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Do you want to be the scapegoat?

In the world where each of us is in a rush to make a quick buck, get a higher growth, experience the instant happiness, we’re ignoring the fundamentals.  This reflects in the way the stock markets have reacted in 2011.

The question that has pondered me is why is such a rush?  From a retrospected into your childhood, you can feel the difference in the way our parent did a frugal planning and living and what we’re doing today.  Those days,  of course you or I could get only what was in the means, however, the happiness, the pleasure of getting something that would have lasted longer.

These days, each of us is struck in a rat-race which is like a one-way tunnel that has no end.  Currently, as most of them in this recession situations would do is to look for a ray of hope; consider recession proofing: http://lifencode.com/lifencode/investments/recession-proofing/

The principle of rush is evident in the way our government makes a decision, the stock markets react, and we the commons are influenced.  Sometimes, it just feels like a highly brainwashed eco-system in which we’re living.

Take for instance the present Gold rush: The currency (any) is a mere tissue paper (http://en.wikipedia.org/wiki/Currency) : Currently, No country anywhere in the world today has an enforceable gold or silver standard currency system.  Countries, like US just resort to printing the notes and circulating them, if all nations just print money, what happens to the value it holds?

Needless to say, that the current gold rush is a hyper-speculation which is driven by the greed and fear.  The sky-rocketing prices of commodities is not inline with any backing from the governments, so why is that everyone is buying them at large? What is the reasoning?

Answer: Nothing.  It is just a bubble; it is building up as of now.

Watch the top buyers of gold: http://en.wikipedia.org/wiki/Gold India is the Super Buyer! why, because it is driven by the emotions and culture of our country-men.

It looks like the speculative world is triggering our fellow-mens emotions and making them buy more and more; when the speculators have made their money, they will dump the Gold and make their profit, as they do with anything else in the world.

In summary: I only thing I like to convey is “There is no logic and fundamentals” applied to anything one does in this quick world, and others are using us as a scapegoat to make their quick buck.

The question is do you want to be the scapegoat?

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An ideal mutual fund portfolio (Indian market specific) – revised in Jan 2010

Based on the past experiences here are some tactics and re-balancing tips.

Tactic 1:  Book profits

  • Book profits and switch from Equity funds to liquid funds in short term.
  • Transfer units from liquid funds to Equity funds when market nose dives.
  • Set a realistic targets and book profits (even if paying the load is necessary).

Tactic 2: Re-balance portfolio

The new recommendations (unless otherwise stated, all funds are considered to be Growth Plan):  Based on August 2009 research.

My suggestion is to hold on to this folio for next 3 years and re-evaluate.

  • Large-cap fund: Franklin Bluechip
  • Multi-cap: HDFC Top 200, IDFC Premier Equity Plan A, Reliance RSF – Equity
  • Blend: HDFC Prudence
  • ELSS: HDFC Tax Saver – Dividend Payout ONLY (to avoid getting locked for another 3 years)
  • Index: HDFC Index – Sensex Plus
  • Liquid: HDFC Cash management Fund

NOTE: All funds performance were evaluated on 5 year performance track period, also considering the slump period of 2007-2008.

My personal choice of portfolio allocation:

Large-cap (40%)

Multi-cap (30%)

Blend (30%)

Tactic 3: Look into different avenues

  • Real-estate is down by at least 20% enter there and stay for few years
  • Look for a business opportunity and invest into it, start or become a partner in a venture 🙂

Think big, go small by small; and happy investing.


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Comprehensive plan for a healthy and wealthy family

We all aim to be successful, earn money and live the life without limitations, yet only a percentage of us can do it, this raises a couple of questions which can lead one to the answers.

  • Why is that?
  • What goes wrong?
  • What can be mended to set the course right?
  • Can we repeat somebody’s success?
  • Do you wonder if you can repeat success?
  • Did you ever

Dream: I want to be millionaire, leaving fortunes behind for generations …

Desire: I wish my parents left me a fortune so that I did not have to work …

Had anguish: When am I going to stop working for money?

