Do you maintain Asset Allocation?

Most likely not! Some people miss out on this opportunity because they are lazy, and others don't know how to do it. Whatever the reason, it has an adverse effect on portfolio returns if asset allocation and rebalancing are not implemented at regular intervals. And studies have repeatedly shown that asset allocation contributes to more than 90% of portfolio returns. It is the key to achieving optimum returns with low volatility. Then, why are investors less eager to maintain asset allocation? Some of the most important reasons could be: * They prefer the status quo and do not want to actively manage their portfolio. * Due to the greed factor, they want all profit shares. * Their portfolio is so messed up that it is nearly impossible to maintain balance. * They are unsure of their investment objectives or time horizon. * Rather than spending time with the market, they prefer to time it. * They have high expectations and need quick results. Long-term portfolio success is solely dependent on asset allocation and not on other factors such as market timing, stock or scheme selection, and so on.

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In which MF category should you invest?

Many investors are puzzled when deciding on an MF category. However, it is entirely dependent on your risk tolerance and investment time horizon. If you are a very aggressive investor with a long investment horizon, you can choose an aggressive category; it is so simple, yet so challenging. 

Irrespectively, one should always prioritize the CORE portfolio, and the remainder can be distributed in the SATELLITE portfolio.

A Core portfolio is the base allocation or strategic allocation to large-cap, flexi-cap, and multi-cap schemes that should not be less than 65% of the portfolio. 

A Satellite portfolio allocates no more than 25% of portfolio weight to mid-cap and small-cap schemes. You can also have a tactical allocation to sectoral or thematic funds within the Satellite portfolio, but no more than 10% of the overall portfolio.

Have you ever looked at the percentage of your portfolio that is allocated to these categories?

 

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How do you know if you're going to become wealthy or not?

A simple way to determine whether you are heading in the direction of wealth accumulation or away from it. Simply compare your EMI to your investment outflow and determine which is greater.

If your investments exceed your EMI, you will become wealthy.

If your EMI exceeds your investment, you will remain underfunded.

Please keep in mind:

* The investment rate must be higher than the EMI rate.

* Because your EMI is paid on a monthly basis, consider investing on a monthly basis as well.

* It is safe to assume investments in SIP.

Many people are more at ease when they choose EMI for their home, car, education, or personal loan. Not only that, but they are also comfortable running EMI for one to two decades, if not longer.

At the same time, they are extremely uneasy with SIP if returns are not obtained within the first 3 - 5 - 7 years. After about three years, they feel comfortable stopping the SIP or withdrawing a portion of the profit.

People are perfectly happy paying interest than earning interest.

Do you know which camp you belong to?

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#mf #equity #SIP #EMI #loan #interest

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Crypto - is it an emerging Asset?

One thing is clear: blockchain technology and the cryptocurrency industry are here to stay. Although no one knows how many cryptocurrencies or crypto exchanges will exist in a decade's time. This market is expanding at a rapid pace. Despite the fact that there is a lot of price speculation going on, there is currently no way to access the proper worth of any cryptocurrency.

The million-dollar question is whether you should invest in cryptocurrency or stay away from it entirely. Let's undertake a swot analysis first before jumping to any conclusions.

Strength: The main objective of cryptocurrency is to provide digital decentralized finance (DeFi) for peer-to-peer financial services via blockchain technology without the intervention of a third party or intermediary. The transaction is completed in seconds for a very small fee. The cryptocurrency market is operative 24x7.

Weakness: One must be technologically savvy and a technical chartist. This market is prone to a great deal of speculation. In a matter of seconds, your cryptocurrency can go from zero to the sky and vice versa. There is no such thing as a downside or an upside circuit. It has a tendency to drop drastically to the extent of even 90% in a week and then rebound. Crypto is a very volatile asset class, and those who are masters in chart reading can do better. There are no fundamentals in this market.

Opportunity: The cryptocurrency market has provided investors with a new asset opportunity. It is, however, intended for exceptionally high-risk takers and is best suited for HNI investors. A class that will make you rich instantly as well as bankrupt. As a result, your investment allocation to this market should not exceed 5%.

Threat: There is no regulatory or govt. authority involved, and without audit, the majority of crypto's success is unlikely. An increase in the number of Crypto (> 11500) and exchanges (>400) is also a threat, as the majority are not genuine. All cryptos are not supported by blockchain technology nor they are completely decentralized. This can be classified as operator-driven penny stocks, which can burst at any time. The threat of exchange and wallet hacking is always there. If someone forgets the password or fails to scan the barcode, your entire asset will vanish in minutes. Any incorrect transaction cannot be retrieved. Any delisting of crypto at any point results in a zero valuation to your portfolio.

A word of caution: There is a lot of price speculation going on. That is why it is not recommended for retail investors who do not understand stock, commodity, F&O, MF, insurance, and so on. Investors cannot withstand such shocks in price fluctuation and volatility. This market caters more to traders and speculators. 

Even if you want to gain experience, always stay in the top 10 cryptos by market capitalization. Tokens and Initial Coin Offerings (ICO) should be avoided. Also, don't be duped by a so-called expert who offers a guaranteed return of 10% per month through their Algo-based software. Spread out your investment like a SIP over time. SIP is a tried-and-true approach for reducing volatility while also reaping the benefits of buying at a cheap price.

