Critical pillar for financial success

Many people I've seen continue to focus their minds on the market or stock price movements, which is nothing more than forecasting future prices.

Rather than devoting days and months to such futile activities, a small amount of that time and energy should be spent doing research to determine what will and will not work for their specific financial goals or needs.

Finally, more than anything else, discipline is essential. To achieve your financial objectives, you don't need intelligence; all you need is consistency. However, in investing, people lack this critical pillar that leads to financial success.

What appears to be easy is not always easy!

We always seek professional help, whether it is for education, training, medical advice, diet plan, health, fitness, etc. However, when it comes to money, wealth, and investments, either we tend to chase after every one or seek advice from those who are incompetent.

Investing was never easy, and we create a terrifying maze in the absence of proper knowledge. We fail to recognize that approaching professionals is much easier.

In life, what appears to be easy is not always easy, and what appears to be difficult is not always difficult. Rather than doing it yourself, always seek professional guidance first.

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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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.