Then I assume that we’re normal human beings trying to make our way in our lives … The belief “everything is possible” and the positive attitude is an essential ingredient … however, the time we begin amassing wealth changes the status quo on how much one can achieve. So, looking at various stories one can draw a blueprint and say, you can repeat the success stories and achieve some of it (if not entirely).

Here are some tactics that can work: I welcome readers to contribute so that this tactics becomes useful…

Financial Intelligence: Having information to make decisions is the corner stone to success.  Always maintain log of income, expenses, and investments to generate statements or reports of your net worth, balance sheets to evaluate your situation and plan.

It’s never too late: A percentage of earnings is set aside for savings.  Check out Power of investing early which demonstrates the fact that the persistence maintained is well paid.  No matter what, consider this amount written off until you retire.  Hard to do, but this becomes a foundation for the future.

Take one at a time: Must remember that can’t get everything on day one.  When it comes to everything, it directly translates to bad debts, instead hit small by small, one by one to move ahead.  Which can also get rid of debts in all forms?

Managing debts: The first five years of interest payments will drain you; ideally if you can clear those debts during the first 5 years, it’s wonderful.  Not in reality, but what I mean is, making 5 year plans is the right way to go.

Re-evaluating: Every 5 years, check the net worth, asset allocation.  Churn them around to make a difference.  For instance, after 5th year, when you’ve accumulated some money, use it to fund to buy real-estate, take a loan to fund the rest (this kind of churning is good).  But don’t stop the investments.  Sell it when essential, make profits, re-invest and keep moving forward.

Budgeting & Planning: Most important of all is the planning aspect, one will need a comprehensive plan for running a family; it takes a step to start and every step thereon leads to a better position, here is what a plan can look like (this is just a guideline, and it must be tweaked to suite the personal needs).  This section will serve has a functional instructions for a family to be run well by providing the best life by establishing good values, healthy living and frugal life style.

Objective:  Have a stated objective such as, “To provide the best life possible to family members, accumulate wealth and to contribute for a good cause of the family/community”.

Goals: Have a goal oriented approach, something like

  • Accumulate amount XXX,XXX for kids education in next 10 years
  • Accumulate amount Y,YYY for travel in next 3 years
  • Accumulate amount Y,YYY,YYY for retirement in next 20 years

Theory: Assuming after tax earnings as 100% one can split the earning into the following mandatory and optional pools, before we proceed talking about allocations, I like to add that frugality and understanding that being self-sufficient is a first step towards happiness.  In this materialistic world one forgets to live life within the provided means and tries to reach the luxuries quickly and with greed, which is where the whole world around us spins and halts.  Being successful does not mean that one should have the materials to substantiate it, in my opinion internal bliss and the sigh of fulfillment comes from within, in otherwise, being contempt within the provided means is the simplistic truth of being successful, and let this planning be the first step towards it.

Allocation at a glance

Allocation at a glance

Mandatory: 70% of the earnings are considered to be a mandatory portion, the 70% funds are allocated as per below mandate

60% – Investments: Driver for building wealth

60% – Equity-Debt: Allocation of Equity-Debt instruments is as stipulated below

100% Equity – Between ages 21-30

80%-20% – Between ages 31-40

60%-40% – Between ages 41-50

40%-60% – Between age 51-retirement

20%-80% – after retirement

The allocation in equity-debt must further be classified for a purpose as appropriate at every 5 years of life.

Education of children

Marriage of children

Retirement booty

Dream home project funding

High value assets

10% – Commodity: Assets like gold and sliver

This is essential, as it forms a good investment and also a good source of gift for family members.  Ideally, this 10% funds can be utilized to buy some ornaments on every anniversary, birthday or special occasion.

