Professional development tip: Keep a project journal

Nice article from "Bridging the Gap"

Professional development tip: Keep a project journal

Posted: Wed, 22 Sep 2010 11:00:34 +0000

As Business Analysts, we are professional change practitioners.  We are experts in the field of “change” and should expect to add maximum value to the organisations we work for.  To be effective in this role I believe we must manage change in our own professional development and take every opportunity to reflect on our experiences, and crystallise the knowledge we gain whilst working on projects.

It is important to have a conscious professional development strategy and this is likely to involve a number of activities.  However, it is good practice to build in professional development to your weekly and monthly schedules.  Professional development doesn’t have to be costly or time consuming, and it’s important not to overlook the experience we gain in our project work.

One of the single biggest ways we develop as BAs is through the work that we carry out day-to-day, and I have found that keeping a project journal is an incredibly useful professional development tool.  It can be tempting to move straight from project to project without taking any time to reflect on what has been learned, but consciously recording relevant information in a journal (acronyms, terminology, lessons learned etc) can be an effective way of crystallising knowledge and storing it for future use.   This can become excellent reference material if you work on a similar project in the future.  The act of reflecting on your progress and recording it, is useful in itself, as it helps you to consolidate your knowledge and consider what you might do differently in future. It can also be useful to review the journal periodically, to reflect on previous projects and ensure any knowledge is carried forward.

You can spend as much or as little time on this activity as you like.  It would be valuable even if you only spent 15 minutes writing a summary after every project engagement.

A very light-weight journal might include:

• Project name
• Date started/date completed
• Techniques used
• Stakeholders worked with
• 3 things that worked well
• 3 things you’d do differently next time
• Biggest learning point
• Acronyms & terminology
• Other relevant information

You can tailor your journal to your particular needs and preferences.  I keep an incredibly light-weight journal.  By keeping the journal short, this makes it very quick to update (which means I am much more likely to do it!).

A project journal can also form a useful part of your stakeholder management strategy.  For example, you might learn that a particular stakeholder likes to receive information in a particular way (perhaps they prefer diagrams, or value telephone calls over e-mails).  It can be incredibly useful to record these preferences, so that you can keep this in mind for any future engagements.

The journal itself can be kept in any format you like.  You could keep it on paper, electronically or even on your iPhone.  I personally keep mine in Excel, as it is easy to sort, search and update. The important thing is to get into the habit of updating it, and allowing time to reflect on your progress.  Why not put a monthly reminder in your calendar, blocking out 15 minutes for reflection?

One final benefit of a project journal is that it provides an excellent repository of information which you can use to periodically update your CV or resume. It will also help you if you decide to apply to become Certified Business Analysis Professional (CBAP ®) qualified, as you will need to provide evidence of your project experience.

However you address your professional development strategy, I hope that you have found this article useful, and I hope that you consider reflecting on your experiences and keeping a project journal.

Do you keep a project journal, or do you have any other professional development tips?  I’d love to hear them – please feel free to contact me directly or reply to this post.

Related posts:

1. How do you invest your professional development time? A great question was delivered from an audience member on...
2. What part does the IIBA play in your professional development?: Interview with Kym Byron, CBAP The best business analysts are open-minded. They let you help...
3. Help a BA! How do I build a business analyst career development plan? Reader Question: I am a Senior IT consultant with many...

Nice article on BA-Tech vs. Non-Tech

Why do we see technical skills in business analyst jobs?

by LAURA BRANDENBURG on AUGUST 23, 2010 · 2 COMMENTS

in BECOMING A BA,ROLES AND RESPONSIBILITIES

Why do we see technical skills in business analyst jobs? We, as members of the business analysis profession, know that to be a business analyst, you don’t have to be an IT person. Doug Goldberg has covered this topic thoroughly and I don’t have anything to add to his angle.

But this doesn’t resolve what many experience in the job market. New and experienced business analysts alike will start researching jobs, only to discover that an overwhelming number of positions require specific technical skills. Or, they speak with a recruiter who has a myopic view of the role, and are told that if they can’t write code [or insert your favorite technical skill here], they’ll never make it as a BA.

Why we see BA jobs requiring technical skills

In the real-world job market, business analyst roles are messy. There are a specializations, unique qualifications, extensions, and partitions. “I want to be a business analyst” is not an adequately defined career goal. You’ve got to dig a bit deeper. This is a process I lead mentees in my current resume evaluation program through and also address in The Promotable Business Analyst. I’m also developing a comprehensive mini-course to help individuals prepare for a job search or a career change. (To receive notifications about this new course, be sure sign-up for the eNewsletter.)

The short answer is you can find a BA role that does not require technical skills. Prepare to wade through and ignore those jobs with technical qualifications. As soon as I find a job with an absolute requirement for SQL or a coding language, I stop reading and move on. If you don’t want to be doing those things, applying to jobs that require those skills is just a waste of time. So is fretting over their existence. Remind yourself that BA roles are messy and set them aside.

Sorting through the technical skills requirements

You may notice that not all jobs with specific technical skills listed require the ability to use those skills. Sometimes these skills are preferred. Sometimes they are not mapped to any of the job responsibilities in the description. Sometimes you can ascertain a bit about the position by looking for the context around the qualification. Consider the following two hypothetical examples:

• Write SQL reports. Requires SQL report writing experience with deep knowledge developing complex queries across multiple tables.
• Prior experience in SQL preferred. Understanding of database concepts and information models critical.