Crypto War

After a drop of roughly 60% in May-Jun'20201, Bitcoin has returned back and appears to be unstoppable. In the stock market, a correction of more than 25% is generally seen as the commencement of a bear phase. In the Crypto market, even a 75% drop from the peak might restart the bull trend. Many people are unsure whether to invest in cryptocurrency or not. Fund managers and specialists are now split on the issue. Previously, the vast majority of fund managers were completely opposed to the concept of blockchain and cryptocurrency. Some of them have now softened their stance, although still not advocating for investment, but have begun to discuss the growing acceptance of cryptocurrency. However, the majority of them continued to use the wait & watch strategy. Only time will tell whether or not crypto-mania is a scam. However, it cannot be ruled out that a number of speculative forces are at play, influencing the outcome. There is no simple answer to whether a person should invest or wait. In the event of ambiguity, always adhere to certain basic rules. i) Do not invest more than 3% to 5% of your investible surplus. ii) Do not invest all of your money at once. Spread it out over time, or better yet, use the SIP method. Invest a small sum every month. iii) Never invest in a single cryptocurrency; instead, build a diverse portfolio. iv) Only choose from the top 15 cryptos. v) Avoid tokens and initial coin offerings (ICO) entirely. vi) Select one of the top ten exchange platforms to trade on. vii) Invest only that portion of the money that you will forget in the event of a loss. viii) From time to time, book a portion of the profit.

ix) Asset allocation, diversification, and rebalancing is the key to win.

Needless to say, you should be tech aware, have net banking enabled, and understand how to protect your digital assets by using strong passwords and two-factor authentication. Remember that 40% of people lost their entire asset when they forgot their password or, in the case of a fatality, their legal heir was unable to retrieve it.

The actual threat isn't that you'll lose whatever you've invested. You've mentally prepared yourself to see it at zero, so there's no pain. Let's look at two different scenarios to see where the actual pain points are. What if your X amount investment grows 10x, 100x, or 1000x? Consider the following scenario: You invested 1 lac and redeemed 10 lacs, and the price of this crypto then increased to 1 cr or 10 cr? Your happiness and accomplishments have all been taken out. This is the actual location of agony that you will never forget in your life. You rush back in and re-join the rally. Sooner or later, you will become a victim.

Consider another scenario: you invested 1 lac, it grew to 9 lacs, and you were expected to be able to redeem it for 10 lacs when the market crashed. You didn't have enough time to redeem it, so it eventually becomes 50,000. You've never been able to stand up to this suffering in your life. In crypto, there are no highs or lows, nor upper or lower circuits. There is no regulatory authority, unlike in the stock market. In the same day or week, any crypto can climb to 1000% or even more, and/or plummet to zero. As of now, it appears to be a gamble, with only 1% of people likely to benefit and the others 99% likely to lose. Which category you fall into will be determined by your discipline and emotions. Understand that you will never be able to eat the full cake. Always be content with your stake.

Logical vs Emotional Reasons

People usually invest for the wrong motive. They get life insurance for the wrong reasons: fear, greed, pity, frustration, taxation, and so on. The true motive for purchasing a life insurance policy to safeguard your family in the event of your death is never explained!

Similarly, whether it is for child education or retirement planning, people prefer insurance to mutual funds since the former is sold on emotions while the latter is sold on logic.

It has also been observed that high-performing salespeople play on emotion rather than logic. They are aware of the client's weak point and pitch the policy accordingly. Furthermore, when people buy insurance, they feel emotionally comfortable and keep the policy for decades. When it comes to pure investments, the majority of SIPs are terminated within three years. They are not deeply attached to their investments.

                            

 

 

Again and again repeating basic mistakes

Investors are roaming from here to there with no destination, blueprint, or investment planning in the hopes of double their money.

You always stray if you don't know where you're going. For example, if you want to go to Mumbai, you look for the Mumbai route, establish a strategy, and follow through on it. If there is a hiccup along the way, you may be delayed, but you will definitely arrive at your destination if the goal is already set.

Investors never consider what they should get after 10-20 years. They just have one purpose insight: I have free money for the next one to two years; where should I invest it now? In that situation, they choose the products that delivered the best returns in the previous year, with the expectation that they will make similar gains in the future as well.

Sometimes investors invest in gold, silver, stock market, mutual funds, commodities, insurance, bitcoin, and even in ponzi scams. They eventually stuck up for years. Finally, they perform even worse than FD returns, and after suffering significant losses, they prefer to choose FD. The bulk of investors have a similar narrative to tell. They keep switching from one product to the next because they are unsure about their financial objectives.

Any professional planner has a role to play in setting up a road map for what you can accomplish with your funds. A detailed financial strategy to help you achieve your objective. They assist in removing roadblocks to make your experience more impactful and pleasurable.  Hand holding is important.

We invest with zero IQ

We conduct an extensive study before purchasing any household products or commodities. We spend a lot of time researching whether it's a mobile or a car. Furthermore, when we acquire or build a property, we scrutinize every detail, from the location to the architecture and planning.

However, when it comes to investing, we reserve all of our common sense, intelligence, IQ, knowledge, and skill sets specifically for the stock market.

First and foremost, we have no plans.

Second, even if we plan ahead of time, we procrastinate.

Third, our execution is inadequate.

Fourth, we never follow through on our plans.

Fifth, we swing in response to market movement.

Sixth, our biases become roadblocks to advancement.

Seventh, we restrict our knowledge and research.

Eighth, there is a lack of proper diversification & asset allocation.

