Plan and Invest like a scientist

For our financial plan to run at high speed we must know our checklist before we invest

Close your eyes for a while and think, how you decided on your last investment.

Was your decision based on a peer or friend's recommendation, market tip, gut feeling or what we hear on news? A doctor friend of mine once said this to me, if I treat my patients the way I plan and invest my finances; I would certainly end up killing them. My doctor friend reasoned it out saying that he doesn't have time to research for his portfolio. So he was earning from one side and loosing from other.
We all do out mistakes in our plans but the trick is to correct them, the day you realise that you can do better.
We all remember the property boom in Dubai. My doctor friend had invested in a house when the market was at its peak. Bank offered him 95 per cent finance. So he shelled out a meager amount of money from his pocket to buy a huge villa. This was done as a part of his investment plan. Within a year markets changed, prices stepped down drastically and so did the bank's policy. Now he has sold his villa, and he owes Dh500,000 more on his original loan. He couldn't sustain the EMI's of the property and had to sell it at a loss to pay off bank. The debt was to coverup the losses.
We all have either been there or heard about financial planning mistakes.
For our financial plan to run at high speed we must know our checklist before we invest:
1. Why do we need money? What is our goal? A scientist will know what he wants from his research. We must know what we want. When the want is strong, you will do everything to desire and achieve it. I and my husband did this exercise, we have three major goals: a) Fully fund our retirement accounts every year; b) Fund our kids' education accounts every year; and, c) Pay back the house loan. Our needs are so strong that we end up saving and investing cautiously and now we know why we want to save and how important our goals are for us.
2.  Know your starting point. Investments have a thumb rule. Start at early age and start early at an opportunity. Earlier you start; lesser you spend for same goal. Early you enter an opportunity more you benefit the rewards of growth. Starting to save from your first salary is an ideal situation. Picking up stocks at their all time low is wise. But this will require research and market alertness.
3. Research your investment and hire a financial advisor to carry forward your research and goals. Financial adviser's job is to help you in formulating your goals and pursuing them. His job is to guide and advice you on your way forward. He is not there because he is smarter than you and can give you right tips on your stocks. He is there because he carries more information and he will help get between you and any potential mistakes you may make during your financial planning journey. He will help you kick your financial planning ball towards your goal every time you miss the goal. More importantly during long term goals, we need someone to help us avoid emotional decisions to quit.
4.  Plan, behave and invest for long time. Longevity is the key as it gives you enough time to correct your mistakes, if any. Dollar cost averaging is not a rocket science to understand. Over a long term most of the investments pay out more than expected out of them. When you invest in a risk diversified portfolio, being lazy will work. You do not switch off the oven in between and check the cake aver few minutes. Let it bake for the time specified.
5.  Less debt more investment. Sometimes paying off debt is also an investment. A credit card bill not paid on time will exponentially multiply and triplicate your debt amounts in a year's time. You will find many examples near you among your friends and peer group who suffer from credit card debt. Short term loans should be paid off in short term.
6. Insurance is major part of any portfolio. We save and invest anticipating we will be healthy and alive to save. Even a single incident of death disability or critical illness will sabotage all our plans. Insurance should be as per your cost of living. I have done an earlier article on income replacement. Hope that was helpful.
7. Save as much as you reasonably can. There are current needs that ensure our comfort. Once our current needs are taken care of, one can save the rest. Let us not kill ourselves for our future needs and let us not spend on things we do not currently need. Impulsive saving is rewarding and impulsive buying can be penalising.
A scientist will know his goal what he wants before he starts his research. He starts where there is an opportunity to achieve. He researches on what is done previously in his field of research. He knows he has to be patient for his rewards. He invests his time and attention. Of course he insures his research and he will do as much research that will keep him sane and reasonably social.

The author is an entrepreneur and financial planning consultant. Views expressed are her own and do not reflect the newspaper's policy.