20% – Health & Life Insurance:

Ideally this is a risk cover component, and term cover insurance must be considered to help family survive a sudden demise.

10% – Emergency Fund:

The remaining funds should be kept in liquid form for emergencies, when this money accumulates to an amount which can help my family survive 6-12 months life without compromising lifestyle, it can be used to fund equity-debt investments.  This is ideal to manage a situation where a job loss can be sustained for at least few months.  The funds in buffer must be revisited every time a change in earning potential.

40% – Running Costs: The 40%  allocation towards runnings costs may not get consumed in the entire form, hence the following suggestions:

5% – Goodwill: Good to do this; be it family, friend, environment or a good cause, doing something here is a great achievement in itself.

15% – Education/Travel: Funding higher education, taking a trip should be done with this allocation.

The reminder 80% of the funds will be used to fuel family running costs which must ideally be at a level covering purchase of groceries, appliances, utility, transportation, education, paying rent and other house hold chores.  This way, the family runs the way it should meeting it’s demands and constantly builds wealth.

Optional: 30% of the remaining earnings are considered as optional allocation,which is allocated towards smart-credit as per below suggestions, smart credit is considered a good policy, where the funds are used to accumulate assets in long run.

80% – Mortgage: of which can be used for paying EMI towards home loans or other property loans essentially for buying assets.

20% – Auto: Purchase of auto must be made with at least 70% of auto cost towards down payment; the remaining 30% can be funded by credit, without exceeding the 20% cap on credit allocation towards auto.

Strategy or policy:

Family first: If  the immidiate family can’t survive, I do not think one will be able to support any good cause, so build the family to level of confidence such that even if the family is not survived by the bread winner, the family can be run as a self-sufficient entity, once this is attained, goodwill and charity will fall in place automatically.

Smart credit: Good credit is fine, bad credit is not allowed – Paying of credit cards, personal loans is the first priority.  In case of mortgage or good loans (funded to buy assets), ideally must be paid back in 5 years from the date of loan.  This avoids paying a huge sum towards interest and increases credit rating as well.  Where interest rates on credit availed is less than the rate of return on investments, it makes sense to stay invested, and in situations, where the interest rates are higher, it makes sense to pay them back at the earliest.

Investment: Review of investments every 5 years is a must, this ensures that the family goals can be reviewed and funds can be re-shuffled to meet the ever changing demands.

Key Responsibilities

Joint Account: Ensure accounts are jointly held or at least have nominations (Important ones: banks, investments, and real-estate).

Will: A will must be in force at all times, and must be reviewed when ever a major change occurs in family or any one of the above objectives change.

Finally, one thought about the whole context is being smart, the way funds are managed, and moved from one source to another based on timing, family conditions, market trends is the the key.  Once one gets a hold of the basics of budgeting and planning the rest is just about execution.


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An ideal mutual fund portfolio (Indian market specific)…

Objective:

  1. Create a portfolio that can yield year-to-year 20% over a period of time.
  2. Keep the portfolio as simple as possible (5 funds maximum)

Factors to choose the right fund:

ConsistencySince the launch of the fund, how is it performing? Ability During downturn, how does the fund perform? Adaptability How the fund’s portfolio changes depending on the market conditions?


Analysis:  Let’s take a look at the snapshot from the top performers as of today, though they are reported best, obviously, they do not become the right choice, why? the top performer slot is just temporary, today’s top performer may not be the best performer in long run.  Hence will apply the above criteria to determine the right choice.

After spending the whole day, I found that every situation can turned into opportunity if we use as per our requirements, the below list is constructed.

My choice of funds

My choice of funds

My ideal portfolio choice is to have 5 funds maximum and nothing more, nothing less; this keeps the portfolio simple to manage and change as and when the right time comes.  Honestly I’m not there yet in terms of an ideal portfolio as it has 12 funds and the recent market conditions has challenged me from keeping it ideal, but will be there soon.