While the first requirement indicates day-to-day SQL responsibilities, the second does not. Vague or “preferred’ requirements often indicate a desire for a business analyst to think logically and understand big picture technical concepts. Other times, they have seen business analysts trampled by developers because they don’t ask the right questions. The assumption becomes if you can write code now or could write code in the past, you are less likely to be trampled by the developers.

When technical skills are couched in conceptual or communication-related contexts, the technical skill may be less important than system thinking competencies. And as a business analyst, IT-focused or not, you must have good systems-thinking skills. Read the comments in this discussion about the difference between a business analyst and a systems analyst for an insightful separation of systems knowledge from systems thinking.

Technical understanding vs. technical skills

While we are starting to see a growing number of jobs focusing specifically on business process and organizational changes, the reality is that most business analyst jobs involve working on IT projects. By an IT project, I mean that a larger part of the solution is implemented in software. To perform BA work on an IT project does not require the ability to write code. I’ve spent most of my career working on IT projects and I haven’t written a line of programming code since high school when I took a class on PASCAL.

As a business analyst on an IT project, it is important to have a general understanding of software systems. Basic knowledge of servers, databases, and client side technology, augmented with solid logical, systems-thinking will do. Combining both will lead to more effective communication with the implementation team.

Quick Test: Select a software application (client or web-based) that you use often. Select 2 or 3 activities you use it for. Can you identify the main sub-systems and interactions that are in place to enable these activities? If yes, you probably have enough software knowledge for a pure BA position on an IT project. If no, or if this test confused you, find an introductory book to read.

The final word.

My advice to you as a job seeker or career changer is to pick a direction for your business analyst career. Decide with some certainty if technical activities are part of your target position. If yes, then go about discovering the coveted technical skills and positioning yourself to build these qualifications. If no, then start ignoring the positions with these requirements. Focus on discovering the gems for which you are qualified and interested in.

What are your thoughts? Why do you think we see technical skills in business analysis positions?

By Laura Brandenburg. Laura Brandenburg is an independent business analyst consultant. She is passionate about the BA profession and is committed to contributing by supporting this blog as a forum for business analysts to build on each other's experiences. View more blog posts by Laura Brandenburg

8 Steps to Starting a Start-Up

Here is a good post which I read in a blog from Ben Casnocha

"

8 Steps to Starting a Start-Up

As good as a list as I've seen from VentureHacks:

1. Move to Silicon Valley. [BC: Not mandatory]


2. Pick a great co-founder with complementary skills.


3. Select people with intelligence, energy and integrity.


4. Pick a big market.


5. Develop the minimum viable product to test your hypothesis about what the market needs. Preferably it’s a product that you’re passionate about since you’ll need to stick with it to an irrational point (the Internet especially is efficiently arbitraged).


6. Iterate like crazy until you find product/market fit. If you don’t find it, do not raise money, do not pass go. Start over.


7. If you have found product/market fit, raise money from high-quality people that you trust. Keep control.


8. Scale. Hang on.

The links within the list are good as well.

###

• Interview with Australian teen who had a party when his parents were out of town and refuses to apologize on TV.
• Clint Eastwood lists three reasons why he will never win an Oscar.
• Chris Yeh comment on my post on interestingness: "Things are interesting when they are both novel yet strangely familiar. It's like when you meet a new person, yet it seems like you've known them forever."
• Interesting photo project of strangers touching each other.
• Mexico's conflicting interests when it comes to the drug trade. Another masterful analysis from Stratfor."