Ninth, we never rebalance our assets.

Tenth, failing to secure future earnings.

We make a lot of bad financial decisions in our life.

Do we look for a better option while purchasing a vegetable?

The impact of compounding

Some investors have a practice of checking their portfolio multiple times per day or at least on a daily basis. If you are a true long-term investor, examine your portfolio every now and then is a waste of time. On the contrary, it will stifle growth as your previous biases begin to influence your portfolio.

Furthermore, if you watch every day, you will see no significant changes. It's as though we see our own reflection in the mirror every day. Do we notice any differences? However, significant developments have occurred over the last decade. Although change occurs on a daily basis, we can only see it over time. This also applies to our portfolio.

Essentially, it is your financial advisor's responsibility, not yours, to oversee your portfolio. It is totally acceptable to maintain track of investments once every six months or once a year. Beyond that, you will kill your investment growth, for sure!

Break the Pattern

We human beings have a common tendency. We love to follow the pattern and soon become comfortable with that. Purposely or unconsciously, we continue with the same throughout our life whether it is a career, finance, profession, money, business, investments, relationship, everything & anything.

In fact, we generally learn personal finance from our folks & relatives and attempt to follow how they managed their funds. We ought to comprehend that numerous things got changed over the most recent thirty years since we got liberalized and turn into an open economy in 1991. Further, with the development of new technology & investment avenues, assumptions like return, inflation & expectation got changed over a period of time. The specific thing which was significant before is not anymore fitting or suggested now. 

Change is inevitable and we need to change before it's past the point of no return. We need to break the pattern and emerge from our usual comfort range of familiarity to grow every day in the life. In spite of the fact that it will give you a ton of agony and make you awkward in another zone, we should understand that if we don't transform, we will be out of the race. The solitary thing to proceed is to keep refreshed ourselves with novel thoughts, developments, strategies, and innovation, And so on Continue mastering new abilities and update your insight is the way to progress.

Online Frauds & Phishing

Lot many individuals become a victim of online frauds & phishing. These days one can not stay away from technology and indulge in online transactions. However, a great many people don't learn it appropriately, barely focus on the guidelines & safety measures to take, and much easily rely on an outside third party.

Types of call or messages or emails, we often get as: 

• I am calling from State Bank and we offer a guaranteed product of 11%
• I am calling from IRDA and your money back payment from the insurance company is not paid as your bank detail is not updated with us
• I am calling from Icici / SBI / HDFC / Kotak and there is a guaranteed scheme of ......
• I am calling from xyz insurance and there is a waiver of GST or discount in premium .... 
• I am calling from Income Tax dept. regarding your IT refunds 
• Your Debit card is going to block today... pl share last four-digit card number
• You got a lottery of 1 lac pound, pl deposit 10,000 in the account number...
• Your parcel arrived at customs, we have opened it due to security check and found value worth Rs....... Now you need to pay a duty of Rs.... to claim your parcel
• There is a gift hamper for you... Please come to the hotel along with your spouse, attend a 1-hour seminar & collect your parcel
• Install mobile tower at the house with NOC of TRAI 
• One of your friend asking for immediate money on Facebook

Once we entertain the call, further details are sought from us and we get into the trap of fraud. Understand following do's and don't to avoid any trap. 

Don'ts:

• Do not share your personal details
• Do not share Bank account number & IFSC code
• Do not share Credit Card / Debit Card Number
• Do not share CVV number (in any case)
• Do not share OTP (in any case)
• Do not share your policy number/folio number/signature
• Do not share your PAN, Aadhar, or any personal documents
• Do not give a blank cheque
• Do not give a signed delivery slip of Demat in advance to share broker or common transaction slip of Mutual Fund

Dos:

• Can give identify proof & address proof to authenticate company for KYC
• Provide canceled cheque but without a signature
• Provide masked Aadhar copy (where all numbers are not visible)
• Keep your checkbook in a secured place like your currency & valuables
• If any scheme, do ask them to provide information through email with supporting leaflets, etc.

Further, beware of online social media fraud:

If you receive any request from one of your best friends on social media asking for immediate financial help, do not follow it blindly. Do some verification checks as it could be a hacker.

a) Call your friend & talk directly or otherwise ask your friend to call back. Check whether he has called from his registered mobile number already with you.

b) There could also be a possibility if social media account got hacked so as the mobile number too. Check the voice & tonality of the caller. Ask for the video calling.

c) Ask for the Bank details and see whether the mandate is in name of your friend or belongs to any third party. Check the given IFSC code of the bank, whether it is of the same city where your friend is residing. If a Paytm number is given, check whether it belongs to the same number you already have.

d) Ask him to send his current location and also the contact number of his family member, if you know them.

e) Check whether the personal details of the social media profile are matched with your friend or a fake id is created.

f) Finally, speak to any of your common friends.

Remember, if the request received through social media, mobile number is not matched, not able to get video call and/or payment is asked in third party name, now are know what to do the next!

Beware of fraud calls / SMS / emails. 

• There is no free lunch in life... you have to spend your time, money, energy to earn.
• There can not be 5 chawanni (5 twenty-five paisa) in a rupee.
• Do not instantly jump into any kind of freebie being offered to you.
• Do analyze properly of 1+1 free offer.
• Income Tax dept, TRAI, IRDA, SEBI, RBI doesn't make calls or advice you directly.
• And understand, if you get some free gift from someone unknown, you might be obliged to do a favor later on.

