Creating/managing an investment portfolio

Eight Steps to a healthy portfolio

Portfolio Management 101

Step 1: Goals are different from dreams! “Get maximum returns!” I need something after 10 years. Today it costs Rs. 5 lakhs. After 10 years, I expect it to cost Rs. 15 lakhs. How much should I invest each month and where should I Invest it, so that I have at least Rs. 15 lakhs (after tax) in about 8-9 years.

Set flexible Goals Picture courtesy: Soccertackle.com

Solutions for 20-somethings What % of your take-home pay is left after monthly expenses? Can you spare 5-10% of your take-home pay for an investment that will not touch? Save the rest for short-term needs and have fun!

Products-last Approach

A Personal Timeline Recurring Needs Non-recurring Needs

Asset Allocation When should I invest in what asset class? What to expect from each asset class? What is the percentage exposure to each asset class necessary to achieve a certain financial goal? “Deciding on asset allocation for a financial goal”

Asset Allocation When should I invest in what asset class? 0 -5 Years: Equity is too volatile and therefore risky. 100% - fixed income. 0-3 years: RD/FDs 3+ years: debt mutual funds

Asset Allocation When should I invest in what asset class? 5 -10 Years: Equity is still too volatile and therefore still too risky. 100% - fixed income. 30% Equity, 70% fixed income 40%+ Equity, rest fixed income

Asset Allocation When should I invest in what asset class? 10 Years +: Equity will always be volatile but risk can be managed with minimal effort. 100% - fixed income. 60% -70 Equity, 40%-30 fixed income. 100% equity

Asset Allocation What to expect from each asset class? Equity: 10% -12%. Max 14% +/- 4% (15Y +) Fixed income: 6-8% (post tax) Gold: 6-8% (post tax) (10Y +)

Expected Portfolio Return 60% Equity (12% return), 40% fixed income (7% return) (12% x 60%) +(7% x40%) =10% (post tax) … for a 10Y+ goal “Deciding on asset allocation for a financial goal”

“It Seemed Like a Good Idea at the Time”

A minimalist portfolio

Minimalist equity portfolios 1 large cap mutual fund + 1 mid/small cap fund 1 large and mid-cap fund 1 equity-oriented balanced fund

Portfolio Management 201

Suggestion to 20-somethings Do not check your portfolio for first 3-5 years. Invest systematically and leave it be

It takes time!!

Check your portfolio only once a year! Get rid of that Moneycontrol app. It is evil! Avoid star ratings Avoid peer comparison

Review your portfolio once a year What is the net return of your portfolio? What is the net return of each asset class in the portfolio? What is the accumulated corpus worth? Are course corrections necessary? After a while returns do not matter!

Star Ratings

How to review a mutual fund SIP?

How to review a mutual fund SIP?

Have a de-risking strategy in place 1: Correct significant deviations from asset allocation once a year initially and then twice a year: Rebalancing

Annual Returns of ICICI Top 100

Rebalancing

Rebalancing

Rebalancing

Rebalancing

2 Asset Allocation has to change with time Financial Goal Planner with Flexible Asset Allocation

15 Years 40% Equity + 60% Fixed income 60% Equity + 40% Fixed income 1.5 years 5% Equity + 95% Fixed income 1.5 years 3 years 15 Years

Cannot/ Don’t want to DIY? Avoid conflict of interest. Avoid anyone who gets a commission Seek out a SEBI registered investment advisor and invest in commission free products. Pay a flat fee! Ignore media reports, amc reports, bloggers AIFW, wealth coaches, wealth doctors etc. Work with the advisor regularly

RISK!

Asan Ideas for Worthless information! “Ashal Sir, Please name the two mutual funds you hold” When Ashal says MDBSC* ….

Volatility Short-term long-term Investment Duration

Penny Wise, Pound Foolish?

An approach to understanding investment risk

A lump sum investment in ICICI Top 100 Rs. 10,000 invested on 1st Jan 2003 would have grown to Rs. 1.19 Lakhs on Dec 31st 2014. Return = 22.91%

Annual Returns of ICICI Top 100

Understanding the 22.9% CAGR = 22.9%

Annual Returns of ICICI Top 100 Average: 29.3% Standard Deviation: 38.6%

What can I expect from ICIC Top 100? Average: 17.5% Stdev: 13.7% 17.5% +/- 13.7%

Sensex Total Returns Index: 1979 to 2013

Sensex Total Returns Index: 1979 to 2013 0% 10-30% 50-70%

Equity mf investing: What to expect!

Equity mf investing: What to expect!