How to rebuild an investment portfolio after recession


Don't swing for the fences. To get even after a 28% loss, you have to gain 37%. But that doesn't mean you should load up on risky funds to make up for lost time. You'll just increase the odds that you'll lose more money.

Two important statistical measures will help you get a handle on risk. The first, beta, tells you the fund's relationship to an index, such as the Standard & Poor's 500-stock index. A fund with a beta of 1 rises and falls in lockstep with the index. A fund with a beta of 1.1 will rise 10% more and fall 10% more than the index. Conversely, a fund with a beta of 0.9 will rise 10% less and fall 10% less than the index.

Another useful measure is standard deviation, which tells how much you can expect a fund to vary from its average. The higher the standard deviation, the more volatile the fund. The standard deviation of the S&P 500 the past three years is 19.6. AIM China fund has a standard deviation of 37.6, so you can expect that its performance will be roughly twice as volatile as the S&P 500. You can find a fund's beta and its standard deviation by putting the fund name or ticker into any Get a Quote box at money.USATODAY.com. Scroll down to Risk Measures.

Don't go to cash After taking a mauling from a bear market, many investors want to give up on stocks and bonds and move to money market mutual funds or bank CDs. But savings rates are so low that you'll earn close to nothing: The average money fund yields 0.05%, or $5 on a $10,000 deposit. Factor in inflation and taxes, and you'll earn less than nothing.

True, a 0.05% return is better than a big loss. But you have your best chance of getting back to even in stocks. Recovery time for a bear market depends on the severity of the downturn, says Jeff Hirsch, editor of the Stock Trader's Almanac. Hirsch thinks the market won't make new highs until 2011.

Don't give up. Unless your retirement plan is to keel over at your desk, you need to lick your wounds and keep going. Even if you have a pension and Social Security, you'll need savings to maintain your standard of living.

How do you recover from the market's drubbing?

Save more. The only sure-fire way to make up losses is to increase your savings. For example, suppose you earn $50,000 and contribute 5% of your salary to a 401(k) plan. You get 3% raises every year. If you earn 6% a year, you'll have $260,500 after 30 years. Bump up your contribution to 7%, and you'll have $364,000.

If you're investing in a 401(k) plan, bumping up your savings by a percentage point or more could be surprisingly painless, because your contributions are before taxes. For example, suppose your gross salary is $50,000. You pay 25% in federal taxes and 5% in state taxes, and you contribute 5% of your salary, or $48 a week, to your 401(k). Increasing your contribution 2 percentage points, to 7%, will decrease your take-home pay by just $13 a week.

Make a plan. If you want a reasonable shot at retirement, you'll need to know how much money you'll need when you retire. Fortunately, you can find plenty of help estimating your retirement needs. Fidelity (www.fidelity.com), (www.troweprice.com) and Vanguard (www.vanguard.com) all have excellent online programs for figuring out how much you'll need to save for retirement.

If you feel you need a financial planner, consider a fee-only planner — preferably one that charges you by the hour, not by commission. You can find fee-only planners at www.napfa.org. You can also buy financial planning by the hour at the Garrett Planning Network at www.garrettplanningnetwork.com.

Don't ignore dividends. Although red-hot growth stocks make the headlines, it's the stodgy dividend payers that do the heavy lifting over the long term. The S&P 500 has gained 867% the past 30 years without dividends. With dividends reinvested, the index has soared 2,200%.

Keep expenses low. If your plan offers two similar funds, choose the one with the lowest annual expenses.

•Find an asset allocation plan. Once you've figured out how much you need to save, figure out how much of your money should be split between stocks, bonds and money market securities. The more time you'll have before you need to spend your money, the more you should have in stocks. If you have 20 to 30 years before retirement, for example, you should have 70% or more of your investments in stocks.








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NRI CENTRE

Welcome to NRI Centre. We have made an attempt here to furnish important features applicable to Non-Resident Indians (NRI) and People of Indian Origin having foreign nationality and residing in foreign countries. (PIO).

Before entering to technical part of the subject we wish you to know the concept of insurance clearly; to identify the proper type of policy; to know the premium structure of the policy and to get the doubts, if any, on our different insurance plans clarified through your agent or LIC Branch Office.


Concept of insurance and different types of plans:

Life risk cover i.e. financial protection to the family in case of an unforeseen event- say death, illness, disability on account of accident, etc –is the main purpose of insurance. But, it is also seen as a ‘compulsory savings’ leading to creation of wealth which can be utilized for education/marriage of children; for old age provision; for construction of house; etc. Policies are taken to get exemption from Income Tax and to assign these to financial institutions as collateral security while availing different type of credit facilities including housing loan. In order to meet various socio-economic needs of different people, LIC has designed more than 40 types of plans which include whole life policies, endowment policies with a definite term, joint life policies, money back policies having provision for periodical lump sum payments called survival benefits, term insurance policies which have low premium but high risk cover, pension plans, children plans, Unit Linked Plans which provide an opportunity to invest in capital market, etc. etc.

Each of our plans has distinct features covering certain type of benefits. The selection depends on your needs. Details of plans are available under the option ‘products-insurance plans’. Each plan is given a table number for identification purpose. e.g. Table 14 refers to Endowment Plan which is most popular in India.

Calculations of premium:

Once short listing of two to three plans is made, you would proceed to know the premium rates & calculations. For this, you should decide the term of policy, Sum assured, Mode of payment of Premium ( Yearly, Half yearly, Quarterly or Monthly ) and whether you require additional benefits like accident benefit. You may go to the option :‘tools - premium calculator’ for knowing the premium amount to be paid for the policy of your choice. Thereafter, you would be required to know the formalities to be completed for obtaining the desired type of policy.

Requirements to take a policy of insurance:

Submission of prescribed proposal form ( Form No. 300 in majority of the cases )is the basic requirement. Medical report may be required to assess the health of the proposer. Proofs of age and income, agent’s recommendations, special reports in case of any deformity or history of major illness, etc. would be required to evaluate the risk. This process is called ‘Underwriting’ and it is done in India based on the facts appearing in proposal form and allied papers. If the proposed life is acceptable and sufficient amount is received towards the First Premium, acceptance letter would be sent to the proposer and policy bond would be issued in due course.









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