Fear of Losing Money

Quote: The greatest cause of human financial struggle is the fear of losing money - Robert Kiyosaki

Chrometophobia (Chrematophobia) is the extreme fear of money. It encompasses fear of thinking about money or touching money or spending money or investing money or talk about money-related matters. Regardless of whether an individual not having Chrometophobia, yet at the same time fears losing his money. 

A portion of the overall side effects or symptoms are mentioned beneath:

1. Procrastination:

This is a very common habit among individuals and they continue delaying their decision. At the subconscious level, their mind always thinks what if I lose my money by making investments. 

2. Doubt / Uncertainty:

Creating doubts about investing, despite the fact that their doubts are addressed multiple times but still they are not satisfied. Their belief system & conviction framework don't allow them to think beyond a certain level.

3. Overcautious / Overthinking:

Become overcautious make the decision poor. Agar sooch gehri ho jaaye ... toh faisle kamzor ho jaate hai. Don't think so much... if the thoughts become deep then the decision becomes weak. 

4. Worry:

Keep worrying about money never put you in comfort level and you will always fear losing it.

5. Indecision:

Failure to arrive at any conclusion and prefer status quo. 

Moral: Don't let money fear hold you back from creating wealth.

Lack of clarity between asset and liability

There is a lot of difference between assets & liabilities, however, many fail to differentiate between the two and end up buying a liability thinking as an asset.

Any valuable could be an asset if it starts creating wealth for you by generating capital appreciation or dividend or interest income. There would be cash inflow which eventually helps to increase your net worth. The asset provides future economic benefits and generates revenue for you.

On the other hand, liability is recurring expenses or cash outflow or loan EMI which reduce your net worth. Taking a loan r investing in a depreciating asset is also a liability. Liability is a future obligation. 

Assets include the value of securities, mutual funds, FD, saving accounts, retirement funds, PPF, EPF, holding in Demat account, and real estate. Liabilities include any debts the individual may have including personal loans, credit cards, student loans, unpaid taxes, and mortgages. House may be an asset but if it on a mortgage, then surely it is a liability.

One should focus on acquiring the assets and not liabilities. There is also a difference between good liabilities and bad liabilities. If a house taken on a loan gets appreciated over time is an example of good liability whereas a car on loan is an example of bad liabilities. That means if you leverage your capital and start earning revenue then it falls under good liability. However, the life of a person who owns any kind of liabilities must be insured to protect against any causality like death or accident. 

Avoid lifestyle & fancy products if they are depreciating in nature.  

Invest with Peace of Mind

It is by and large said that don't promise when you are cheerful, don’t reply when you are angry and don’t decide when you are sad.

We should never allow our emotions to control our actions. When we irritate, our mind tends to think negatively and respond adversely. At the point when we are cheerful, we tend to just think emphatically, however once in a while our satisfaction doesn't allow us to see the consequences of our decisions.

In investments, our state of mind is very important. We all invest to get peace in the future and therefore we need to remain in a calm state of mind today even. It's simple logic... so as you sow so shall you reap.

Most investors get distracted because of surrounding events, market movement with unpredictability & volatility. It is essential to understand the nature of an asset class and its movement. Simultaneously, it is equally important to understand our own nature and behavior pattern.

We get possibly succeeded when both things get aligned. An equilibrium of emotions is essential to ensure making the right decision in every sphere of life, otherwise, the investment journey never ever reached the planned destination.

Myths about Mutual Funds (MF)

There is still a lot of confusion & myths going around Mutual Funds (MF) despite MF was first launched by UTI in 1964 and since 1993 lot of private asset management companies (AMC) also started serving the investors. Let me address a few common misconceptions about MF:

1) MF means only equity investments:

MF can invest in any of the asset classes including equity, debt, gold, real estate, & cash equivalent products as per the scheme objective you have chosen. You can also invest in hybrid and/or multi-asset funds.

2) SIP & MF are different:

SIP & MF are not different but SIP is the way of investing in MF. In MF you can invest in 3 different ways - Lumpsum, SIP & STP

3) MF investment is only for the long term:

Depending on the scheme's asset class category, one can invest in MF for 1 day to 99 years (perpetuity till you withdraw). Generally, for shorter duration liquid funds, medium duration debt funds & longer duration equity-based funds are recommended.

4) MF don't provide guaranteed return whereas Insurance is:

Any market-linked product can not provide a guarantee of returns whether it is MF, Insurance, NPS, Gold, Equity, Real Estate, etc. MF does not provide any guaranteed return whichever class you invest in. If you want a guarantee take Bank FD or small savings schemes.

5) Can save lacs of rupee if investing in Direct MF plan:

The direct plant saves more on expenses compare to a Regular plan. However, you should be an expert & possess that knowledge to manage your own portfolio & select an appropriate scheme. Learn & acquire that skillset first and then go for a direct plan. Proper advice from an expert helps as we as an individual always govern by our emotions of greed & fear.

6) MF don't give a higher return in comparison with direct equity investments:

Direct equity stocks are having more potential to generate a high return. Again risk is equally high. MF never targeted to give high returns as their portfolio is diversified. MF works on risk management first. It's always better to go with MF rather than creating our own portfolio without having technical & fundamental knowledge, which can prove to be disastrous. one should have fundamental & technical analysis skills for taking direct exposure in equity.

