A helping hand from numbers leads to objective opinions and confident decisions!!!

Risk in short term say upto a year of investment horizon – losing a large part of your capital Risk in medium term, say investment horizon of 5 years: not matching up to fixed rate return (don’t forget to adjust for taxes) you would have realized had you invested in such instruments (say bank deposits) instead of equities. Risk in long term, say a decade or more: Here’s where things get complicated. I can think of single most important risk to long term equity investing - the geography you are investing in doesn’t see decent economic growth on per capita basis or in worst case - becomes a failed state . Equity markets mostly follow economic growth in the long term and they may not deliver in such situations. The first two “risks” are difficult to predict but easy to manage . The last one, which in my opinion is the “real risk” in equity investing may actually be easy to predict as there will be good many warning signs before such situation manifests. However, management of such a...

Uncertain times are upon us. There is a shadow of war post killing of tourists in Pahalgam. So far, equity markets have not shown any signs of cracking up despite of high expectations of armed conflict with our wayward neighbour. Is it the calm before the storm as far as equity markets are concerned? It is anybody’s guess that if a protracted war does happen, economy will take a hit in near term, which in turn will impact our daily lives, including equity markets. When and how this will happen is again anybody’s guess. Should you take a relook at your equity investments in such a scenario? Nothing wrong in being a little conservative in such times. Here’s what I think can be considered:     -           Scenario I: You have designated INR 100 for equity investments and are fully invested. While you do have money in non equity investments, in case of equity market downturn, YOU WILL NOT PULL MONEY OUT OF SUCH INVESTMENTS AND DEP...

No, this blog is not about how a SIP  running for long periods (10 years?) lets one weather the market cycles and average your buying cost. Enough has been said about it and that remains. By the way, there’s no standard definition of “LONG PERIOD” as such. It’s left open to investing entity!!! This blog is more towards accumulating capital, as (HIGH) returns really matter only when they are earned on reasonable amount of capital. Even extraordinarily high returns on piddling capital (savings) don’t amount to much in absolute numbers. And it takes time to build up capital if you are doing it gradually, even after taking impact of compounding. Let the numbers come to our help. But first, we need to establish some benchmark to evaluate how long should one run a SIP, alongwith a projected rate of return. Here’s a simple benchmark for SIP duration – my investment should double at the end of SIP period for a particular rate of return. I will consider that duration as “LONG TERM”. ...

Long ago, here  I posted how I would go about investing a sizable amount in equity index funds. I assumed in this blog that for next 5 years, equity markets will enter their worst phase and deliver poor returns – in fact negative returns of 10% annualized for next 5 years. Such a bad phase would result in equity fund corpus down by nearly 41% in absolute terms. Have the equity markets done that bad historically? Not at all. The worst case 5 year equity markets performance, basis Nifty 500 Index TRI has been in covid times @ minus 1.4% annualized for March 2015 – March 2020 period. Essentially, our assumption of minus 10% annualized ROI for 5 years was way too bad than actual worse case seen. Let us redo the numbers basis some realistic data: -           Actual worst case 5 year CAGR seen:   Minus 1.4% -           Assuming things can go even worse than this sometime in future, we c...

Most popular, or shall I say most sold way of redeeming from equity funds in deaccumulation phase (retirement?) is the monthly “Systematic Withdrawal Plan (SWP)” way, like monthly SIP is for investing and building the corpus. Key benefit of monthly SWP: It’s like getting a pension on a particular day. There is sort of continuity in getting regular income in the bank. Plus there is a forced limit on your spending as you get to spend only that amount which you get in your bank savings a/c from the SWP. Key cons of monthly SWP: In the short horizon of few months or even a year, equity market’s can yo – yo. Sometimes, A LOT . Here we saw that there is 22% chance of losing a large part of your capital with investing horizon of an year. In fact, here  we have seen that there have been instances of equity markets delivering losses even on a 5 year horizon basis. If I had to work out withdrawal strategy for myself which will be funding my regular expenses sans a salary, I would foll...

  One of the biggest advantages of listed equity investing, either through mutual fund route or buying stocks directly - can be done in small ticket size. Is it? Or is this flexibility resulting in sub optimal investor net worth growth? In good many equity mutual funds, one can start dabbling in stocks for just INR 500 a month. And mostly it remains at such piddling amounts. Ok, maybe i am exaggerating. Say this goes by 20 times and monthly investment rises to INR 10k per month in due course. Rarely equity investment amount would be pegged to monthly earning capacity and exceptionally to overall savings (net worth?). No surprises by the end of the investment period, equity investing did not make much difference to overall net worth as return on total wealth did not go up by much as compared to fixed rate investments. A quick example: Say you have INR 25 Lacs to invest for 20 years. Assuming equity investment delivers 12% while fixed rate investment delivers 6% annualized ROI....

“Capacity” comes from availability of surplus funds. This part can be dealt objectively and rather quickly as we are dealing with facts as they exist. “Willingness” can be defined as going ahead and deploying a sizable part of available surplus funds into so called “risky” investments such as equity mutual funds. Herein comes subjectivity as one must take decisions results of which will only show up in distant future. Let’s first hit the surplus funds (capacity) part. Say you are a government employee with an assured pension. On your retirement, you get a lump sum amount of INR 1 Crore and an assured pension of INR 1 Lac per month. Let’s say hypothetically your monthly expenses will be very well covered by the pension amount. Academically speaking, you have the “capacity” to go for risky investments to the tune of your surplus capital which here is the lump sum amount of INR 1 Crore. Realistically speaking, if you cannot bring yourself to invest sizeable amount of this corpus - s...