2 large caps, 2 mid caps and 1 balanced fund – pretty good for now and we’ll evaluate it over time and see how it goes.   For now my criteria has been to select few funds that has good track record say at least 25% (pushing it a little over stated objective) and the above ones came up as good bets.  Accept for Reliance Growth, rest all the funds have significantly given +ve returns even during 2008 and hence I believe that they will continue to give good returns moving forward.

Finally the 6th fund – a sector based choice; this one is a tough bet, however depending on various news and developments in the country one can make an educated guess.

Usually I do not suggest sector funds for one prime reason, they are very situational.  For instance, today there has been a hint to boost Infrastructure in India; check out http://www.moneycontrol.com/mccode/news/article/news_article.php?autono=400677&special=mkt_topnews

and recently there have been newsletters sent by various asset management companies (few of them starting new fund offers) and few of them presenting a use case for strong growth in this sector; which makes me to believe that we should take this opportunity (as asset managers would have done their homework and we should take the hints) to ride the wave and make some profits.  If you feel comfortable and have some funds, I guess you should consider this.  I suggest you to look into ICICI Pru Infrastructure, Reliance Infrastructure or even UTI Infrastructure fund … I’m not betting 100% on them, however, some money into it will help to make some good returns.  As well, there are other sectors which you can watch out and my sincere suggestion is that sector funds should be less than 20% of your portfolio.

Overall, the coming year seems to be good and I wish you good luck to ride the wave and make some profits.

Comments from my friends:

1. From Srinath (sent by email)

I also have DSP Blackroc top 100 equity growth that I like both as a fund house and as a large cap – has shown good performance across the years.
While implied I may bring two other dimesnions to your document – the performance in relation to the approproate benchmark to give a sense of what good perfromace means and the fund manager record/approach/philosophy where available as a qualititative filter.
I am bullish about the infrastructure sector in India as the country cannot move forward with out it ( as Narayana Murthy put it we a re two decades behind China).  So I believe we dont have a choice but invest and improve and so I do have ICICI Pru Infra.


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Money and common sense …

To achieve a goal one needs a strategy, and every strategy needs a plan.  To plan, one needs to understand what is important and what is not.

How rich are you?

It does not matter how much one inherited, how much money one makes per month, because I have seen some people loose that money inherited or earned in bizarre ways.  What really matters is how one manages money they have to make it grow with time and use it to satisfy personal needs and help others in need, which is in my opinion called being rich.

What’s your priority?

  • Feel Secure
  • Live in comfort
  • Become rich

You guessed it right, “Becoming Rich” is the best option, it will not only make you feel secure and live in comfort but make one wealthy too, it is not impossible however it needs comprehensive and continuous planning fueled by perseverance and focus.

Why Plan?

Anyone who has financial challenges to solve or financial goals to achieve needs financial planning. Financial Planning can help to achieve both greater wealth and financial security. Inadequate or improper planning can be financially disastrous. An uninsured loss can wipe out accumulated wealth; insufficient savings for retirement can force a reduced lifestyle and/or postponement of retirement; and improper tax planning can result in higher than necessary taxes causing money to be lost to an accumulation plan or to one’s heirs.

How to plan?

  • Identify goals and objectives (must be realistic, specific and measurable)
  • Gather necessary data (establish budget, monitor cash flow)
  • Analyze present situation and consider alternatives (asses net worth, prepare financial statement)
  • Develop strategies to achieve goals
  • Implement the strategies
  • Review and revise periodically

Choosing investment tools?

There are plenty of tools in the market (stocks, mutual funds, bonds, real estate and so on), they are just tools one could use to reach a goal, what suits one might not suite the other, as needs of each is unique. One can choose all of the tools to be a part of a strategy.

Timing?

I often hear from friends that they will time the market to make money, I say that’s wrong!  Just remember that it is never too late to start, and time never waits, the earlier you start, the better it is.  By trying to time, one looses time, as the old saying goes, time is precious, time lost is never found again.

