Diwali - Samwat 2068 - Outlook

Wishing you a very Happy Diwali and a prosperous year ahead. The year gone by, the Goddesses Lakshmi, true to her nature , is playing around.


One finds the optimism waning and majority of the investments not generating the double digit returns of the previous periods, except for say, property and to an extend Gold ( if one had invested before sept’2011).

This is exactly the time to take stock and invest. Rome was not built in a day… and so is our investments .Most of the portfolios, if not tilted towards being debt heavy, one needs to take calculated risk for the same to be fleet footed and re-allocate in a staggered manner, on the visibility of the green shoots.

Personally, I’m an optimist, who likes to view the “ glass as half –full ”. The recent announcements ( likely pause in interest rate hike, growth of the economy) of RBI and freeing up of savings rate in bank accounts are positive developments . The Eurozone and US, would continue to have its share of troubles. And those are structural problems, with a legacy, which cannot be undone overnight. It will be a long drawn process and accepting it as a part of risk , would be helpful in the investment process.

Invest with an asset allocation methodology and this is a full time exercise.

Wishing you all a prosperous year ahead.

Equity Markets - What should I do ?

The equity markets ( Sensex) in India fell by 4.3% on 22nd September ‘2011 – one of the biggest single day fall in the last 18 months.

The previous big fall was of 546 points on 24th Feb’2011 , but again the markets regained 623 points on 1st Mar’2011.

The fall in the sensex YTD for the year has been 24% , and for the period Jan’2010 – till date, the sensex has delivered negative return of 6.8%.
So the obvious question is what should be the investment strategy now ?

The answer ,as per our take is:

• Keep things simple

• Follow the asset allocation strategy

• Going overweight on debt is recommended ( FMP’s ; Short Term Funds ; Liquid Funds) with a dash of gold

• Redirecting the equity SIP’s into debt for the next 6 months or till we see positive signals ( reduction in interest rates , inflation numbers going down, to name a few)

• On every fall of 15% in markets, switching 10% back into equity ( Since , we do not know what is the bottom, a creeping acquisition works well)

• On Direct Equity – being stock specific is the mantra

The investments in equity , be it a mutual fund or a direct equity is always with a 3 -5 year horizon.

Those among us, which has been doing a SIP since 2010, the portfolio should be in the red, unless and until there has been rebalancing . So is the case for the SIP’s undertaken in 2011.

Do not let the market movements disturb your investment methodology. If one has not undertaken the asset allocation formulae – keeping the rules of :

• Time Horizon

• Liquidity

• Risk profile , into account , now is the time to do it.

Keep it simple.. The markets moves on perception. Let it not impact you. Investing based on the above rules, will ensure a better outlook, from your point of view ( Investing is also psychological )

Enjoy your life. And as I say…” This too shall pass”…..

The role of perception in investment

The BSE Sensex rose by 570 points on Monday 29th Aug'11. After losing more than 2000 points in the entire month of Aug'11, what made the markets to rise by more than 3% on a single day . The answer is - Perception ... And perception can change overnight. This time , there was an announcement ( or lack of announcement ) by the US Fed Chairperson on Friday - 26th Aug'11, that the Government should try to create more employment . This created positive vibes all around and the stock indices across the globe headed northwards.

Well... well... all you fundamental folks, perception can be an important tool for making good purchases As Mr. Bufffett retierates, buy when folks around you are fearful and sell when folks around you are greedy.

Rest my case here.... Perception rules along with emotion...

Why do you invest

Why do you invest ? Do you really invest ? Is there a method in your investment process ? Or you invest to save tax in the month of March.

Have you ever given a thought to this? If you are a foodie, every time a new restaturant opens, you are the ist to visit and taste.If you a movie buff, you want to watch the movie in the ist week itself, if not on the day of release. The list can go on..

Have you ever planned that once your earning stage is over and you want to pursue the above activities, it will cost money and from where will this money come ?

Well .. is there a  strategy ?

Yes.. Simple and easy to follow rules:

1) Set aside 10-15% of your Net income ( the salary or income credited to your bank account) for investments.

2) Ask for help for understanding the investment products and process.

3) If required, pay for the services.

4) Be disciplined in your investment process.

5) Review your investments every 3 -6 months.

6) Before investing, set a goal... a time horizon...

Additional monies received should go into your investment kitty.

So going forward before investing... understand why do you invest

What Fees should you pay to your advisor

Fees - if possible one would not not want to pay at all. Be it the school fees, tution fees, doctor fees. Well , but you have no option , but to pay... But for the financial advise... well you think you need not pay at all. ....

You get so much advise ... from the ............media ;  friends.. your office colleagues... your relatives ... and each of the stories about multiple growth will lead you into the investments of similar nature.

Why this apathy? Do remember what was good for your friend. need not be good for you. Your risk appeitte, your liquidity needs, may be different from your friends. Moreso, the reason for you to invest based on your needs and requirements and your risk profile.

This is where you financial advisor, if you've found one... should be paid for.

Ideally a fixed fee ( Rs. 10k-Rs.25k) can be paid , if its a purely advisory nature. Alternativley, one could pay a transaction fees of 1-1.5%  of the investment amount, with a cap on the higher amount to be piad n a year. ( Say, not more than Rs. 1 lac).

If your advisor also manages your portfolio, again a percentage of AUM ( Assst under Management) - say 0.5% - 1%, with a cap on the maximum amount chargeable as fees can be set . This fee is not in addtion to the advisry fee.

It's adviseable that you pay a fee to your advisor. He's your financial doctor. You do not compromise with the fees when you meet your health doctor. Then why this aversion to pay a fee to your financial advisor. Do rememeber , choosing the right instrument for growth , one which delivers a  CAGR return of 15%, viz-a-viz, one which delivers a 9% return on similar investment product, can go a long way in determining your financial health and wealth creation.

Should you pay for the financial advise

Financial advise to many of us - is like a package deal. You buy a financial product and we assume that it's the ideal one. It's the best product , suitable for our need and the person recommending the product has our interest , while recommending it. More often than not, the product gets advised because its monetarily more beneficial to the person recommending the product.

Welcome to reality. Being penny wise and pound foolish is the order of the day. You try to save on the advisory fee and happy to buy a product which has a longterm ( negative)  impact on your portfolio and your return.

In the world of advisory - there is only 1 currency - Trust. But to get that is a difficult task, if not impossible.

Ask a few questions to the advisor on why the particular advise was recommended, as in :

- What is the product incentive to the advisor ?

- Is there any other comparable product ? And if so, compare the returns

- What is the existing asset allocation of the product in the current portfolio

- Is there any other better comparable product ?

- Is it line with my risk profile and liquidity needs?

Ask .. ask  and ask... till you are satisfied .

And if you are satisfied...hold on to your advisor and pay the fees, to ensure that he/she always advises keeping your interests .

Most of us like free advise. Remember , there is no free lunch and anything free has a catch. Do not be caught.

Do you need a Financial Advisor

You earn money and want to have the monies for meeting your daily needs, entertainment , splurge and make more monies from the existing one. Well... all easy except the one .. to generate more from the exisitng one.

So if you think you have sufficent information and knowledge about the investment vehicles and financial instruments and is able to track your investments and spend 30 mins in a month..... you can be your own advisor.

With so much of data and information around... and if you have the inclination to understand and implement ... then you need not need an advisor.

But then do remember... one size does not fit all....

If in doubt, then it makes sense to have  an advisor who has your interests and makes investments and decisions based on your goals ..... then you are a lucky one.