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Plan (far) ahead for the new year

Here they are, well on time, guidelines on how to save and invest in 2028

Plan (far) ahead for the new year

Would you like a list of the best mutual funds of 2017? Or perhaps the ones that will be best in 2018? How about the best companies? Sectors? Countries? The greatest trends of the past year? And the coming year? It's the time of the year when an investor can entertain himself on TV channels, newspapers or websites, you can entertain yourself in one of two ways. You can get to know the things that happened in the past year, which is entirely useless. Or, you can get to know what will happen during the coming year, which is entirely inaccurate.

Why am I so sceptical about this business of predicting the future? After all, there's a huge industry dedicated to doing just that. Sometimes though they claim to be accurate and maybe, rightly so. You could read a prediction today that the next quarter's EPS of a company is Rs 10.25 and it turns out that it actually was. The same could happen with someone's predictions of macroeconomic numbers. So how can one say that predictions for the coming year is a fruitless exercise? The answer is actually quite simple. How do these predictions help you as an investor?

The future of the past
The answer to this question becomes clear when we look back into the past and see what was predictable and what was not and which has actually had a real, lasting impact on wealth generation through investments. In the late eighties, could you have foreseen the meteoric rise of the Indian software services? Was the soaring living standards in urban India predicted by anyone? In 1995 did you expect the eventual drop in interest rates and easy money economy? Was the resultant housing boom predictable? In 1996, when the cost of a basic mobile phone was Rs 20,000 (Rs 1.5 lakh in today's money), could anybody anticipate the number of mobile connections India would have in 2017?

Was the near collapse of the global financial system in 2008 foreseen a couple of years earlier? In 2009, when the equity markets hailed the return of Manmohan Singh as India's Prime Minister with a stronger mandate, was the sorry mess of the next five years predictable? Looking back, it is pretty clear that what will unfold and be impactful in the future is not always predictable.
So if none of these 12-month predictions is of any use, I'm going to buck the trend. Instead of telling you what you should do as an investor in 2018, I'm going to ask you look far ahead and plan for 2028. So here it is, a brief overview of what savers and investors should do till 2028.

Investors should map their future financial needs along a time-scale. This is not difficult as major expenses tend to be predictable. All money that is likely to be needed between 2028 and 2030 or so should be kept in fixed income investments. These could be government small-savings schemes or debt mutual funds. All investments intended for a longer period should be invested in a small (four or five, at most) number of diversified equity funds and balanced funds. These investments should obviously be made not in a fits and starts but gradually, using an SIP. This strategy is simple and effective.

Apart from these investments, you should be prepared for emergencies. All earning members of a family should have a term insurance equivalent to around 10 years' income. If you buy a pure term insurance, this is easily affordable. You should also have health insurance, as well as about six to nine months' worth of expenses in your savings account as emergency money. You should also donate some money to charities that take care of all those who were financially wiped out when the cryptocurrency bubble burst in 2018 but that's your choice.

This is what you need to do as far as your savings and investments go for 2028. Or 2018, or 2022, or for any duration, actually. And that's the whole point. Regardless of what the formulaic year-gone/year-ahead coverage in the media says, if you have a personal savings strategy that needs year-to-year adjustment, then there's definitely something wrong with it!