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Investment strategies to follow in a falling stock market

Applying Steve Jobs principles to your investment portfolio

Post the passing of Steve Jobs in early October and the release of his biography last week, I have been thinking about how Steve’s investment portfolio would have looked and behaved if he managed it just like he managed the other parts of his life. Whilst he was known to be an extremely private person and I profess to have no idea about his personal investment strategy, I believe that a lot of his thoughts could have done wonders to an investment portfolio and to everyone who wishes to add meaning to their finances, and their life. A few of his principles that I strongly believe investors and investment portfolio should be focused on include:

1. Spend maximum time on the portfolio design –Steve said “ Design is a funny word. Some people think design means how it looks. If you dig deeper, you realize its how it works.” A significant amount of time tends to get spent on identifying the best product in the portfolio, looking at past performances over multiple time frames and trying to identify the best time to enter the markets. However, empirical  evidence indicates that portfolio returns are dictated most by your asset allocation strategy ie your portfolio design and only marginally by security selection and timing of entry. Thus, as an investor, a significant amount of time on your investment portfolio should be spent on the portfolio design rather than which manager/stock and when to enter?
2. Understand what you are investing in – Steve said” It takes a passionate commitment to really thoroughly understand something, chew it up, not just quickly swallow it. Most people don’t take the time to do that.” Investments can be fairly dull and filled with jargon getting thrown at you by investment advisors. Don’t be in a hurry just because you are approaching a last day for the offering to close. Only buy what you completely understand and ask as many questions as you wish to before you sign the dotted line. If you don’t understand what is being offered, stay away. If it sounds like it is too good to be true, it probably is. For example, if you are investing for tax savings purposes , don’t wait till March to complete your tax planning investments and buy the first thing available because you don’t have the time to understand it.
3. Simple can be harder than complex – Steve said ” You have to work hard to get your thinking clean to make it simple”. A large number of investors tend to believe that complex , new and innovative investment products will outperform simple investment offerings. This may not always hold true. For example, term insurance for most investors is the most efficient way to cover their lives in spite of multiple variants of insurance policies available from multiple providers.
4. Build your own life and financial plan - And last but not the least, one of my favorites from Steve.” Your time is limited. Don’t waste it living someone else’s life. Don’t be trapped by dogma – which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice.” As an investor, define your own life goals, and integrate your money and investment strategies to deliver to your own life goals. Don’t invest in something just because your neighbor or colleague is doing that. If you need help with defining your financial goals, consult a financial planner.
 
Plan Ahead Wealth Advisors

Main Zindagi Ka Saath Nibhata Chala Gaya, Har Fikr ko dhuey mein udata chala gaya

Great for your ears, terrible for your finances.

So how should you ideally manage your financial life :

1. Articulate your life goals – Each one of us has a different list of priorities in our life, our personal vision statement if I may call it that. For one of us, it may be spending time with family at that lovely house by the seashore, for another providing his or her child the best college education that money can buy, and for someone else supporting street children and enabling them to become truly independent. If you don’t have your life goals clearly articulated yet, its time to think about them deeply.
2. Align your life goals with your finances- Whilst some of your life goals may not have any linkages to your finances, a large number of them normally do. For example, if your goal is to support street children to become independent, are you sure that you are financially free yourself and can retire comfortably? It is critical to put a number to each of these goals basis your own expectations. Do not forget the impact of inflation on these goals – Rs 40,000 per month that you spend today could be in excess of Rs 2,50,000 in the next 25 years. You may need to seek the help of a financial planner to do this exercise.
3. Rank the goals in order of importance – You will probably find that achieving all your goals may not be possible, so a process of prioritization may need to be undertaken. Try to achieve a balance between short term and long term goals. Too often excessive focus on short term goals or any one of the goals tends to compromise your overall financial wellbeing. For example, over stretching yourself on your annual holidays each year could result in a compromise on your retirement.
4. Manage the risks – Current lifestyles could expose you to health risks, life threatening or otherwise. Ensure that you have adequate life and health cover to insure your risks. Buying them early increases the chances of getting them cheaper as well as when you are in a good state of health. The gap between needs and funds can always be funded by insurance.
5. Diversify your portfolio - Use a combination of financial instruments – stocks/ equity mutual funds, bonds, precious metals, real estate and bank deposits in line with your financial goal requirements and risk appetite. The products that you buy should be aligned to deliver to your financial goals for eg avoid buying equity for a short term financial goal where you are likely to need the money in a year as equities can be very volatile over short periods. Similarly, using a 100% fixed income portfolio, though very safe, can result in your portfolio value not being able to match up with inflation.
6. Put the plan into action – Implementing a plan that is reasonably accurate is better than not implementing a perfect plan. There is a tendency to put off the implementation of the plans and then try to make up lost time by investing too aggressively. This may not be an appropriate strategy.
7. Monitor your portfolio regularly – It is extremely critical to monitor your portfolio and financial plan annually. There is a high probability that some of your life goals change along the way and your financial plan may need mid course correction. However, be careful that you don’t check your portfolio each day, as that could do you more harm than good.
As the saying goes – “Those who fail to plan, almost plan to fail”
Avoid making a verse of this wonderful song your financial plan – “Jo mil gaya usi ko muqaddar samajh liya, jo kho gaya main usko bhulata chala gaya”