xiting your car lease gracefully

By Pat Curry • Bankrate.com

The friendly letter arrives from the leasing company with the news you've been expecting. Your auto lease is coming to an end in a few months. Before you start dreaming of the next car, however, it's time to get out the magnifying glass and reread that lease agreement, because there are important decisions to be made. Make the wrong ones and the lease might snag you in the pocketbook on your way out the door. The right moves -- some of which the dealer was unlikely to mention -- could actually give you an unexpected bonus. Start by deciding, 45 to 60 days before the lease ends, what you want to do with the car. You have five options available to you if, like the vast majority of lessees, you have a closed-end lease. According to Michael Kranitz, author of Look Before You Lease: Secrets to Smart Vehicle Leasing, you can: Return the car to the lessor and walk away from it. Not surprisingly, this is called a "walk-away." Buy the car, usually for the amount of the "residual," or buyout, value set in the lease. Extend the lease for a limited amount of time, usually at the same monthly rate. Re-lease it, via a used-car lease, or Trade your leased vehicle in on a new lease. If the car is worth more than what you would have to pay the leasing company to buy it, it shouldn't cost you anything to acquire it and trade it in on a new vehicle. In theory, this shouldn't happen because leases are designed to yield zero equity at lease-end, but with certain vehicles, you could wind up making money on the deal. Decided? Good. If you're turning in the car, it's time to get it ready to go. Check your mileage The first thing to check as soon as you get your inspection letter is your mileage. If it looks like you're going to go over your mileage limit, try to minimize the vehicle's use. Trade cars with your spouse, your parents -- anybody you trust who drives a shorter distance than you do. "Mileage is a big deal," says W. James Bragg, founder and CEO of Fighting Chance, an information service for new vehicle shoppers and author of the Car Buyer's and Leaser's Negotiating Bible. "I had a college roommate who went on to be the CEO of a company. He leased a Lexus for 45,000 miles and had 90,000. He had to write a check for $9,000 to give his Lexus back. A lot of dealers will say, 'Don't worry about it, we'll roll it into the next cap cost,' so you wind up paying interest on your excess mileage." Here's some potentially bad news. When you reread your lease, you may find that you've volunteered to pay an extra charge for the privilege of giving them back the car -- the disposal fee. About half of the carmakers charge them, and the price can be stiff -- $350 with BMW and Land Rover leases, for example. The amount should be specified in the lease, sometimes with a different name, such as "turn-in fee." Leases signed after Jan. 1, 1998, have to spell out the fee on the front page of the contract, but you might have to get out a magnifying glass on older leases. It sometimes is waived if the customer signs up for a new lease. If you've volunteered to pay it, all you can do is make sure you don't get overcharged. Prepare for an inspection When you get your letter, you'll receive instructions on how to bring your car in for an inspection, unless you're going to buy the car, in which case there's no inspection. It may take place at the originating dealership, a nearby dealership or an independent inspection firm. The inspector will check the car's interior, exterior and mechanical condition. The leasing company expects you to return the car with "normal wear and tear," but each one has its own standards. Ford, for example, tells customers that "normal" includes dings, minor dents, small scratches, stone chips in the paint finish and reduced tread on the tires. It defines excessive wear to include such items as broken or missing parts, dented body panels or trim, damaged fabric, cracked or broken glass, poor quality repairs, unsightly alterations, tire or wheel damage or less than 1/8-inch tread, or mechanical or electrical malfunctions. Before the inspection takes place, you can help yourself with a minimal investment by having the car professionally cleaned, waxed, vacuumed and detailed. Tire wear is particularly important. Don't bring the car in with less than one-eighth of an inch of tread, or with mismatched tires. If you do, you'll find yourself charged for a new set of tires. Once the inspection takes place, you usually have few methods besides the courts to dispute its findings. New York is an exception -- a state law went into effect in 1995 giving customers the right to a second appraisal, if they pay for it. Lessen the damage Outside the Empire State, lessees can still lessen the bite of damage charges. First, don't tell the dealership to just take the cost out of your security deposit. You're responsible for the repairs, but you don't have to pay the dealership's service department prices. Shop for repairs yourself and save. Also, check to see if you have coverage remaining on your warranty; some mechanical repairs still may be covered. The contract may contain strict language about damage, but it doesn't always mean the inspection will be white-gloved and nitpicky. "Lease contracts written in the last couple of years are much more specific about what 'normal wear and tear' means, although the definitions tend to be fairly strict in the leasing company's favor," says