#AddMeaningToFinances #FinancialResolutions #BestFinancialPlanners Vishal Dhawan brings up some simple ways to assure you a peaceful financial life – TOI

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You & Your Financial Life in 2015 – Article by Vishal Dhawan in IndiaToday

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Applying Mahatma Gandhi’s Principles to your Investment Portfolio

“Seek not greater wealth, but simpler pleasure; not higher fortune, but deeper felicity.”

It will be 100 years next year since the return of Mohandas Karamchand Gandhi from South Africa, and the start of the freedom movement in India. Whilst the story of his Experiments with Truth is well known, a lot of his principles have great value today in everyday life, and also when applied to your investment portfolio. Here are few of our favorites:

Faith & Patience: According to Gandhiji, one should have complete faith in himself in order to achieve something in life. Faith is also largely associated with patience. He famously said –  ‘If patience is worth anything, it must endure to the end of time. And a living faith will last in the midst of the blackest storm.’ For someone investing in equities, patience is the key. Stock markets are not a place where one should enter to make quick money, but should stay invested for the long term to get the best out of it.

Learning from your errors: “Freedom is not worth having if it does not include the freedom to make mistakes.” – M K Gandhi.So if you are doing something, in all possibility you will fail or make mistakes. But the beauty of mistakes is that we get to learn from them. While investing also you will make mistakes, you will take wrong decisions, but without getting discouraged about your past fallacies you should follow a properly laid down path of action and reach your goals. Seek professional help if necessary and learn from your mistakes.

Discipline: Discipline is a virtue which applies everywhere and in all streams. If you are following a disciplined investment strategy, you would not only be able to achieve your goals but also be able to experience what is called financial well being for you and your family.

Live as if you were to die tomorrow: We live in a world where everything is uncertain. Therefore, making provisions for unforeseen events is a necessity. Plan for contingencies, have a will, and always ensure that you have enough insurance so that you and your loved ones are not left in the lurch due to a serious illness or in your absence.

Live in the present: It is often observed that we ponder too much about our past losses and worry about our future. Trials and tribulations are a part of our lives. Instead of cursing your past and losing sleep over your future, you should invest for a better future by clearly articulating your goals and then working towards them, so that you lead a serene financial life.

Adhere to your values: There might be many instances when an investor is tempted by greed of short term returns or fear of the unknown. Targeted Asset Allocation should be the guiding light for all your investment related decisions as it is arrived at after optimizing an investor’s risk tolerance, goals and investment time frame.

Rebalancing is the Key: One of Gandhiji’s quotes goes – ‘It is Ego we cannot forgo. But what ego does is parts us from our own selves, our loved ones.’ It is a deviation from what we should be doing. Similarly, when our portfolio deviates from its original desired level of target asset allocation, we should make requisite changes. We should rebalance the portfolio at regular intervals and make it adhere to its values.

Some of these values and principles are applicable and guide us in all walks of life. Same is the case with Gandhiji’s principles, simple yet applicable to each and every thing. Follow these simple principles to lead a more efficient and fulfilling financial life.

Happiness is when what you think, what you say and what you do are in harmony.

 

 

 

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The Red Sea has shifted…thanks to the Fed

For the uninitiated, the Red Sea is a seawater inlet of the Indian Ocean lying between Africa and Asia. Thanks to the announcements of the Federal Reserve in the US late last night, and Ben Bernanke’s very clear commentary of how he expects the Federal Reserve to run its monetary policy over the next 18 months or so, the Red Sea shifted to financial markets today.

From equity markets to currencies to bond markets, there was a sea of red across the screens in markets today, be they emerging markets or developed markets. Whilst it is widely believed that market participants hate uncertainty, it seemed that they hate certainty even more. The statement and timetable from the Fed essentially covered two items

1. A tapering off of fresh buying of securities from the current level of USD 85 billion per month that they are at currently starting from later this year. Most analysts seem to expect that to be around September 2013.

2. A gradual end to all buying of securities which could happen by mid 2014.

Of course, this is provided that unemployment in the US gets lower and inflation starts to rise. There is now an expectation that interest rates in the US start to move up from end 2014, early 2015.

Whilst none of this was unexpected, the clarity seemed to have upset market participants, who wanted to run to the safety of the US dollar and US treasuries.

Whilst this reaction could well continue for a while longer as different constituents look at these events through their own prisms and risk comes off, and also move further to US treasuries where yields become more attractive, past experience indicates that events of these kind, though negative in the short term, create opportunities for investors to rebalance their portfolios, both amongst asset classes and within asset classes.

Over the last thirty years, yields on US treasuries have moved up substantially multiple times. In over two thirds of these instances, this has resulted in gains for equities as well,  especially in Asia. Such events provide entry opportunities to add exposure to equities.