Making money or getting rich?

If your idea is just to make money, trust me that is just temporary, you might earn X today, and loose Y tomorrow.  Getting rich is a broader perspective, so ones mind must be constantly planning to be rich, this way you will be an exceptional investor and planner instead of becoming just a trader.

Manage risk!

If you consider investments are risky, try to manage risks.  Without taking risks, it is difficult to achieve anything.  Do not compete, you want to become rich, so there is no point in competing with another one to get rich, as it leads to more ups and downs.  Remember, needs are unique.

Being financially literate

Understand that investing is a plan, know about the different avenues available to invest.  Know what is really an asset, liability or an expense.  To me, asset is something that can generate money to manage my expenses incurred in a month without the need for me to work, this is indeed a state of being rich.  If you own a house on which you have mortgage to pay; it is taking money out of your pocket, so it will be a liability, it does not become an asset if you’ve occupied it (even after paying back the mortgages).

Team Work

Investing is team work, Communication with your financial adviser (being open and honest), legal adviser is important.  Sharing ones experiences with other investors (learn to differentiate the investor from others) enhances knowledge, learning from others mistakes and correcting the course of your action is always helpful.

Gaining Control

Self Control: This determines your success in the long run.  It takes time and one should learn that there are multiple right answers.  Each decision one makes impacts the future course of action.

Control over income, expense, asset, liability ratio: The way one manages cash flow, personal expenditure.  Liabilities should not become expenses.  Expenses should not increase with raise in income.  Remember not to get into rat race.  Being an investor simply means acquiring assets that put money in your pocket, just that simple.

Control over management of investments and taxes: Know where the tax advantage is, what tax laws are.

Control over when to buy and when to sell: Delayed gratification is important.  Timing does not help in most of the time, patience however pays.

Samprathi (The present!)

The world has changed in few years, the way things are presented have changed so will these common sense make sense now?

Yes, it’ll make sense, frugal living and increasing saving booty will help in a long run, but the tools (avenues) for investment have just changed.  So you need to go with the tide, find the right tools now, the old tools may pave way for new ones (just as one will recycle them).  Choosing the right tools are just as subjective as this subject of money is, hence I’ll let that be taken up individually.


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Preventing a personal dooms day …

Aaaaahhhhhhhhhhhh! what’s this post about?

Scary? yes of course … who doesn’t talk about dooms day? well what is interesting is the way things are turning around this financial crisis (2008-2009) everywhere.

Somehow my gut feeling is that the hole is just been dug deeper! What just happened, lets see …

  1. There was the money gone! where did it go, no one knows
  2. In accounting, if there is a credit into some account, it must also debit somebody else, right? then, who was benefited in this recession, no one knows?
  3. And how much is need to recover the giants from collapsing? … plenty of billions! how do you get them? … Borrow them again  … ah! ah!
    1. I guess we got into a smaller hole by borrowing and defaulting in smaller scale, now to get out the smaller hole, one just dug a little bigger one, use the dirt from the bigger hole to fill up the smaller hole.
    2. What do you see? the small hole is covered, there is lots of extra dirt left which can be used to give to all the needy to cover up each of the small holes they got into personally …
    3. What you don’t see is that where did this extra dirt came from? what is happening? who is providing it? just ponder about it and you’ll see a big drama unfold ;

What is funny, no body cares, life has to just go on, we’ll forget the past as we all are busy in a materialistic world and have to survive somehow to see a better future … but where is the better future? where is it? what is it?

Anyways, sitting on a pile of tissue papers whose value locally inflates, but elsewhere it appreciates due to all the global economic entanglement, one can benefit only a short term, but in long term … it’s just a tissue paper.  Oh wait, I’m just talking about the money here … yes money (the paper) is just a tissue paper over time.

