money you’re making going forward.

Tracking What You Spend

The next step is to hone in on your expenditure. And this is often what the bulk of budgeting is all about. To do this, there are different apps to track your spending that you can look to use. By ensuring that you know what you’re spending, you can not only ensure you don’t overspend, but you can often be more careful with what you spend your money on too.

Cutting Down Unnecessary Expenses

You may find that the last step opens your eyes a little. Because it’s easy to think that you’re spending a certain amount of money each month, to then realize that you don’t really have a clue. And it can then make you aware of the unnecessary expenses that you have, but that you can cut back on too. Saving on monthly expenses can be quite easy, as long as you’re prepared to be tough on yourself.

Saving Money

Then, you’re going to want to think about how you can save more. This is both in terms of having a pot of money saved up, and ensuring that you save money on whatever you buy going forward too.

Allocate A Percentage Each Month

The best way to ensure that you’re able to put some money away for savings each month, is to allocate a set percentage in your budget. That way, you’ll automatically save however much you can afford, and you won’t miss it going forwards either.

Shop Around

But you also want to make sure that you’re not spending too much money on the things that you do buy too. To do this, you definitely want to shop around. While considering the prices of different items in different stores isn’t always quick, it is smart. Because you can often save a significant amount of money buy biding your time and shopping around first.

Use Coupons

Finally, you should definitely consider using coupons too. When you never really use them, it can definitely feel odd to clip coupons or search online for discounts. But as soon as you get started, you’ll find that it’s easy to get the hang of. And if you’re really not sure how you’re going to save this way, these coupon tips will definitely help you to maximize your money every time you spend.

Earning More

Your next step is to look at your income. Because you’ve pretty much mastered your spending now, and you probably can’t get that down any further. So your next solution is to increase your earnings.

Make A Plan

While some people will earn more by not really planning for it to happen, for most of us, that’s never going to be the case. Because if you want to increase your earnings, you need to know exactly how you’re going to do it. And this means that you’re going to need to have a career development plan in place. You should have your end financial goal in mind, whether that’s five or ten years away, then work backwards and plan out what you need to do to get there.

Start Something On The Side

Another great way to ensure that you earn more is to do something on the side. If you have a particular interest or skills, you may be able to commit your evenings and weekends to it, or whatever free time you have, to ensure you make some extra money each month. From writing to selling crafts, you should definitely look into where your passion and talents can take you.

Get A Second Job

And, of course, you’ve always got the option to take on a second job too. This isn’t always going to be the best idea for everyone, but if your first job just isn’t paying you enough and you want to be able to bring in some more money for a short space of time, a second job can be a great idea. But, you will have to make sure that you have the time available to do this without it causing your stress or impacting on your quality of life.

Alternative Avenues

And finally, you’re then going to want to consider what other avenues you have to get your financial situation under control. Not all of these will apply to you, but it’s always useful to consider each in case you can find the perfect solution.

Considering Compensation

First up, you’re definitely going to want to consider any avenues that will allow you to access additional money that you’re entitled to. Because when you’re in a tough financial situation it can help. You can click here for information on payday loan repayments as a starter. But you may also have other forms of compensation that you could be entitled to due to your circumstances too.

Saving To Invest

Next up, you may also want to think about the future, and how that can improve your financial situation. Once you’ve mastered spending within your means, you could then look to save money so that you can invest in something that will make you more money in the future, such as property.

Starting Your Own Business

Finally, you may also want to think about starting your own business too. Because if you want to change your life and prepare for the future, this can be an incredible venture for you. Yes, it will take work, and it won’t happen overnight, but if you have vision, it’s something that you should definitely look to start now.

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Don’t Let Your Home Be The Cause Of Financial Problems

home money issueWhile home ownership is the goal that many people share in life, very few homeowners actually consider the negatives of home ownership. That is until they are a problem for them. Although for the most part, home ownership is a fantastic financial choice, there are also times when owning a home can have a detrimental impact on your financial health. However, this is usually when you don’t take the necessary steps to protect yourself and your home from financial issues. To learn more about protecting yourself from financial problems that could be caused by your home, read on.

Protect your property from the unexpected

There are times in life when we choose to skip paying certain bills because we see them as being necessary. Whatever you do, don’t make property insurance ones of them. The fact is that anything could happen at any time, which is why taking out homeowners insurance from a reputable company like Trusted Choice is so important. Whether a storm hits and destroys your home, a house fire ruins your property, or a break-in leaves your home in tatters, it is vital that you have adequate protection in place. Every home needs insurance, because the fact is, you never know what might happen, and it is always best to be protected.

Make maintenance a priority

A common mistake that far too many homeowners make, which turns their properties into money pits, is not taking maintenance seriously. If you take the time look after your home and deal with any issues that occur as and when they do, your home should remain in better shape. However, if you leave these issues to worsen over time and don’t deal with them, then you may end up with a home that is falling apart and will cost a lot of money to put back together again. If you aren’t big on household DIY, don’t let that put you off of keeping up with your home’s maintenance, call out a contractor instead. Never put off with household problems as they will only end up costing you more to fix.

Invest for the future

If you want to ensure that should you want to sell your home in the future, you are able to do so easily, and for a good price, it is important to keep your property up to date. This means being willing to invest in new technologies as and when they are available, such as solar power, for instance. These kinds of investments will come at a cost, but the fact is that by choosing to invest in them, you can give yourself and your future the financial security needed. The more up to date a property is, the more easily it should sell.

There you have it, a guide to everything that you should know about ensuring that your home is not the cause of financial problems. Take note of the tips above, and you can make sure that home ownership does not leave you in a financial hole.

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