7) You need a lot of money to invest:

Unlike direct shares investment where you need a very good amount of investment to make a diversified portfolio for example if you buy only one share of all Nifty50 index, you have to invest around 1.5 lacs, whereas in MF you have the option to own a Nifty Index fund or get exposure to different sectors & multiasset classes by investing just Rs. 5000 if investing a lumpsum, or Rs. 500 in case of SIP.

8) There is no risk involved in mutual funds:

MF are subject to market risk. Every asset class has its own risk-return parameter which is applicable to MF investments as well. However, MF is said to be managed better on risk parameter in comparison to the individual person having direct exposure in the respective asset class, if you don't have that much expertise in managing the portfolio. Mutual Funds invest in the underlying asset class as per the scheme mandate and returns are dependent on the respective asset performance.

9) You need to be a Mutual Fund expert to make money:

Not necessarily. In fact, MF redesigned for a common & layman purpose. However, you need an expert advisor for guidance & monitoring purposes to select an appropriate scheme as per your risk profiling to help you to achieve your financial goals. A certain amount of homework is required to select a scheme.

10) Investing in best-performing schemes give better returns:

Returns keep on changing on daily basis. There is not a single scheme that remains at the top continuously. Selecting a scheme based on the basis of a historical return should not be a single criterion to invest.

11) Mutual Funds can make you rich:

It's not a mutual fund that can make you rich. It's the process one needs to follow religiously for a longer period of time without losing patience. In fact, wealth comes from the power of compounding when actual magic starts happening. Many people lost their money in mutual funds just because they failed to understand the basics of investments. Investment time has a very important role to play out.

12) Mutual Funds with lower NAV is better than a fund having a higher NAV:

NAV of a MF scheme has nothing to do with its performance and should not be the criteria for fund selection. Generally, the older the fund, the higher the NAV. Any capital appreciation in the MF scheme will depend on the price movement of its underlying securities. One should look at the portfolio if having a piece of knowledge about the securities analysis and not the NAV.

13) One need to have a Demat account to invest in MF:

Having a Demat account is optional to hold MF units. Unlike direct equity shares, where Demat accounts mandatory, units of MF can be held in physical account statement mode or Demat mode as per investors' choice. However, if one wants to buy exchange-traded MF (ETF), then Demat account is required.

Nothing Lasts Forever

Never ever chase money in your life. Money is just a byproduct or medium to realize your life objectives. Always think & plan what you wish to try to do or achieve with the money. Money can bring pleasure, comfort, or lifestyle but not happiness or bliss. It's important to be happy than merely rich.

Always focus on the higher motivation behind life which could be helpfulness or usefulness instead of materialistic stuff, which are simply meant to carry on with day-to-day existence. The secret to happiness is well inside your reach. You can have bliss right now regardless of your finances or what's going on in your life because happiness is a choice.

The harsh truth is that nothing lasts forever, so when you have it now enjoy it, appreciate it. Don't take it for granted, nothing is permanent!

Investment Trends in Post Covid World

Every crisis comes with an opportunity, the only thing is how much we are prepared. Not necessarily we can anticipate any calamity or pandemic, however, we should not become rigid. We should be flexible enough, have the right mindset & attitude to change along with trends, and take appropriate decisions as per the circumstances. 

A lot many people lost their jobs, businesses got shut down during the lockdown. Then we realized the importance of skills, self-development and become more aware to cope up with changing trends.

Following changes are observed whether you are an employee or employer:

• Become more tech-savvy
• Geographical boundaries are no more barrier in business
• Joined online training to upgrade/upskills - online classes become cheaper with lifetime access
• Communication plays a very important role in business development
• Overspending & luxury spending taken a back seat
• Travelling got restricted
• Health awareness & hygiene cautious (although some put on weight)
• Keep on learning & upgrading ourselves every day

As far as the changes in investment patterns are concerned, investors become more aware, mature than earlier.

• Financial infusion, education & awareness on how to manage money properly
• People started taking insurance seriously in all segments - TP, HP, CI, PA, PMJJBY & PMJSY
• Felt the importance of contingency fund, which should ideally be 6 months to 1 year of monthly expenses
• Start thinking of savings & investments rather than only spending
• Identify the difference between needs & wants
• Start diversifying the portfolio in all asset classes with portfolio rebalancing
• Asset allocation is the key to wealth creation
• Understood 'Cash is the King' when nothing works it's only cash that supports
• A lot many opened Demat account for equity & commodity exposure
• Gold - never ignore this precious metal
• Cryptocurrency emerged as a new Avatar

The moral of this crisis is to spend more on self-development & keep upgrading everyday & always!

The magic of compounding

The basic compounding formula may work wonders if we know how to use it in our favor and also the same compounding can work against us if we are not aware of it. Which way would you prefer to go?

Although in real-life we are far away from the said theoretical formula which we had learned in class-VI, and might have solved hundreds of questions then & there only. Even then we fail to apply those learnings in our practical life because we have only practiced theoretical questions and not learned how to apply & get benefitted in practical finance problems.  

The compounding formula contains three variables - principal amount (P), interest rate (R) & time period (T). Out of these three variables, the most powerful element is the time period which provides exponential gains.

In personal finance, creating wealth requires 'time' to generate compounding benefits. We don't get linear interest rates in market-linked instruments and the market rates fluctuate on daily basis. This thing we missed out on in our theoretical classes as all problems were solved at a fixed rate only. 

