How easy/Difficult is it to time the market?

If you want to be rich, you should jump to the B and I

Left side of the Cashflow Quadrant: E’s and S’s

Employee –Desires job security, a steady paycheck, no financial risk, and the benefits provided by their jobs (retirement, insurance, time off, sick days, etc.). Sense of entitlement is high with the employee and they trade hours for money. They also pays the highest tax rate.

Sole Proprietor – Is their own boss and not be dependent upon other people for their financial security. These include doctors, lawyers, and anyone who is self-employed. They desire independence and tend to be controlling, not trusting others to do the work as good as they can. Their income is tied directly to how much they work and if they do not work, they don’t get paid. They basically “own” a job.

Right side of the Cashflow Quadrant: B’s and I’s

Business Owner – Starts businesses and hires employees to delegate as much as possible. They work “on” the business and find competent people to work “in” the business. They desire to create a business that can run on its own without them. They focus on creating systems for the business to make money without them.

Investor –Looks for ways to make their money, as well as the money of others work for them. They desire to work less so they can spend their time however they want while not being tied down to a job. Escapes high taxes by deferring their taxes to a future date or utilizes the Incometax rules to pay the lowest tax rate of all the other groups. They receive 70% of their income from investments and less than 30% from a job.

If you want to be rich, you should jump to the B and I side of the quadrant ASAP

The rich focus the majority of their efforts on the Business and Investor side of the Cashflow Quadrant because that is where the real wealth and money is. The good news is, if you are starting in the Employee category you can move to any of the other quadrants at any given time. It IS entirely possible to move from E to I very quickly.

Contrarian Investing

Why is it that you can invest in the best of companies and have a bad experience, or you can invest in the worst and have a good experience?  Because it is not asset quality that determines investment risk. Most of the risk in investing comes not from the companies, institutions or securities involved. It comes from the behaviour of investors. To be a successful contrarian, you have to be able to: 1.See what most people are doing Understand what’s wrong about most people’s behaviour 2. Possess a strong sense for intrinsic value, which most people ignore at the extremes  3.Resist the psychological pressures that make most people err, and thus
4.Buy when most people are selling and sell when most people are buying. Source: http://www.morningstar.in/posts/27066/3/howard-marks-how-to-be-a-smart-contrarian.aspx

Should You Pick Equity mutual Funds or Individual Stocks for Your Portfolio?

Should You Pick Equity mutual Funds or Individual Stocks for Your Portfolio?

One of the most important and difficult, choices you as an investor will face is whether you should invest in equity funds or invest in individual stocks.

1.Do You Have the Ability to Read and Understand Financial Statements?

2.Do You Enjoy the Process of Studying, Understanding, and Analyzing Companies?

3.Do You Mind the Complexity of Managing Multiple Investment Positions, Or Would You Rather Hold a Handful of Equity Funds?

4,Do You Have an Obsessive Need to Check Your Stock Prices Every Five Minutes?

If you don't care about those things, it doesn't make a lot of sense to waste your time trying to find individual companies in which you can become a partial owner.Pay a professional their management fee and acquire good, well-diversified equity funds, instead.

If you aren't able to think like a long-term investor, you might want to build in a layer of protection and choose equity mutual funds over individual stocks.

Will gold shine

Is  US$1350 a strong resistance to gold prices ? Or will it cross the 1350 ceiling . Enclosed[Gold Prices and U.S. Dollar Correlation - 10 Year Chart]  for your predictions!!! http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart

Value investing strategy

A value investing strategy is a good choice for investors seeking exposure to companies or businesses that are trading at a discount to its intrinsic value . Value stocks are those that tend to trade at a price lower than their fundamentals (i.e. earnings, book value, debt-equity, price to sales, etc.). These companies (and thus the value investing style) tends to be very popular due to the sudden rerating on account of value unlocking triggers coming through in these companies / sectors.

 Stocks can be undervalued for several reasons – there could be an overreaction to bad news, the sector in which the company operates is out of favour, if the company is just starting to turn around after being in distress, or just plain market irrationality at times.The value Investor then picks these unsought stocks that are believed to be trading at less than their assessed values, and when they bounce back to their real worth (or may be more than it at times),  could stand to gain handsomely.