Al Hearn, author of Automobile Leasing: The Art of the Deal. "Even if the contract is strict, the inspection can be loose and liberal. I personally have never had a problem even though I've returned cars with cracked windshields, worn tires, dents, dings and scrapes." It all becomes a moot point if you decide to buy the car. Then, there's no inspection, no fees for extra mileage or excess wear and tear, no disposition fee and you get your deposit back. When to buy your leased car When does it make sense to buy a car you've leased for the last two to three years? Here are some questions to ask yourself, courtesy of Remar Sutton, president of the Consumer Task Force for Automotive Issues: Do you like the car? Has it generally done what you've asked it to do with a minimum of unexpected cost and repair? Don't go on history alone. Take the car to your mechanic, just like any other used car you're considering buying. Will it still fit your future needs? If you're driving a convertible and planning a move to Rochester, N.Y., probably not. If you're the proud parent of a budding tuba virtuoso and driving a minivan, then it's probably going to continue to be a good fit for you. What is the lease-end buying price? You'll find the figure in the lease's small print. This buyout price is often called the residual value. What is the car actually worth, or its wholesale value? Edmund's Automobile Buyers Guide and the Kelly Blue Book are good places to start looking. Both sites let you estimate wholesale and retail prices for a used car. From there, you need to research your market. "Auto retailing is an extremely local business," Bragg says. "A guy in Oregon has a pickup. Everybody drives one, so there's a glut of them and there's a depressed value. You drive down the road 80 miles to the big city and you can get $2,000 more." Bragg suggested picking up a copy of a regional auto classified magazine or walking dealership lots when they're closed. "The average new-car dealer sells as many used as new," he says. "See what they're asking, then mentally adjust that down 10 percent to 15 percent for realistic pricing." Sutton recommends taking the car to three used-car operations and tell them you're thinking about selling -- not trading -- and ask what they'll offer you for your old car in cash. That's the wholesale value. If the amount the dealer is willing to pay you is more than your lease says you can buy the car for, it's a good deal for you. If your leased car has performed well, meets your needs and you can buy it for no more than $1,000 over wholesale value, Sutton says that's a very smart buy. If residual is high ... What if the residual is higher than the actual value, but you still want the car? Your dealership or leasing company won't offer this information, but you can try to negotiate a better price. "You'll find that banks and captive finance companies have an incentive to keep you in the car," Kranitz says. "They don't want it back. There's a glut of off-lease vehicles and they'll lose money on it every which way to Sunday. "Say the market value is $13,000 and the residual value in the lease to buy is $16,000. What you could do is call the bank and say, 'Look guys, you're going to eat $3,000. We'll split the difference.' " Sound improbable? According to the Consumer Bankers Association's 2001 Automobile Finance Study, 95 percent of the leased vehicles returned to lessors in 2000 were sold at a loss, to the average tune of $2,342. If residual is low ... You can also come out ahead under the opposite scenario, in which the market value is well above the residual value. This is more likely if you've stayed well below your mileage cap, or the car has become coveted in the market. It's unlikely the dealer has mentioned this, but you can resell the car yourself while it's under lease. "You may want to think about reselling it," Kranitz says. "If you put it in the paper, you could make more money than the payoff. If you've leased for 15,000 miles a year and only driven it 10,000 miles, it has a value to the dealership and the consumer market. You can use the dealer's retail price on those cars on what the market will bear. Most people don't lease so they can play the used-car game, but it's there." The offer had better be a great one: Many leases carry early termination penalties in addition to disposition fees, so you'll have to figure them in when calculating if you'll get a profit. The other two options you have on the table are to extend the lease short-term, or re-lease your used car. Extending the lease makes sense, Bragg says, if you're at a point of uncertainty in your life. Maybe you're getting transferred, anticipating starting a family or you know you'll be getting a bonus in the next month or two. "Will they extend it a couple of months? I think leasing companies will," Bragg says. "No wonder. You're making level payments based on the depreciation for the first three years. They're making more profit on your payment." The final option is to re-lease your car. That should result in a considerably lower residual, a lower capitalized cost, less depreciation and a lower payment. "You have to decide if leasing still makes sense if you like the car, and you think it's likely to hold up for another three years," Bragg says. advertisement Related Links: 9 steps to a car loan on damaged credit Video: How to shop for a car loan Find financing before car shopping Related Articles: Tips to make car trade-in