We failed to realize the following things in reality:

• Rates are fluctuating, not fixed.
• Interest impact over decades (time period) is huge.
• Compounding growth is slower in initial periods but extremely fast later which is beyond our imagination.
• The early you start investing, the more time period you get for investments & compounding, the higher would be the corpus eventually.
• Keep on watching our portfolio value now & then is not at all required. Monitoring once in a year or six months is more than enough. 
• If savings is started late, you tend to lose out on the power of compounding.
• When the market correct, people start to panic and forget their long-term goals.

People redeem from their equity link investments / MF because not getting returns in the initial years of 5 - 7 years. They fail to understand how equity behaves in real life. On the other end, they keep on paying compounding interest towards the loan by way of EMI.

How to Rebalance Asset Allocation

While making investments, one of the most important criteria individuals usually ignore or give the least priority is Asset Allocation & Rebalancing. Research shows that over 91% of the returns being generated by maintaining proper asset allocation. However, this is easy said than done.

Practically investors are driven under various biases & emotions, which act as a hurdle to take corrective action at a later stage. It is also observed that people are left with junk or penny stocks as they exited from performing stocks quite early. The rule says that one must keep booking the profit from the performing asset class and transfer that amount to the underperforming asset class. That doesn't mean averaging on junk stocks and keep on accumulating. Also, this process should be executed over a fixed interval preferably once a year. 

Let's understand with a practical example. 

You intend to invest Rs. 1 lac and created a portfolio comprises 60,000 in equity, 25000 in debt, and 15000 in gold. One year returns on equity, debt & gold are 11%, 6% & 9% respectively. At the end of the year to maintain your current asset allocation, you need to rebalance your portfolio by shifting.......

After a year, you need to shift excess gain from equity to debt & gold funds to rebalance existing asset allocation. The wealth creation formula is that you must focus on your goal & asset allocation and not on the return or market movement. 

Disclaimer: This is not a recommended asset allocation, please check your risk profile & other parameters before taking an investment call. Investment in securities & mutual funds are subject to Market Risk

Credit Card Trap

Many people start using credit cards without understanding how actually it should be used. Although the Banker or Agents who provide the card explains everything, but who cares to listen to them and most people get into the trap. A credit card is very beneficial if used properly however it is extremely disastrous if you miss making the payment in full. Therefore, it is important to learn how to get benefits in our favor else dropping it all together making more sense.

A credit card works on basically two principles, one "buy today & pay later" and second "liya hai to chukana padega!" Being a credit card is an unsecured loan therefore rate of interest is extremely high and could be 40% - 50% p.a. And that is also a prime reason Bank provoke to use a credit card because they know the human tendency & psychology of people very well. The Bank never gets profit when the entire outstanding amount is paid in a lump sum on the due date because that remains interest-free. The more you default the higher Bank will charge the interest. The rollover debt trap can ruin your entire savings in months. 

Now whether you should use a credit card or not, before taking any decision just go through the following checklist:

Go with a credit card if:

1. Can you control your temptation for window buying if cash is not available and you have only a credit card to swipe? It means no buying at all unless you can arrange full payment before the due date.
2. Are you capable to make full outstanding payment at one go before the due date?
3. Are you a disciplined person who aware of your current financial status?

Don't opt for a credit card if:

1. Are you a person who prefers to avail EMI for most of the things irrespective of interest charge?
2. Your attitude is like 'spend today & save later'
3. You prefer to enjoy today at any cost.
4. Are you paying the minimum amount due on your existing credit card, if any?

Credit card is not bad at all, only you learn how to control your emotions. I have been using a credit card for 20 years now without any single rollover of the amount and I pay the entire outstanding amount in full before the due date. A lot many benefits/points/discounts are associated with credit cards. Always remember, it is easy money available to you, and you pay in full or part, with or without interest, that totally depends on your payment habits & your psychology.

Buying things just because they are on discount!

Have you ever received a call from any of the insurance agents that XYZ policy is going to close in the next 2 - 3 days and you must invest in this policy otherwise you will never ever able to buy it again or it a lifetime opportunity for you that would be missed forever? And you have bought that policy finally without checking whether it helps to achieve your financial goals or not. What made you tempted to buy that? Have you ever thought over it?

Have you ever purchased goods to see front full-page publication by e-commerce companies for Big Sales Week or Maha India Sales, etc?  And you will be getting such notifications every month or so and almost daily during festival seasons.

Or you have just fixed an exotic trip based on certain discount being offered to you on a social media platform. 

We are all human beings and make our buying decision based on emotions mainly greed & fear. The seller knows that very well and they take full advantage of this very cleverly without making us feel so. Whenever there is a discount or closing of the sale, we just rush because of FOMO (fear of missing out) and we end up buying that stuff, whether actually needed or not.

Buy the goods which is required to us and not because of some offer is going on. Many times, of course, we get a good bargain or lucrative offer, in that case, avail it! However, never ever fall into a discount sale or out of a stock trap every time. This will exhaust your savings. Therefore, purchase only things which you can use on an immediate basis.

 

It is seen that rather than savings, we end up buying more due to the temptation of discounts. We get attracted by discount psychology of 50% off or 1+1 free or buy for 5000 & get 2000 coupon free or so. Although there is no fixed formula do decide whether you must avail that offer or drop it altogether.