Money Management Diversifiaction and Concentration

Money Management is the most overlooked area. Most Investing approaches recommend some form of diversification-either an asset allocation and/or some form of a derivatives strategy to reduce the risk of loss. If the the Objective is preservation of wealth then diversification but if the objective is building wealth then concentration. "Building wealth is a marathon, not a sprint. Discipline is the key ingredient.

Concentration: the fastest way to build wealth and the fastest way to destroy it. To have any chance at “getting rich quick,” you need to hold a concentrated portfolio. But chance is the key word in that sentence, for you may instead get poor quick.

Intermarket Analysis and Asset Allocation

Markets are interrelated because they are all expressions of the economic cycle.

• Relationships between commodities, currencies, bonds, and stocks are historically evident.

• Rising bond prices have usually led stock market bottoms

• Commodity prices move inversely to bond prices and usually signal inflationary trends

• A rising dollar usually moves opposite of commodity prices—signaling more deflationary conditions • Sectors and Industry groups also demonstrate relationships that are dependent upon the business cycle.

• Sub asset classes are also linked in ways influenced by the overall business cycle.

Big Idea: Intermarket relationships can be exploited within a systematic asset allocation framework

Exit Strategy

Why Financial Planning is needed?

Financial Planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. By viewing each financial decision as part of the whole, you can consider its short and long-term effects on your life goals. You can also adapt more easily to life changes and feel more secure that your goals are on track.
The need for financial planning thus arises from the need to meet the financial goals that enable the achievement of one's life goals. Generally everyone invests in the various available avenues but very few investments are linked to individual goals. All of us have goals to be fulfilled at every stage of life. Life and financial goals are very diverse and are as under :

 · Protecting Oneself & Family against Financial Risks : The loss of a job, a serious illness, a legal problem, a sudden death, an accident or a natural disaster will prompt seeking a financial advice. Financial planning will help in analyzing ones insurance needs (disability and long-term care) in relation to ones overall financial circumstances and goals. Moreover, in addition to all these uncertain risks, all investments have certain risks as well, such as market risk, inflation risk, interest rate risk & reinvestment risk. Financial Planning helps in reducing and managing all these risks. Prevention is better than cure so its better to start planning.
· Organize and Manage Finances : Many people have complex financial life, yet lack the time, expertise, discipline and objectivity to put their finances in order. Financial Planning will help in examining the overall net worth, financial situation, goals and objectives, and recommend strategies to get the most from their investments, so that life's goals are achieved.
· Achieving Personal Goals Such as Child Education, Marriage, Car, Home : Everyone has his own set of individual financial goals. Yours may include funding a child's college education, enjoying a comfortable retirement, purchasing a home, starting your own business, minimizing your tax costs, or any combination thereof. But no matter which financial goals you choose, developing a comprehensive financial plan will help you in achieving them in a systematic manner.
 · To be Able to Retire Peacefully : Retirement is like going on a long vacation where the expenses are increasing and there is no regular income, hence it is very important to have enough retirement kitty before retirement. Moreover as the life expectancy has increased nowadays, there should be enough kitty to avail the medical expenses, which will also increase at the time of retirement due to the rising cost of living and inflation. With the help of Financial Planning one can get a clear picture of the kind of lifestyle one wishes at the time of retirement and hence can plan accordingly.
 · Passing Wealth to Next Generation : Estate planning will ensure that your assets will be used to benefit the people that you choose, and in the amounts chosen by you. A Financial planners is needed to discuss wills, living wills, powers of attorney, life insurance, trusts and other estate planning issues. A well-drafted estate plan provides assurance that the taxes and costs associated with your death will be minimized.

https://drive.google.com/file/d/18HzBAOfjc-kYgTJ6c-p75a58NU8bPmvw/view?usp=sharing

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5 ways to manage investment risk

What is Risk Profiling?

Risk profiling is the process of determining an appropriate investment strategy while taking risk into account. Sound and well thought out risk profiling practices enable advisors to understand their clients' level of risk aversion.

There are 3 primary aspects of risk, each of which has an impact on the decision making process:

Risk required – the risk associated with the return that would be required to achieve the client’s goals - a financial characteristic

Risk capacity – this means the amount of risk your client can afford to take - financial characteristic.