Directed by	Martin Scorsese

Plot : In 1954, two U.S. marshals Teddy Daniels (Leonardo DiCaprio) and Chuck Aule (Mark Ruffalo) investigate the disappearance of a patient from a hospital for the criminally insane on an island in Massachusetts. They run into trouble when they are deceived by the hospital's chief psychiatrist and administrator Dr. John Cawley (Ben Kingsley), a hurricane hits, and they uncover a series of sinister human experiments.^[4]

^{Meanwhile Teddy looks for Andrew Laeddis the man whom he suspects is the reason behind his wife's death.Did he find Andrew Laeddis or did he uncover the mystery behind the lost patient all forms the rest of the movie. In the end waits an awesome suspense.}

^{Kudos to the director for taking such a wonderful movie.}

Tax credit for first time buyers and Nehemiah Corporation of America( down payment loan)

MarketWatchTax credit for first-time buyers giving little boost to housingMonday November 10, 12:14 pm ET By Amy Hoak
Even with bigger incentive, economic worries could be tough to overcome
ORLANDO, Fla. (MarketWatch) -- Over the summer, many in the housing industry applauded the temporary first-time home buyer tax credits written into the Housing and Economic Recovery Act of 2008. But apparently buyers weren't as impressed.

The tax credit gives first-time home buyers up to a $7,500 credit for buying a home between April 8, 2008, and July 1, 2009. Realtors say it hasn't been effective in getting people to buy homes, which would reduce the excessive inventory on the market.
The problem, they say, is that buyers are turned off by the repayment requirement of the credit. The credit needs to be paid back over a 15-year period, beginning on a buyer's 2010 tax return. In effect, it's really an interest-free loan.
"For the economist, even with the repayment feature, it was a clear benefit. Money today is better than money tomorrow. You receive the money today, put the money in the bank, earn interest, and pay it off over time," said Lawrence Yun, chief economist for the National Association of Realtors.
"It was a clear benefit, but nonetheless, the average Joe Homebuyer does not see it that way," he said, speaking at NAR's annual conference, held in Orlando over the weekend. The conference concludes on Monday.
To entice more first-time buyers, the industry group is lobbying lawmakers to tweak the tax credit, removing the repayment aspect. They also want all home buyers to be eligible -- not only those who haven't been homeowners for the past few years.
The National Association of Home Builders is suggesting an even heftier incentive. It wants a 10% home-buyer credit, up to $22,000, depending on the Federal Housing Administration loan limit in the market, according to a NAHB news release. It also wants that credit to be available to all home buyers who make a purchase in the next year, and for the repayment feature to be removed.
Yun said that $7,500 is a substantial amount of money in moderately-priced markets like those in the Midwest, yet home sales aren't really picking up there.
Economy trumps incentivesBut it's clear that buyers have more on their minds than tax credits these days. Fears about the overall economy and job security are holding back many Americans who might otherwise buy a home.
Forty-one percent of those who are interested in purchasing a home said that overall economic conditions were holding them back, according to survey results released on Monday by Move Inc., the company that operates Realtor.com. The poll was conducted in mid-October.
Another telling response: When asked about the top housing priority for the new president, participants were most concerned about foreclosure prevention.
Half of the 1,000 people polled say that President-elect Barack Obama's No. 1 housing priority during his first 100 days in office should be to help struggling homeowners avoid foreclosure, according to the survey. Read more on housing's prospects in Obama's administration.
On this, NAR also says more can be done and that objectives of the government's $700 billion rescue package haven't been realized.
"The idea was to essentially stabilize the banking system with the thought that it would trickle down into Main Street. Fast forward to today, it's really not trickled down," said Jerry Giovaniello, the Realtors' chief lobbyist.
In the Move survey, other housing issues took less focus. About 23% of participants said that making more affordable credit available should be the top housing priority for the next president, and only 16% said the same about assistance for first-time home buyers.
Affordability improvesBut there's a reason for all this industry attention to first-time buyers; their purchases allow current homeowners to sell their homes and move as well. More first-time home buyers in the market would start a chain reaction to reduce high inventories of for-sale properties, which has been putting downward pressure on housing prices.
Already, first-time buyers are making up a larger share of all home buyers, due to improvements in affordability but also the difficulty that current homeowners are having in selling their homes. With fewer home sales overall, first-time buyers account for a larger piece of the pie.
Between July 2007 and June 2008 41% of all buyers were first-time buyers, up from 39% the year before, according to the NAR's Profile of Home Buyers and Sellers, released at the conference. The survey involved 133,000 home buyers and sellers throughout the country.
But while tumbling housing prices have increased affordability, that wasn't the biggest reason these buyers made a purchase. Fifty-two percent of first-time buyers said it was just the right time for them to buy a home, 16% said it was the best time to buy because of the affordability of homes and 8% said it was the best time because of the availability of homes for sale.
Only 3% of people who bought for the first time wish they would have waited.
Still, there were discounts to be found, according to the report. Consider the following:
Seventeen percent of all sellers surveyed said that they sold for less than 90% of their asking price. Twenty-one percent of sellers said they sold for between 90% and 94% of their asking price, and 38% said they sold for 95% to 99% of their asking price.
Sixty percent of sellers said they had to cut their asking price at least one time before they were able to sell their property.
The percentage of all buyers who purchased a home in foreclosure rose to 6%, up from 1% in last year's survey. About 38% considered buying a foreclosure, but didn't because they couldn't find one that met their needs.
Lately, some of the markets that have been getting the most attention from all buyers are those that have suffered the most severe price declines, according to search data from Realtor.com.
"Where search increases were the greatest, they tended to be clustered in markets which had seen price reductions. So top markets were Stockton, Calif., Naples, Fla., Detroit, the metro D.C. area and so on," said Errol Samuelson, president of Realtor.com.
Financing issuesIt's worth noting that the window of time that the Profile of Home Buyers and Sellers covers mutes some of the financing challenges that people had as the year-long time frame went on.
For example, 34% of first-time home buyers in the survey said they financed the entire purchase price, but no-down payment loans became virtually nonexistent by the end of the survey, Yun said. Last year, 45% said they put no money down.
Plus, down-payment assistance programs such as those available through The Nehemiah Corporation of America are no longer available to buyers as of Oct. 1. In fact, some advocates for down payment assistance believe that the deadline for that assistance was a factor that helped home sales to rise in September.
"Some may be misinterpreting the spike in September home sales to be a potential turning point in the housing and financial crises," said Scott Syphax, president and CEO of Nehemiah, in a news release. "Driving this increase was the swell in demand for down-payment assistance by American families scrambling to take advantage of these programs before the October 1st ban."

