Skip to main content

Asset Allocation – Has no secret formula

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

 


A retired civil servant of my acquaintance called recently. An honest man, he didn't take money or favours while in service. His only major asset is his membership of a co- operative housing society. Now on the verge of 70, he is completely retired and lives in that co- op flat. It has multiplied in value and on paper, he is quite wealthy.
 

In practice, he is cash- poor and worried. His pension allows him to maintain his current life style but with little to spare. Inflation over the past three years has eroded the value of his pension and it will soon become inadequate. He is in decent health and could easily end up in poverty in extreme old age.

If he sells the flat and moves to a cheaper place, he will generate some surplus cash. He must invest the surplus intelligently to beat inflation. One of his ex- colleagues had suggested that he park some of that in equity. He has never touched stocks. This was what he wanted to discuss.

After some discussion, I told him the truth as I see it: "If you invest sensibly in the stock market, you will probably earn excellent returns over a 5- 7 year period or longer. You have to be braced to forget about the money for at least 3- 5 years. There is a small chance you will go bust. There is also asmall chance you will earn massive returns very quickly. You must be mentally prepared for those extremes. If you think youll live till 75- plus, without needing to touch the surplus funds, invest a proportion of your funds in stocks. If you dont want the stress, or the risk, invest in debt. Your money will lose value, but youll probably have enough to last out your lifespan." This is a classic problem from life cycle investing. The underlying assumptions are simple enough. Stocks are risky and volatile. But in the long run, they beat inflation and outscore other instruments. Debt is safe, but loses out to inflation in the long term.

If you start a financial portfolio early in your career and hold it through retirement and beyond, your asset allocation should change to reflect your age and risk tolerance. In the early years, the portfolio should be heavily weighted in favour of equity. This gives a better chance of getting high returns without suffering from volatility.

As you grow older, the equity component should decline and debt should play a larger role. One of the dangers for an elderly person holding a lot of equity exposure is that he or she may need to liquidate it for ready cash in the middle of a bear market. In that case, the savings may be wiped out by a temporary downturn.

The life cycle investing concept looks logical in theory. In practice, it is a messy, "fuzzy" process deciding the ideal asset allocation levels. Different people have different risk tolerances and different aspirations. One size doesn't fit all where asset allocations are concerned.

Nobody knows how long they will live and this is also important when fiddling with asset- allocation. If you switch over to debt too early, you may end up cash- poor in your last days. If you hold onto equity too long, you may be hit by emergency medical expenses and forced to accept capital losses.

Average life- expectancy tells you little about personal life expectancy. Specifics like genetic make up and lifestyle play a big role. Life expectancy statistics are skewed downwards by infant and child mortality, and because young adults are more likely to die in accidents, or violent incidents.

You may be very lucky if you started investing in 1991 or 2003 just before the market went into a long bull run. You may be unlucky as well. If you started investing in 1994, the equity returns would have disappointed until 1999. Again, there was a big bear market between 2000- 2005. Somebody intending to down shift equity allocations in that period would have had to bear losses, or defer his plans.

Techniques like systematic investment plans can reduce the negative effect of such long term trends. But they don't mitigate those effects completely. Even in the very long- run, volatility has some effect on returns and that effect may be beneficial or negative.

Life- cycle investors must also tackle a tricky set of problems when changing asset allocations. When you decide to increase or decrease equity exposure, should you do it at one shot? Or should you do it, systematically, reducing exposure a little, month by month? These are important details you must work out yourself depending on your personal risk tolerance.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now