Just ask the following questions as a verification check before making any buying decision:

• Whether you would have still purchased if there were no discount available?
• When are you going to use that stuff? 
• What would be the total expenditure after the discount?
• Are that expenses as per your budgeted amount?

Companies keep on promoting their products & services on print media, digital media, or social media. Just check the suitability of that stuff to you and also make differentiation in your needs & wants clearly before taking any call.

The purpose of Insurance

Insurance is a tool to mitigate financial risk. However, risk should be uncertain, unplanned, and unexpected. Insurance restores & puts you back to your existing financial status, neither better off nor worst off. That means no one can make a profit from getting insurance claims. 

However, the penetration of insurance in India is just 10% and still considered a highly miss-sold product. 95% of the people buy insurance primarily not to protect their risk or fulfill their needs but for investment purpose to generate returns and/or to save taxes. As they fail to quantify their need specifically, they have to rely on the insurance agent's knowledge and get tempted by the future benefit shown to them in a spreadsheet. Buyers fail to calculate the time value of money and thereby compounding benefit, the effect of inflation, and potential losses if had taken pure investment plants separately. 

It is always recommended to have your investments and insurance separately. There are n numbers of products/schemes/policies that fall into these segments. The motto should be to get 'sampoorna suraksha' (entire security) via insurance by choosing the following categories. 

• Term Plan (TP)
• Health Policy - Medical (HP)
• Critical illness (CI)
• Personal Accidental Plan (PA)

Insurance also serves another purpose, to provide a lifetime annuity post-retirement. No other product is available in India which provides a guaranteed pension for life. 

For investments portfolio, the recommended asset allocation categories are :

• FD
• Small Savings Schemes
• Mutual Funds
• Equity Share
• Bonds & Debentures
• Gold
• Real Estate

The problem with investment tools is that people don't keep a long-term vision of 2 - 3 decades and start timing the market, exit from MF in panic, stop their SIP, etc. and fail to create the required corpus. Insurance has an advantage here as a policy is taken for a pretty long term, you are bound to pay the premium every year.  

If you are not a disciplined investor and can't maintain consistency in investments, better to go via insurance root. Although return would be low, compounding will play out gradually if appropriate time is given.

 

Financial blunders responsible to destroy our Life

We all do a lot of financial mistakes during our lifetime. However some of them fall into the blunder category which not only ruins our finances but also puts us back many years behind in lie journey. One should avoid all these blunders at any cost, some of them are listed below:

• Don't keep track of your cash flow from where money is coming & where it is going. 
• Not maintaining an emergency fund for contingency needs can put you in embracing situation to borrow from friends & relatives
• Taking health & life for granted. Understand there is no guarantee of health & life both and health deteriorates faster than your anticipation. Need to protect it with all kinds of adequate health, life, critical & personal insurance to provide comprehensive coverage. One accident can shatter all your financial goals. The cost of treatment is huge nowadays.
• Not setting financial goals early in life. Financial planning is a must for everyone due to uncertainty in life is extremely high.
• Spending most of your savings on showoff like parties, marriage expenses, costly holiday trip, fancy stuff, luxury car & maintaining a high-class lifestyle
• Fail to understand the difference between asset & liability. Keep on accumulating liabilities considering as assets.
• Procrastinating your investment & insurance decision and/or hesitate to take corrective action. Time is precious having value & power. Once it is lost can not be restored again.
• Taking decision-based on emotions - Frear & Greed, should not rule your investment decision. Blindly invest their hard earn money in the hope to double in a short span of time and lose everything eventually.

Money is Power

Mediocre people still hesitate to accept the fact money contributes a lot to our lives. On one hand, people want to get rich and on the other hand, they curse either the money or wealthy people around them. Both can not go hand in hand. And because of their thought process & attitude towards money, they are deprived of being wealthy. 

Money provides a lifestyle, financial freedom, luxury, comfort, lavish life, big bungalow, foreign trips, power, respect, relationship, love, health... almost every materialistic thing.  Although money is not a substitute for natural resources available to us by nature at free of cost. 

How & where we born was never in our hands, but how we will go would be in our hands. Money is not everything in life and there could be a list of things that money can not buy. However, money can buy all that which makes our life comfortable. We, humans beings are the only species on the planet earth who need money even to deliver babies. Then how can we rule out the importance & necessity of money in our life? 

Since childhood, it is been hardcoded in our brain that money is the problem of everything. Whereas the actual problem is not able to manage the money in a proper way. Money never brings the problem but lack of money does.

There are lot many quotes against the money. Make sure you earned enough before you speak against the money. To become rich, one has to maintain a very good relationship with money. It can not be like that you curse the money and at the same time you want to be wealthy.

Paisa Khuda toh nahi par Khuda ki kasam Khuda se Kam bhi nahi.

    

Beware of Tips Base Advice

Equity market participation in India is still below 5% w.r.t. the total population and this includes both direct equity and indirect equity route via mutual fund & insurance etc. There are mainly three kinds of participants in the equity market:

• Investors (short term & long term)
• Traders
• Speculators

The majority of people who take equity exposure either have a short-term horizon (< 1 year) or intraday traders or speculate in the market to get instant gains. Very few people invest in the equity market having a decade-long horizon. In fact, for any shares allotted via IPO, 90% of retail subscribers sell on day one and happy with listing gains.