Basic Financial Planning

Basic Financial Planning
A step by step financial plan for Non Resident Indians (NRI) planning to return back to India
1. Basics 2. Setting Goals 3. Establishing an Emergency Fund 4. Funding Short Term Goals 5. Asset Allocation Plan for Long Term Goals 6. Maintaining Your Asset Allocation 7. Common Investor Mistakes
1. Basics Introduction
No one would rush to buy building materials for a house without first planning and developing a detailed plan for it. Yet investors frequently buy and sell stocks without having any plan. This is exacerbated by sheer quantity of advice of questionable quality from a vast financial services industry with deep conflicts of interest. Often the interests of the financial services industry and investors are in direct conflict with each other. This makes investors vulnerable to a variety of poor investment decisions with disastrous financial consequences.
Fortunately investing is a simple process despite frequent attempts by wall street to convince investors otherwise.
Saving vs Investing Saving and Investing represent two distinct ways of managing money. Understanding the difference helps you make informed choices for your financial needs.
Saving means seeking to preserve assets that you accumulate over time. Stability of principal is a higher priority than return potential. Principal is guaranteed but offer only very low return potential. There is a risk of principal not keeping up with inflation resulting in loss of purchasing power.
When you invest your money, you are seeking growth. Investing usually involves greater risk to principal than saving and offers higher return potential. Principal is not guaranteed but it offers possibility of higher returns with greater inflation protection.
Why Should You Invest? Investing is a good tool for building up the funds needed for buying a house or putting children through college. Long-term investing is an essential element of retirement planning, since most people do not have pension plans or cannot accumulate enough savings without some long term growth of principal.
Risk and Reward One of the more basic relationships in investing is that between risk and reward. Investments that offer potentially high returns are accompanied by higher risk factors. There is no free lunch. This is the cornerstone of modern finance and forgetting this often gets investors in trouble. High returns and low risk just don't go together. Don't waste your time looking for any such investments. If you do find one, it is a scam.
Basic Investment Options There are three basic asset classes that one can invest in are 1. Cash 2. Bonds 3. Stocks
Asset Class Comparison
Asset Class
Historical Returns
Maximum loss in one Year
Comments
Cash
3-4%
NA
The risks are low and principal is preserved, but cash equivalents generally do not provide returns high enough to outpace inflation especially after tax.
Bonds
4-6%
-15.5
Bonds represent loans to a government or business. They offer limited potential for increasing returns. Rising inflation can cause substantial losses.
Stocks
10-12%
-38.6
Stocks represent ownership of a company and are a claim on the corporation's earnings and assets. Historically, stocks have provided the best opportunity for long-term growth of principal. Very volatile in short term.
RiskRisk is part of the investment process. Risk is never going away and any investor who thinks he has eliminated risk is just fooling himself. Risk in its most basic form means possibility of losing some or all of the original investment.From the prespective of an investor risk takes three basic forms and investments should be choosen to balance aganist each of these risks.1. Market Risk: Volatility of your investments. Your investments could go down in value just when you need them. Stocks have high market risk, bonds have low market risk and bank savings accounts have zero market risk.2. Inflation Risk: Inflation reduces the purchasing power and over the long term could severely reduce the value of your assets. Seemingly safe savings in bank accounts have a high inflation risk.3. Currency Risk: The currency of your investments might lose its value.
2. Setting Goals
Before you start any investments you need to have a clear understanding of what your financial goals are.
The first step in this process is to list all your assets and liabilities. Then calculate your net worth and your net liquid assets (cash, stock, bonds).
The second step is to create a list of your goals along with estimates of how much is needed for each and when you plan to reach them. Examples of goals are downpayment for a house or car, kids college tution, retirement, etc.
3. Establishing an Emergency Fund
The main reason to set up an emergency fund is to help you to meet your monthly expenses in case you lose your job. So how much you save in the emergency fund is primarily determined by how long you expect to be able to find a new job. Three to six month of living expenses should be set aside for this purpose. It would be a good idea to have a separate account from your regular bank account for this purpose so you would not be tempted to use this money for other needs. This should be in a taxable account as you would not be able to withdraw money quickly from a tax sheltered account like an IRA or a 401K.
A money market account would be an excellent choice. Personally I would recommend Vanguard Prime Money Market fund. A key factor in this selection is your access to this money. You should have instant access to this money since you would be using this primarily for emergencies. Other slightly more aggressive options include using a short term bond fund like Vanguard Short Term Corporate or an I Bond. Choose the one you are comfortable with, there is no one right way for this.
4. Funding Short Term Goals
Identify your short term goals like saving for a house, a car down payment or money you plan to take back to India within a short term. These are goals for which you expect to spend money within the next 2-10 years. If you do not have any such goals you can skip the rest of the section.
Calculate how much you need for all of your short term needs. Determine how much you need to save each month to reach your goal. Then choose how you need to invest based on the following table.
Criteria for Choosing Asset Classes
Time Frame
If you goal is more than 5 years away you can consider investing 20-40% in stocks. For less than 5 years you should be in CD/Short Term Bonds/I-Bonds/EE-Bonds.
How flexible are you regarding time frame.
If you willing to be postpone your goal by a few years in case of investment looses you can consider investing in stocks.
Need to take risk
If your goal can be achieved without any need to take risk then you can avoid investing in stocks. The difficult case is you are planning to build a dream house and more often then not you can always use a little extra money. In this case you can invest a small portion in stocks (20%).
Relative size of the goal compared to long term portfolio.
If your short term goal is only a small fraction of your retirement goal you can take more risk. If you do suffer loses you can use money from retirement goal for the short term goal and avoid selling the losing investment in the short term goal.
If you do decide to invest in a portion in stocks, invest the very first few years into stocks and then invest the remaining in bonds. This would give the money invested in stocks to work longer for you. Choose the following for short term goals in increasing order of risk/reward. The only exception to this is I/EE Bonds which should be the preferred choice as they defer taxes.
1. I/EE Bonds 2. Vanguard Short Term Corporate or Vanguard Ltd-Term Tax-Exempt for 28% tax bracket and above 3. Vanguard Total Bond Market Index or Vanguard Ltd-Term Tax-Exempt for 28% tax bracket and above 4. Vanguard Total Stock Market Index 5. Vanguard Total International Stock Market Index
Start reducing your stock holdings 1-2 years before you plan to withdraw. The same steps as in the next section apply if you plan to hold stocks.
5. Asset Allocation Plan for Long Term Goals
Asset allocation is the strategy of dividing up your assets based on a tradeoff of risk and return. This is a central tenet of Modern Portfolio Theory which attempts to maximize your return for a given level of risk. Several studies have concluded that the most important determinant of a portfolio's return is its asset allocation. However asset allocation is still an art rather a science and it involves making personal choices to balance risk and rewardBy combining assets with different characteristics in a portfolio an investor can achieve higher returns with lower risk over the long term. Adding high risk asset classes and investments to a conservative portfolio may seem risky but its effect will be to both increase returns and lower the overall risk of the portfolio. Each asset class has a different exposure to each specific type of risk. Dividing you investments into different asset classes reduces risk by balancing aganist each type of risk. Diversification is the investor’s primary defense against risk in their portfolio.
