Investment Management
1) Salary - Savings = Expenses
Frugality when spending and Extravagance when saving helps in creating wealth and achieving life goals.
2) Savings should not be left in savings account.
Money credited in the savings account need not lie there because money in savings account loses value over time due to inflation.
Work for money but also make your money work for you. Together, you and your money can create more money.
3) Don’t procrastinate or delay when it comes to investing.
Money lying in savings account, tax planning at year end are some examples of procrastination.
‘I will do it’ is overrated, ‘I have done it’ is underrated.
4) Compounding over time is the 8th wonder of the world.
Rupees 10 lakh compounded at 2% annually for 20 years becomes 14.86 lakh whereas the same 10 lakh rupees compounded at 8% annually at the end of 20 years becomes 46.61 lakh.
5) Follow asset allocation.
Asset allocation means allocating your wealth to different asset classes like Equity, Debt, Real estate, Gold etc in defined percentages based on variables like risk taking ability and willingness, investment time horizon, required return, behavior, liquidity needs, taxation etc.
Asset allocation also helps in diversifying risk as each asset has its own characteristics and different assets perform differently at different periods of time. Underperformance in one asset can be compensated with outperformance in another asset.
‘Risk management ke peeche bhago, returns jhak maarke tumhare peeche ayegi’.
6) Emotional Quotient is as important as Intelligence Quotient.
While managing investments, emotions like Greed, Fear, Overconfidence, Ego, Attachment etc creep in and this can wreak havoc and take you years back in your investing journey.
Quoting Dr Asthana from the movie Munna Bhai M.B.B.S, “Agar main meri beti ka operation karu toh ye haath zaroor kaapenge. Kyun. Isliye ki main meri beti se pyaar karta hu”.
Similar is the case with managing investments for most of the people. Either learn to control and manage emotions or take the help of a professional in managing your investments.
Also, Goal based investing can help in keeping emotions in check as your mind is anchored to goals. If there are no goals, there is a good possibility that your mind would be anchored to returns and volatility in the portfolio which may be detrimental to your portfolio. So, try to invest according to life goals.
7) Things which look so obvious in the hindsight are not easily predictable in foresight.
a) How many of us would have predicted that equity markets would have fallen and recovered swiftly ?b) How many of us would have predicted that gold would have given such spectacular returns in a year after stagnating at similar prices for so many years ?c) How many us would have predicted that well bought growth assets like equity or real estate would have given so much returns over the past few decades ?d) How many of us would have predicted all of the above ?‘Knowing that you don’t know about future’ helps make wise decisions. This way one doesn’t feel cheated and also has peace of mind.
8) Everybody knows that it's good to do regular exercise but how many of us do it on our own and that too regularly.
Similar is the case with managing investments as there is a dearth of time, skill and interest apart from stress in our day to day lives.
Success in one's own profession doesn't guarantee success in investing.
Sir Newton was one of the most successful person in his profession. However, he wasn’t a great investor as per publicly available data.
Please note that the above mentioned points are not exhaustive. This is just one approach and my philosophy. There can be many other approaches. Follow what works for you. However, having a written plan and reviewing the same periodically or in case of major events helps.
Thank you for your time.
This blog is written by Harsha Tandure.
MBA Finance(SCMHRD), cleared CFA level 3, FRM level 1, former Credit Suisse employee & RBI Intern.
Currently managing investments of his esteemed clients.
1) Salary - Savings = Expenses
Frugality when spending and Extravagance when saving helps in creating wealth and achieving life goals.
2) Savings should not be left in savings account.
Money credited in the savings account need not lie there because money in savings account loses value over time due to inflation.
Work for money but also make your money work for you. Together, you and your money can create more money.
3) Don’t procrastinate or delay when it comes to investing.
Money lying in savings account, tax planning at year end are some examples of procrastination.
‘I will do it’ is overrated, ‘I have done it’ is underrated.
4) Compounding over time is the 8th wonder of the world.
Rupees 10 lakh compounded at 2% annually for 20 years becomes 14.86 lakh whereas the same 10 lakh rupees compounded at 8% annually at the end of 20 years becomes 46.61 lakh.
5) Follow asset allocation.
Asset allocation means allocating your wealth to different asset classes like Equity, Debt, Real estate, Gold etc in defined percentages based on variables like risk taking ability and willingness, investment time horizon, required return, behavior, liquidity needs, taxation etc.
Asset allocation also helps in diversifying risk as each asset has its own characteristics and different assets perform differently at different periods of time. Underperformance in one asset can be compensated with outperformance in another asset.
‘Risk management ke peeche bhago, returns jhak maarke tumhare peeche ayegi’.
6) Emotional Quotient is as important as Intelligence Quotient.
While managing investments, emotions like Greed, Fear, Overconfidence, Ego, Attachment etc creep in and this can wreak havoc and take you years back in your investing journey.
Quoting Dr Asthana from the movie Munna Bhai M.B.B.S, “Agar main meri beti ka operation karu toh ye haath zaroor kaapenge. Kyun. Isliye ki main meri beti se pyaar karta hu”.
Similar is the case with managing investments for most of the people. Either learn to control and manage emotions or take the help of a professional in managing your investments.
Also, Goal based investing can help in keeping emotions in check as your mind is anchored to goals. If there are no goals, there is a good possibility that your mind would be anchored to returns and volatility in the portfolio which may be detrimental to your portfolio. So, try to invest according to life goals.
7) Things which look so obvious in the hindsight are not easily predictable in foresight.
‘Knowing that you don’t know about future’ helps make wise decisions. This way one doesn’t feel cheated and also has peace of mind.
8) Everybody knows that it's good to do regular exercise but how many of us do it on our own and that too regularly.
Similar is the case with managing investments as there is a dearth of time, skill and interest apart from stress in our day to day lives.
Success in one's own profession doesn't guarantee success in investing.
Sir Newton was one of the most successful person in his profession. However, he wasn’t a great investor as per publicly available data.
Please note that the above mentioned points are not exhaustive. This is just one approach and my philosophy. There can be many other approaches. Follow what works for you. However, having a written plan and reviewing the same periodically or in case of major events helps.
Thank you for your time.
Good Insights. Thank you.
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