Because of this mindset, the share market is still considered a place for gambling for many. People who want to participate in equity have only one thing in mind to earn maximum profit as earlier as possible. And because of this quick money tendency, many advisory firms started giving hot tips to their clients. People avail of this paid service subscription and start getting daily tips. However, the majority of them make losses eventually. They forget the basic facts that the stock market is not a place for speculation. It has the potential to create wealth in the long term on a consistent basis. Moreover, some of them even go ahead and start trading in derivative (F&O) segments on a tip basis. 

Always remember the basic rule of equity investments:

• Retail participants should either go with the mutual fund route or acquire knowledge of fundamental & technical analysis first.
• Take a long-term (>5 years) view of the equity market.
• Create a diversified portfolio.
• No one can make you rich by simply providing hot tips. If I know that particular stock is going to rise, then whether I take my own position to make me rich or start distributing tips to the entire village, think?
• The dealer (terminal operator) can not make you wealthy if his income is lesser than yours.
• It is also observed such hot tops belong to penny stocks or operator driver stocks.

Although SEBI is taking strict measures to curtail this kind of activities and also issue various guidelines that who can advise their client after taking payment from them. But SEBI can not change the human tendency or psychology of the investors who generally fall into greed. 

Financial education & awareness is the only way. We have to be more alert & cautious and understand that this market is not casino gambling. Never ever fall into the trap of so-called hot tips.

Success is a process not a mere chance!

Many people think that success is an overnight process and can be achieved if their luck starts supporting them. To get success in life (or in finance), certain steps are required to be followed over the years or decades of practice.

Step I: One needs to have a visionary outlook. Think about what exactly you want to achieve. Don't worry about resources or constraints at all. Just start dreaming day & night. Never ever think whether it is realistic or achievable or not. Find out the reason or purpose why you want to achieve that goal. This step will set your WHY.

Step II: Next step is to set a roadmap via goals setting. Dream without a goal is just desire. We need to convert our dreams into reality. Make your goal specific, measurable & time bond. You need to work on these three parameters without thinking about how that could be possible. This step will set your WHAT.

Step III: Now time is to take action or better to say massive & focused action. Don't procrastinate anything and do not think about the end result. A small baby step on daily basis is more than enough. Consistency is the key and records your activity/action. Make a journal and track your activity. This step will set your HOW. 

Getting success is not a linear achievement. you need to undergo a lot of pains, uncertainties, failures, etc. Those who have the capability to bounce back win eventually.

Yaha Party Ho Rahi Hai...

Ye Hum Hai, Ye Hamare Dost Hai Aur Yaha Party Ho Rahi Hai! (This is me, that is my friends and we are celebrating a party here). This trend & song is popular on social media nowadays.

This is one more new culture we have imported in India from abroad to celebrate the weekend after 5 days of working. Enjoyment & celebration is very much necessary and should be happening on regular basis. However, creating a hype and showoff party will cost you a lot.

Beware that spending unnecessary money on weekends just for a few hours celebration doesn't make sense unless you belong to the HNI categories. There could be enjoyment for some hours but will not get long-lasting happiness for sure. Even then, if you need this kind of celebration, go ahead but do prepare a budget for it and allocate the fixed amount.      

Pubs are jam-packed on weekends where people spend like anything. By the end of the month, they are left with no money. And if you are someone who finds difficulty with managing your finance especially during month-end, it's high time to change your habits.

Happiness & enjoyment can also be received with a simple tea party as well!

A Victim of LifeStyle Inflation

Getting Lifestyle is a new fashion trend for the youth belonging to Gen Y (Millennials) or Gen Z generation. For them having everything that provides comfort and luxury even if it is costly, branded & meant for high net worth (HNI) categories. Whether it is a big premium car or bungalow or high-end mobile or big TV or big flat or staying in a 5-star facility. 

Not everyone is a celebratory nor business tycoon and spending too much on this stuff just to show off put them into a debt trap, anxiety, and finally into depression, if they fall into a middle-class category. Maintaining a lifestyle is not an easy task unless you have a huge cash flow to support expenditures. Everyone should know their limit at least for expenses and try to maintain it as far as possible. 

One should focus on increasing your income/revenue first rather than expenses straight away. Funda should always be... first you earn, invest, and then spend. And should not be like overspending through a credit card or taking a huge loan and keeps on paying EMI throughout a lifetime.

If you have limited resources for income and belong to a middle-class family, better focus to create assets rather than creating liabilities. And this is the foremost reason why people are not able to upgrade their living status just because they keep on buying liability rather than assets. Always know what is your needs and wants. Finally, create an asset first, and from that asset, income is required to be generated to cope with your expenses and lifestyle.

Lifestyle inflation is over & above general inflation. Normally the general inflation we get around 8% p.a. appx. and add a further 4% towards your lifestyle inflation, again this depends on how deep you are into that kind of luxury & comfort. 

Let me quote some live examples... if you own a two-wheeler costing Rs. 75,000 and that provides an average of 50 km/liter. Now you upgraded to a sedan car worth 10 lacs that provides an average of 15 km/liter. Now depending upon your monthly usage, one can calculate how much it would put an extra burden on your daily expenses. Moving from 2 bhk to 3 bhk just because you have got a good salary hike or upgrading your existing hatchback car to a sedan car as you have got handsome incentives & bonuses are some of the examples of lifestyle inflation that are bound to destroy your financial lives.

It also doesn't mean that one should never upgrade in their life or maintain lifestyle. The motto should be to acquire assets first and generate returns from them before you plan to opt for another liability with you!