Investors should use as few funds as possible in their portfolio to simplify management. A simply well diversified portfolio could be developed with as few as three funds representing US stocks, International stocks and bonds. Such a portfolio would by definition beat the returns of the average investor and over the long run can be relied on to beat 90% of the investors.
Developing an Asset Allocation Plan
An asset allocation plan should be chosen based on three criteria: 1. Need to Take Risk: The basic idea is that if your goal can be met without taking any risk then there is no need to take risk. Hence in this case we would choose a portfolio with very low risk. But for the majority of the investors there is a need to take risk as they would not be able to save sufficient money for retirement without some growth of principal. 2. Ability to Take Risk: A long investment horizon means you have greater ability to take risk. Investment horizon means how long you are planning to hold on to the investment. Suppose you plan to take money back to India in three years when you go back, your investment horizon is only three years. Even thought you might plan to use it to fund a long term goal in India its invesement horizon in US is still three years (short term goal). Hence it should be invested as a short term goal. When you have a very stable job with high earning potential your ability to take risk is high but if you have no source of income ability to take risk would be low.3. Willingness to Take Risk: Your tolerance for risk. Basically your ability to sleep well at night with the level of risk. A conservative person would be less willing to take risk and hence should have lower percentage of stock. Your risk tolerance is not static, it will change as your age.
For a Non Resident Indian (NRI) planning to go back to India it would be a good idea to keep a portion of the investments in US. In this case you should consider only the portion that you plan to hold in US for the long term (10+ years) as long term investments in US. If you plan to go back to India in less than 5 years and do not plan on holding investments in US you should not hold any stocks.
Take Advantage of NRI Benefits
After you return back to India for good you are treated as a Returned but Not Ordinary Resident (RNOR) for a period of 2 years. During this time all your foreign income is exempt from taxes in India. Once you return back to India and become a Non Resident Alien as per US IRS regulations you can also avail of several tax benefits of US. The most important of which are the 0% capital gains on stocks and mutual funds. You pay 25% on dividends. This provides an ideal opportunity to convert all your retirement money (from 401K and IRA) into a taxable account. A suggested approach is to convert your 401K into a rollover IRA before you go back to India. Once in India you can withdraw this money (paying 10% penality for early withdrawal) and pay tax in a lower tax bracket. Depending on the the amount you have in your retirement account you can choose to withdraw this money in 1-2 years to avoid paying any tax to India. Thus it is a good idea to contribute to a 401K even if you plan to return to India in the near future.
For an average conservative investor one suggested way to allocate is to have a 50/50 stock/bond mix. Based on your ability, willingness and need to take risk you can increase or decrease the stock percentage in your portfolio. Within the stock portfolio it is better to allocate between 30-40% of the stock portion into international stocks. This is especially important for investors who might be spending the money finally in Rupees. Having atleast 15-20% of one's long term assets in international stocks provides good hedge against any dollar depreciation. Thus the final suggested portfolio is 35/15/50 US/International/Bond.
If you invested $10,000 in 1970 in 35/15/50 in US/Int/Bond mix it would be worth $264,000 as of December 2002. This is an annualized return of 10.44% with 11.71% standard deviation. The best return in any year was 53.28% and the worst loss in any year was -23.57%.
You should be very careful in selecting your asset allocation. If you are not capable of handling a 50% loss of your stock investments you should reduce it to the level that you would be comfortable with. The time to decide your risk tolerance is before you make your first investment. Once you choose an asset allocation you should not change it unless need, ability or willingness has changed. But resist the temptation to change your asset allocation in an attempt to market time.
Dangers of Market Timing
A study conducted by Dalbar found that between 1984-2000 the average mutual fund investor gained 141% while S&P 500 gained 1201% in the same time frame. Money market funds returned 161% during the same time frame. The study found that investors did not get the entire return because of failed attempts at market timing.
While asset allocation has determined the majority of the returns in theory (and would hold in practice if buy and hold is followed), in reality investor behavior is a much more important determinant of returns.
The idea behind market timing is to buy stock when prices are low, hold onto your investment until the market peaks, and then sell your stock investments moving into cash until the market hits bottom. It does sounds simple enough. But as shown above the consequences have been disastrous to investors. So resist the seductive call of market timing. You will be severely tested during bear markets when you would you distinctly get the feeling of flushing your hard earned money down the toilet. You should fight the impluse to rush into safe investments during bear markets.
It is important to look at the performance of the whole portfolio rather than focus on individual holdings. At any point of time some asset would be under performing and you should resist the temptation to sell the under performing asset in an attempt to buy it back later. Don’t let short-term volatility drive your long-term investment planning. Your best defense against a fluctuating market is a well diversified portfolio and a disciplined program of periodic investments.
Consider any stock/bond investments in India also as part of the total portfolio. Any type of retirement fund in India like Public Provident Fund should be treated as a bond holding in your portfolio. Any pension plans or annuities either in India or US should also be treated as bond holdings. Avoid holding large percentage (25% or more) of your total assets in Indian stocks. India does not yet offer the necessary level of investor protection nor quick recourse to legal remedies in case of outright fruad. However stock/bond markets in India provide attractive investment opportunities for the careful investor. Stick to large mutual fund companies with large asset base and keep a close watch on expense ratios when investing in India.
Once you decide on an asset allocation write it down and sleep on it for a week. This would give you time to think and understand your risk tolerance. Most investors would realize their true risk tolerance only during severe bear markets. Many overestimate their true risk tolerance as it is difficult for anyone to accept that they are not daring risk takers. Financial planning is not an arena where you can bluff yourself.
Implementing your Asset Allocation Plan
Once an asset allocation decision has been made you can proceed with the mechanics of implementing your plan. Here we need to consider asset location and expenses for implementing the plan. Asset location simply means allocating your stocks and bonds between retirement accounts and taxable accounts. The optimal tax strategy is to allocate all your bond holdings in tax deferred accounts (IRA and 401K) and stock holdings in taxable accounts.
You can implement this plan at Vanguard by using these three funds 1. Vanguard Total Stock Market Index (35%) 2. Vanguard Total International Stock Market Index (15%) 3. Vanguard Short Term Corporate (50%) or I/EE bonds in taxable account
Why Vanguard?
The Vanguard Group is owned entirely by its fund shareholder - not by a separate company looking for profits. Vanguard's profits accrue to the owners of Vanguard portfolios. This unique structure enables it to offer mutual funds with the lowest expense ratios in the industry. In addition Vanguard offers a wide selection of index funds with low minimum investment requirements. For these reasons Vanguard should be the fund group of choice for all investors.
During the height of the Technology boom as almost every mutual fund company brought out new technology based funds Vanguard refused to follow suit. This is one example of its high ethical standards.
You can hold your investments in Vanguard after you go back to India. You need to fill out a change of address and a W-8 form before you leave.