Risk tolerance – the level of risk the client prefers to take - a psychological characteristic

Things to keep in mind while assessing your client's risk profile:
Assess separately: Assess your client’s risk tolerance, risk capacity and risk required separately.

Compare the findings to look for discrepancies in the client’s risk tolerance, risk capacity and the risk required.

Explain risk-return tradeoffs. For example, if a client has a very high risk-tolerance but a low risk capacity, explain to him the optimum level of risk required to achieve his goals.

 

Assessing Risk Required

A good planning software should be used to determine risk required

Eliciting information: To be able to determine the risk required the advisor must be skilled in eliciting information from clients about their goals, current and anticipated income and expenses, and current and anticipated assets and liabilities.

What are the common mistakes that you should avoid while assessing your clients risk required:

Relying on historical data blindly rather than looking at expected returns in the future

Making insufficient allowances for longevity of life, health care expenses etc

Not rebalancing portfolios with regular intervals, resulting in the risk/return of the portfolio drifting away from the risk/return required

Assessing Risk Capacity

Risk Capacity is the extent to which an individual's financial plan can withstand the impact of unexpected (negative) events.

This is essential to determine given the fact that actual returns are often less than the expected returns and therefore need to be accounted for in the client's plan.

Assessing Risk Tolerance

Risk Tolerance is a psychological parameter that is largely dependent on an emotional balance.

Advisors who use industry-standard, non-psychometric questionnaires or interviewing techniques will find it difficult to establish objectively that they are making valid and reliable assessments of their client's risk tolerance. Thus, it is crucial that psychometric tests be done in order to have a clear understanding of your client's risk tolerance.

Commonly made mistakes while assessing your client’s risk tolerance include:

Vague, wrongly worded questionnaires
Lack of explanation about the methodology entailed in assessing risk tolerance

Relying entirely on subjective judgment e.g. an interview

Jointly assessing the risk tolerance of couples rather than assessing individual tolerance

Ignoring inconsistencies that arise between a client’s investment tendencies and their answers on questionnaires

Inconsistencies in the risk tolerance, risk required and risk capacity:

In about 60% of cases, there is no investment strategy that will achieve the client's goals (with the desired risk capacity) where the risk is consistent with risk tolerance - an undershoot. In simple terms, given the resources available, the client has overly ambitious goals.

In a further 30% of cases, risk required, risk capacity and risk tolerance are more or less in line.

In the remaining 10% of cases, the risk required to achieve the client's goals is less than risk tolerance - an overshoot.

Please remember that a mismatch in the risk required and risk tolerance is your client's problem and not yours- you can guide him but the final decision should be his own.

How do you deal with a situation where your client's risk required is more than his risk tolerance- Undershoot?

Take more risk

Invest more

Ease goals In a different type of undershoot, risk tolerance is consistent with risk required but there is not enough certainty that the goal(s) will be achieved (the investment strategy does not have sufficient risk capacity).

Therefore, in a simplified advice scenario, the client has three options, which allow him to address this problem:

> To commit additional funds during the term of the investment, and/or

> To extend the time horizon, i.e. delay the goal, and/or

> To reduce the goal,

Failing that, the client will need to accept the fact that underperformance of the investment would mean that the goal cannot be fully achieved in the desired timeframe.

How do you deal with an overshoot?

By way of contrast, the far less common overshoot situation presents only happy choices. The client will have options to increase, accelerate or add goals, spend more now or have a less volatile journey.

Risk Perception

Before concluding, it is appropriate to give some consideration to risk perception.

Investors, especially new investors, are usually not well-informed about investment risk, particularly the relationship between risk and return, and the range and likelihood of possible outcomes, including the possibility of extreme events.

Investors will make decisions based on their perception of the risks involved.

Risk is likely to be under-estimated in a rising market and over-estimated in a falling market.

In the former, investors may need to be cautioned and in the latter, encouraged.

It is critically important that advisors manage investors' risk and return expectations through education.

The risk profiling process presents a unique educational opportunity because the education can be directly tied to the real-life issues being considered and decisions being made.

Source: FinaMetrica, Sydney August 2013

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