For instance, Indian Rupee is getting weaker each day, due to lots of factors, but who is happy, exporters and those who want to send Funds from US to India; so what happens the cash reserve with India just increases, just making the Rupee weaker (just one of the factors).  And how is the recession being controlled, by borrowing from others.

With a pile of US$ just sitting and the money from borrowers coming as US$ (presumably) the $ reserve just increases, not just with India, the same could be happening in each country, thus making the $ look stronger.  But what’s in the future of dollar? only god knows about it.  When that days arrives, what will happen to $ is simple, just use it as tissue paper.

So how to take care of it?

  1. keep only a minimum amount in the form of money (just to make one last for next six months)
  2. convert everything else to assets in the form of land, precious metals, art-in-demand.
  3. Keep options open, stay away from common greed, don’t buy shares and other money market instruments, they make the selling entity rich by using your money, not you.
  4. Insurance … I don’t believe this concept, so it’s left to you … but to me, it’s just a waste of money.  Instead put aside some asset that you can cash when needed for emergencies.

I guess thats enough for now … we’ll talk more as things unfold as we go forward.

Help yourself avert global doomsday becoming a personal dooms day.


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Of Market Analysts and fools to strategy …

Do you want to make quick money?

What do we do to make quick money? Work hard, beg, borrow, steal? Well, Well, there are plenty of ways to do so 😉

Lets see about speculation in shares and research on them and how quick advices leads to leaps into uncharted territories.

One way is to seek analysts who will provide lots of data through business news, which is easy to begin with and fun, indeed analysis done, data provided is making lots of money, but not for common man, it’s for the analysts, by the analysts.

Looking at the data patterns provided, and constant change of thoughts on a particular financial instrument seems ridiculous when a common man ponders about it.  Why? yes of course, one seeks experts because they need some direction and advice to make right decisions, and one would assume that the analysts will do perform thorough research before saying out something.

What happens really is a great misnomer.  Day 1: Say there is a share of a company ACME, analysts will pour their thoughts, oh yes you should buy this now, start accumulating it, this company will do great in the next 6 years and so forth.  Day 2: There is glitch in world, somewhere the oil price rose, somewhere there is an inflation, somewhere there is a deflation reported, now the poor ACME is rated from buy to neutral.  Day 3: The situation worsens and the ACME is facing some tough times, now the rating is sell sell sell, get out  of it.

That’s not what I seek from analysts, ‘coz that’s the trend birds follow “birds of the same feather flock together”, or in other words, in a rat race, all of us just do it with the urge/greed to make more money.  Now had the ACME fundamentals been researched, to view the core corporate goals, the charter of the company, past performance, the vision one can take a guess that ACME is strong and then we should continue to buy it for few years and let the company perform over time, ACME would out perform analysts expectations.  So the views shared by them are just views, and not information that can be used to make SMART decisions.

Even the best of the breeds could not figure out what is to come, and how the future is.  So why share the views that changes  so often and make one look like a fool? Ridiculous isn’t it.

In my humble opinion, any business that is out there is like an apple tree.  It takes lots of time for a seed to grow and be a tree that it is, nurturing it, feeding it with the right growth hormones, letting the right vision settle in will make things happen, but not in a day or two, rather over a period of time, after which there is supply of fruits.  So to get the right apples, one must seek the right trees and have patience and perseverance to see the best come forward, which does not need any analysts views, but analysts “real analysis” which does not change so often and lets the plant succumb and deteriorate even before the first leaf sprouts out.

If you want to invest, do so, but make sure that you give some time for the tree to grow and fruit, weather gets rough at times, but the sun-shine and rain will return.  All you need to do is to get the right apples, go for the right trees, watch out, as it can be found just anywhere and investing in tough times is best, as now is the time to find the right trees, ‘coz tree strong enough will not be uprooted by the roughness of the present weather, perhaps just a branch or two will be affected, but the tree will have fruits on time for one to relish.

Analysts are just weather forecasters, not the one who grow trees.