Follow these steps to implement you asset allocation plan 1. If you have an IRA or 401K invest your bond portion in these accounts. Select an any available short or intermediate bond fund. 2. If you do not have a tax deferred account or do not have a bond fund in your tax deferred account or you need to invest more money than you can fit into your tax deferred account, invest in I/EE bonds (or Vanguard Short Term Corporate if you do not want to invest in I/EE bonds or have maxed both I/EE bonds). 3. If you can invest more in your tax deferred account even after allocating the bond potion then invest in an index fund. Most plans have an S&P500 index fund and you can use this as a substitute for the Total Stock Market Index fund. 4. Invest the remaining amount with Vanguard in Total Stock Market Index and Total International Index fund. 5. Allocate your monthly investments in the same 35/15/50 ratio.
6. Maintaining Your Asset Allocation
Your asset mix should be periodically reviewed and rebalanced to in order for asset allocation to work best. Market fluctuation can easily throw your carefully planned asset mix out of balance. For example, if stocks outperform your other investments they may eventually represent far more than the original target percentage that you set up, which in turn could expose you to more risk than you would like. To bring your portfolio back in balance in this situation, you might choose to sell stock and reinvest in cash equivalents or bonds.
Set a specific day each year when you would review your portfolio against your asset allocation plan. Since rebalancing involves transaction fees and potentially taxes it should only be done with new investment funds are available or if your allocation differs by more than 5% from your target allocation. Say you have $100K with 50K stock and 50K bonds and the next year it becomes 45K/55K stock/bond then you should sell 5K worth of bonds and invest the 5K in stock. But if you are going to invest new money of 15K in the next year you can invest the first 10K into stocks only to make it 55K/55K and then invest the remaining 5K in 50/50 ratio between stock/bond. This rebalancing is more important between stocks and bonds than between different stock classes i.e. between US stocks and international stocks.
Sticking with an investment plan sounds easier than it really is. It is pretty simple to stick with your investing strategy when your financial and emotional life is happy and stable. However, it's the challenging times that you need to think about. An investment plan is successful only if you are able to stick with it through good times and bad. Altering your investment plan should never be done on a whim.
7. Common Investor Mistakes
Keep the following things in mind as you invest as these are some common mistakes new investors make.
Avoid sector funds, even if you think a particular sector would do well in future. A sector can have a very bright future yet deliver poor long term returns.
Avoid active funds at all costs. Active funds are much more expensive than their expense ratio indicates. Active funds add more than 1% in hidden expenses that can only be calculated by analyzing its financial statements.
Be wary of financial advisors. If you want to hire a financial planner read up on investing before going to the planner. Choose only a fixed fee planner.
Avoid the temptation to tweak your portfolio or alter your plan.
Avoid investing in individual stocks. Individual stocks have company specific risk that can be diversified away and thus there is no additional reward for taking this type of risk. While risk and reward are related, you are not rewarded for taking all types of risk.
Ignore advice of mainstream financial press. They are in the business of selling interesting and captivating news not providing sound financial advice.
Watch the fees you are paying for funds. You should not be paying more than 0.5% in total fees as expense ratio, brokerage costs or annual fees per year.
Do not postpone investments because you are afraid of market volatility. There will always be some event that is a cause for concern and if you allow this to delay your investment plan you will never be able to get started in investing. You will forever be waiting for the perfect time to invest.
Understand the Effect of Expenses on Returns
At first glance it would seem that a 1% additional expense for a financial planner or a active mutual fund is not a big deal. But even a small additional expense has a huge impact on final returns and comes as a shock to new investors. Say you invest $10,000 in an active mutual fund that has an expense ratio of 1% higher than an index fund or you pay this to an advisor. After 30 years your return would be $81,000 (at 7% return). The same amount without the additional expense would return $109,000, fully $28,000 more than the high cost fund. Note that this amount is much larger than your initial investment. Expenses are one of the few things under your control and you should strive to reduce them as much as possible.
Disclaimer
I am not an investment professional and have no background in finance. I strongly advice all to read up on several of the investments books listed before getting started in investing.