Na Jaane Kyon hota hain yeh zindagi ke saath, achanak yeh mann, kisi ke jaane ke baad, kare phir uski yaad, chotti chotti si baat.

 
Plan Ahead Wealth Advisors

12 Months Resolution

We are now at that critical time of the year, where New Year resolutions could be in different stages of action or inaction. Whilst I’m sure that not all of you make new year resolutions ( why should making a resolution in the new year be any different from making a resolution on your birthday, or your wife’s birthday, or in fact any other day), there are probably a large number of you who do. Since losing weight and quitting smoking/drinking are probably the top two resolutions for the year globally, we are simply attempting to create a monthly calendar to simplify the process of managing your money. One of the biggest myths about managing money is that it is all about returns on your investment. Whilst returns are no doubt a critical component of managing money, we believe it is critical to take a more holistic view on finances.
January – Put it all together – There is no point in having made a large number of investments because of the potential for above average returns or tax savings or putting away excess savings and not knowing where the documents for these are or how they are doing. Create an inventory of all your savings and investments – bank accounts, insurance policies, mutual funds, shares, demat statements, real estate agreements, credit card statements, loan documents, amongst others. Whilst this may sound simple, it can be much more challenging than it seems. Whether you wish to maintain a set of files with all these or use software for tracking, it is critical that all the records are well documented and stored so that you or your dependents have easy access to it. Treat it like an ISO certification for yourself whereby you or your dependents can retrieve any document within a maximum of 15 minutes after you realize you need it.
February -  Question what you really want your money to do for you – This could vary from person to person, for some it is retiring at 45, for another sending a child to study overseas, or for someone else, visiting 100 places before he or she dies. As you think deeply about these life goals, you will find monies would have an important role to play in a large number of these. Try to put numbers to each of these goals and estimate how your finances are currently designed to get you to these goals. In case you find this process difficult,you may need to seek the help of a certified financial planner.
March –  Keep what matters, let the rest go – This is one of the most challenging parts of managing money, since you may have to admit to mistakes that you made in the past. Past performance should not be the only factor driving this decision. For example, if you have a large number of small value insurance policies that do not give you substantial life cover, it may be better to surrender these policies and buy a term insurance cover that will allow you to cover the risk to your life meaningfully for your dependents. Or equity investments made in the past that have not delivered for more than 7 years, may need to be substituted with better equity investments. Remember to separate underperformance of equity markets from underperformance of specific stocks or equity mutual funds in your portfolio

April – Plan for emergencies and contingencies – From all of my experience, I have never seen the need for emergency funds come up in a manner where there is a knock on your front door, followed by a polite request to make the money available after 2 months because there will be a need for the funds. Emergencies are exactly what they are ie emergencies and come up when least expected. It could be a medical emergency for yourself or your family, a sudden job loss or the urgent need for money to help a dear friend. It is imperative that these funds are kept away separately for use in an emergency – the amount could vary depending on individual circumstances but typically 3-6 months of contingency expenses are a good idea. These should ideally be kept in a combination of cash at home, a credit card that has a decent credit limit and which has been recently used, savings account linked to fixed deposits which can give you the dual benefit of higher returns and liquidity, and liquid funds that tend to outperform bank fixed deposits especially due to their higher tax efficiency. You could consider using liquid funds with recent innovations in liquid funds that allow you to withdraw cash through ATM cards or redemptions through SMS due to their superior ability to provide access in case of an emergency.