It would be interesting to look at this from a historical perspective. Over the last thirty years, yields on US treasuries have moved up substantially multiple times. In over two thirds of these instances, this has resulted in gains for equities as well, especially in Asia. Thus, investors need to look at opportunities provided by events of this kind to add exposure to emerging market equities, especially as valuations are reasonable. For example, Indian markets currently quote at a trailing price to book of 2.7 against a historical average of 3.6. Ditto with forward price earning ratios, which are currently at about 14 times, against a historical average of 16 times. With most investors already underweight on Indian equities in their portfolios, we think this is a good time to start buying. In addition, cooling oil and gold prices could be great for the Current Account Deficit that has everyone in India so worried today, providing a further kicker to equities.

Other parts of Asia also seem to have similar valuation opportunities, with a very large part of Asia quoting at a significant discount to long term averages on both PE and PB parameters. Whilst buying equities is always fraught with downside risks over short periods of time, buying at reasonable valuations has always played out well over the long term. Building a diversified portfolio across emerging market equities is recommended, even though it may be tempting due to a home bias, to run a 100% domestic equities portfolio for Indian investors. Investors can also look at equities in markets like the US where a recovery could kick start a virtuous cycle, driven by corporate sitting on cash rich balance sheets, at higher levels than ever before.

On the fixed income side, with the Indian rupee under pressure due to the strength of the US dollar, and inflation likely to reemerge, interest rate cuts could get slower and less predictable, making it important that investors use a combination of both duration strategies like income and dynamic funds, as well as accrual strategies like short term bond  funds, and deposits in their portfolio. In case they were overweight duration strategies, they need to rebalance.

Gold hit a two and a half year low, and whilst it could be tempting for investors to add further to their portfolio, the significant exposure that most Indian portfolios already have to gold through a combination of jewelry and investments, would make it difficult to recommend further exposure.

Whilst it is very tempting to stay out of financial markets at this stage and come back later, market timing simply does not seem to work. So stay invested and keep investing. Of course this assumes you’re in it for the long term.

Ultimately, if you go to North India in summer, you know its going to be very hot. You don’t panic because the temperature has gone above 45 degrees Celsius.

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A 12 step guide to managing your money in 2012 – IV

We are now in the final quarter of addressing one of the biggest myths about managing money that is, managing money is all about returns on your investment. Whilst returns are no doubt an important component of managing money, we believe it is critical to take a more holistic view on finances. A quick recap on what we have already covered as to do items for quarter 1, 2 and 3

January – Put it all together

February – Question what you really want your money to do for you

March –  Keep what matters, let the rest go

April – Plan for emergencies and contingencies

May – Put your risk control mechanisms in place

June – File your taxes correctly and diligently

July – Use technology to improve the management of your finances

August – Build a team of trusted advisors

September – Build your succession plan

October –   Invest in yourself – There is a tendency to go into a comfort zone with respect to our professions and careers, especially as we become masters at doing the same thing over and over again. Macolm Gladwell in “ The Outliers” has shared a 10000 hour rule which I’m sure a lot of you already know about. For those who don’t, the 10000 hour rule indicates that mastery in a field is driven by spending 10000 hours in it. So what happens after you have spent 20 hours a week doing the same thing for 10 years? Maybe its time to move your cheese before someone else does that for you. Just like companies spend a significant portion of their revenue on research, how many of us have a financial plan that includes spending a portion of our income( or our wealth) on improving ourselves. As Warren Buffett says “ Investing in yourself is the best thing you can do.”

November – Accept that you are an investor – Whilst most of us start off as investors, there is a high risk of becoming a speculator along the way. The difference between an investor and a speculator is two fold in our opinion – firstly, an investor thinks more with his brain and less with his eyes,  and secondly, an investor knows what he owns, why he owns it and can explain that clearly. Avoid buying an investment just because it has done well in the recent past or because it excites you. As George Soros says” If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” In case you cannot avoid speculating, restrict it to a very small portion of your portfolio and understand that you are speculating, not investing with that portion of your wealth.

December  – Review your plan and rebalance your portfolio – Whilst its great to have a plan and even better to implement it, its important to ensure that it is on track to deliver what was expected from it. Whilst different types of investments deliver results over different time frames, it is critical to evaluate that the overall plan is moving in the direction that you wanted it to. Whilst it is good to spend some time on the specific products that you have invested in, the overall allocation across different asset classes is ideally where the focus should be, so that assets that have become cheaper can be added to in the portfolio, and more expensive assets can be reduced. This simple strategy of rebalancing, at least once a year, can make a significant difference to your overall portfolio returns.

Whilst we are already at the end of February now, it is never too late to start in case you have not started implementing this calendar already.

This article was written by Vishal Dhawan, CFP^CM

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