Don’t lose sight of your goals
October 5, 2015
Praveen Kumar V is a Bangalore-based independent financial advisor. He observes that both the 2000 and 2008 crashes taught investors the importance of diversification. “In 2000, there was a frenzy in the market for technology stocks, many New Fund Offers in the technology space were launched. Then, in the selling that happened, all the money was sunk.” In 2007, infrastructure was in demand and people got stuck to those funds in 2008-09. So do clients tend to panic and rush to redeem when the market falls? “I have observed that this tendency is higher with clients who have a smaller exposure to markets when compared with HNI clients,” says Praveen. What should people do to weather such volatility? “My advice
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Crossover and enjoy the benefits
September 14, 2015
With more crossover investments, you need less time to rebalance your portfolio You can tailor your portfolio to meet your life goals. For instance, if you want to accumulate wealth to meet your son’s or daughter’s college education, you can create an education portfolio for a specific time horizon with assets that will help you meet your goal. But even in such a goal-based investment framework, there are certain investments that you can transfer from one time horizon to another. In this article, we discuss such investments and their associated benefits. Equity holdings Crossover investments are those that you can use for two life goals, when one goal sequentially follows the other. Consider your retirement portfolio. You create this during
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Why the ‘100 minus age’ rule doesn’t work
August 26, 2015
It simplistically assumes that age decides your risk appetite and return needs. It doesn’t The world of investing is so complicated that we often jump at thumb rules. One much-abused thumb rule is ‘100 minus age’ to get you to your ideal asset allocation. So if your age is 30, you invest 100 minus 30 (70 per cent of your portfolio) in equities and the rest in debt options. An Indianised version of that (to account for lower longevity) is 80 minus age. This may sound simple, but the truth is that it may not get you to your financial goals. Required return Just think of a private sector employee who, at 50, has just managed to wrap up his
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Plan your finances step by step
August 26, 2015
Defining each goal will help you figure out how and where to invest You need to design a framework both at the macro-level and micro-level to effectively manage your investments. For instance, we recently explained how to convert your investments into cash as you near the end of your investment horizon. These are the micro-level tools. In this article, we discuss six steps to creating a macro-level personal finance framework. Fulfilling your goal The first step is to create protective assets. Protecting your family’s existing standard of living comes before trying to improve the financial wellness. Protective assets include an emergency fund and life and medical insurance, for you and your family members. You should not start your investment process
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Balancing risks and rewards
August 26, 2015
The only way to build wealth is to save a part of your income and invest wisely High-risk and high-reward are most often used to encourage investment in equities and other risky investments. Not many investors understand that this can easily mean high-risk and high-loss too. The confusion is because investors do not understand what risk is. If high risk necessarily results in high reward, then where is the risk? In investment, risk means the risk of losing your investment, which may occur as a result of downward spiralling of the value of the investment. However, in financial jargon, risk is a measure of uncertainty of return on investment. This means, an asset whose returns fluctuate year-on-year is riskier than
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