May – Put your risk control mechanisms in place – Ever wondered why cricket teams travel with two wicketkeepers or why they have a captain and a vice captain? Its fairly obvious , isn’t it. So why is it that a large number of us do not have adequate life cover for ourselves, or that our houses are not insured, or that our medical insurance covers are for Rs 2 lakhs when we know that the last acquaintance that got admitted to hospital spent 7 lakhs on his illness. It is therefore critical to evaluate the right amount of life insurance coverage required for oneself and medical cover for your family. Ensure that your house is neither overinsured nor underinsured, and if you are a professional, business owner or key decision maker in your organization, you have insurance covers to protect risks that you are exposed to as a result of your vocation. Since risk mitigation tools are constantly evolving, you may need to seek professional help for this. Also remember that this is not a cost but your Plan B, so treat it like one instead of looking at it as an expense.
June – File your taxes correctly and diligently -  Depending on your country of residence and occupation, the dates for filing your tax returns may vary. However, it is critical that you collect all of your data and reports , be it income, investments, interest statements, capital gains, or any others and compile it carefully so that you do not miss out on anything critical. One of the common things that we hear from investors is that we don’t remember whom we issued this cheque to, or I only have a small amount of interest earned on my savings account so why bother filing my returns as my employer is already deducting tax at source. Whilst you are probably correct that a large portion of your taxes are already taken care of, 100% accuracy is critical in this exercise. Just like you dedicate time to other important aspects of your life, you need to make time for this as well, so that it does not come back to haunt you later.
July – Use technology to improve the management of your finances – There have been significant enhancements on monitoring and managing finances in the last few years. Technology benefits can be gained through your mobile phone, computer or tablet. From online information on taxes deducted on your account or tax refunds processed, to investing surpluses in your bank accounts to earn superiors returns, to alerts on specific transactions that have taken place on your accounts, to maintaining digital records of all your important documents, technology allows tracking and transaction on your finances far more easily than ever before. You should actively consider the use of a software that allows you to track all your finances and assets in a single place, so that your updated finances are available as and when required. You could check on solutions from your financial planner about the same.
August – Build a team of trusted advisors – Most individuals today need the services of a financial planner to oversee their overall finances, a tax advisor to file and manage their taxes on an ongoing basis and a legal advisor to guide them through matters related to succession and real estate. Whilst it is possible to work with each of the above professionals on a transaction by transaction basis, increased complexity and integration on all aspects of your finances requires you to build longer term relationships so that decisions on your overall finances are taken in a more holistic manner. Whilst it is always possible to find an advisor for a specific transaction, building a team that understands your world view is critical for success on an ongoing basis.

September – Build your succession plan – There may be multiple dependents on you – your spouse, your children, parents, a sibling or his family. If you need to support each of them differently, ensure that your finances are arranged in a manner that this can happen smoothly. Whilst a nomination is a good starting point, it is unfortunately not the solution to all your succession issues. First of all, remember you are never too young to die. Once you accept that reality, you can begin work to make a checklist of all your physical and financial assets, your thoughts on how you would like them divided ( remember that it is not easy to divide a physical asset like a house into half easily), and then putting it down on paper so that there is no possibility of an incorrect interpretation. Remember, the draft of someone else’s will is very unlikely to work for you, so get it customized to your requirements. 

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.

Plan Ahead Wealth Advisors

Lessons from the India-England series for your investment portfolio

1. The past should not be looked at as a prediction of the future
2. Build a strong foundation
3. Experience matters
4. Build a well-balanced portfolio
5. Don’t focus only on the stars, track the universe of portfolio managers
6. Worry about the silent killers

Wheel of Life

 I thought it apt to share with you a powerful concept I learnt recently.I was very impressed with the simplicity of this concept.It’s a concept called the Wheel of Life.
How it works?

Take a circle and divide it into 8 equal parts. Each part is representative of an important part in your life such as Family& Friends, Significant Other, Personal Growth & advancement, Fun &Recreation, Home & Physical Environment, Career, and Money & Finances. (You could write in your own 8 important areas).
The center of the wheel is 1 and the outer edge is 10. The concept then needs you to rank your life area on a scale of 1-10, 1 being least satisfied, and 10 being most satisfied. This done, the wheel that you get when you join the dots, is your own wheel of life.

Like most of us, you will find that your wheel is not as round or rather it’s not round at all. The whole concept is to get it bigger and rounder as is possible. The rounder the wheel the more balanced your life is.
On delving further, you will find that in order to make your wheel bigger and rounder, you have to make time for improving the ranks of the important areas. To make time, you would need to delegate some of the areas on your wheel. This will allow you to concentrate on the more important parts of your wheel.
You will find on self examination that the only one area that can be delegated would be “Money &Finances”. Almost no other area on the wheel can be delegated.
You may say that’s so simple and obvious. My question to you, is that how many of us have really done so. We still continue to grapple with managing our money matters and spend invaluable time and energy doing so. I rest my case, with an ending remark “Maybe it’s delegation time, and time to think of what must you do to make each area a 10″.
Author – Shalini Dhawan
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