Wise Wealth Advisors

D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Preserving wealth

Posted by Muthu on December 2, 2017

“The father buys, the son builds, the grandchild sells and his son begs.” says a Scottish Proverb.

The Chinese have a saying, “Fu bu guo san dai”, which means wealth never survives three generations.

Traditional wisdom holds good for modern days as well. I come across data, articles and stories in this regard.

It is very difficult to be rich. Only 1% can be in top 1%. According to Credit Suisse if you have more than Rs.5 crores, you are among top 1% of the world population. A million dollars (Rs.6.5 crores) puts you in top 0.7%.

We have to get rich only once as long as we don’t do anything foolish. As both investor and advisor, our focus is always on avoiding permanent loss of capital and at the same time to grow wealth at a reasonable rate.

Ben Carlson in a recent article points out that about 70% of people who receive a financial windfall lose it within a few years. Also nearly 80% of NFL players are broke or bankrupt after being out of the league for two years. Sixty percent of NBA players are broke after being out for 5 years.

If you are interested like me in studying about wealth, there is so much of information and data available.

The above example shows how difficult it is to stay rich in our generation itself. I’ve also seen people lose their wealth by taking unwanted risks.

I came across an article in Time magazine. It says that 70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third generation.

Out of the people who get rich, not all stay rich. Even amongst those who are able to stay rich, 70% lose it in second generation and by third generation it becomes 90%.

One way to minimise such happening is to teach children and grand children the value of money and the art of money management. There is no such thing as easy money and by design only few are endowed with good wealth. If we don’t value something we have, it would start slipping away. Not to talk us up, but having a financial advisor who can be a mentor and coach would definitely help.

This should also make us ponder over giving, as part of wealth management. Not all focus on giving as much as saving and spending. We all create wealth because of the opportunities provided by the society and we need to give at least something back.  In our case, our family has decided to allocate 10% of our wealth for charity when I turn 60. There is no hard and fast rule for giving. But we thought 10% is the least we should do.

Like all things in life, wealth is also ephemeral. By teaching next generation, you can at least prolong it. By giving, you can make positive impact in the life of less privileged.

Some points to ponder for the weekend.

Posted in Giving, Muthu's Musings, Wealth | 2 Comments »

Nuggets for 25th November

Posted by Muthu on November 25, 2017

Some of my recent tweets:

1)As much as we focus on gains, avoiding permanent loss of capital should be the main investment objective. We gain by not losing.

2) If you look for certainty or lack of problems, you would never get an opportunity to invest. Problems would continue to be there but so is progress.

3) Celebrating others investment success and not gloating over their misery would cure us of envy.

4) In initial phase of investing, better to lose than gain. Else it creates an impression making money is very easy. Nothing can be more dangerous than this thought.

5) Foolish decisions can take us back even by a decade in terms of wealth. Avoiding wrong is more important than doing right.

6) Following discipline, developing patience and avoiding fads are really hard. But whoever said making money is easy?

7) If future looks certain and clear, it’s likely that we’re underestimating risk.

8) More patient you are and longer your time horizon, you’ll do very well as an equity investor.

9) In investing, most of the time, activity is your enemy and inactivity is your friend.

10) Those who come to markets to make quick money usually don’t last long. Be ready to grow with the businesses you own.

11) We’ll act more sensibly with our investment decisions the moment we stop bragging about our success, especially of short term.

12) You sow the seeds now for say 5 years return. Keep doing it every year. At some point, you’ll start reaping fruits regularly.

13) If we don’t want to own a company for long run, it implies we are only looking for price and not business performance.

14) Not knowing how to make money in the short term is a blessing. Sustainable wealth is usually built only over the long term.

15) In bull markets, even bad ideas can result in gains. But what is obtained through one bad idea is given back through another.

16) In investing, it is not the effort that counts. It is patience.

17) For all long term investors, patience equals profit.

18) Long term investing needs tremendous discipline especially when you hear about people making quick short term profits.

19) Learn the art of money management. If you do that, you’ve to get rich only once and can stay rich. If not, even if you get rich, you cannot stay rich.

20) You don’t get what you want from the markets. You get what you deserve.

21) If patience and long term orientation comes naturally, you are indeed blessed. From what I see and read, these are very rare traits.

22) You randomly check with some investors how long they plan to own a stock or a fund. You would then realise how rare is holding something for a decade or two.

23) Our family and our clients invest with an intention to hold for 10 years or more. We’re a rare tribe and feel proud of the same.

24) Many a time, risk is not in the markets but in our behaviour.

25) Stock price is the shadow of business. It always follows business. Focus on the business; price would automatically be taken care off.

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Peter Lynch on market timing

Posted by Muthu on November 19, 2017

Peter Lynch was one of the best fund managers. He managed a fund called Fidelity Magellan Fund for 13 years, between 1977 and 1990. $1000 invested in 1977 in his fund has become $28,000 in 1990. Money multiplied by 28 times in 13 years, annualised return of 29.21%

I was reading one of his interviews today. Thanks to @stocknladdr  for sharing the link. As you know, we are always against market timing. In our opinion, you should invest when you have money and redeem when you need money, ensuring at least there is a 10 year time period in between.

Peter Lynch has provided a study on market timing. Let us listen to him in his own words.

“People spend all this time trying to figure out “What time of the year should I make an investment? When should I invest?” And it’s such a waste of time. It’s so futile. I did a great study, it’s an amazing exercise.

In the 30 years, 1965 to 1995, if you had invested a thousand dollars, you had incredible good luck, you invested at the low of the year, you picked the low day of the year, you put your thousand dollars in, your return would have been 11.7% compounded.

Now some poor unlucky soul, the Jackie Gleason of the world, put in the high of the year. He or she picked the high of the year; put their thousand dollars in at the peak every single time, miserable record, 30 years in a row, picked the high of the year. Their return was 10.6%. That’s the only difference between the high of the year and the low of the year.

Some other person put in the first day of the year, their return was 11%. I mean the odds of that are very little, but people spend an unbelievable amount of mental energy trying to pick what the market’s going to do, what time of the year to buy it. It’s just not worth it.

Excellent timing returned 11.7%. Lousy timing gave 10.6% and disciplined investing provided 11%. Always keep this in mind and stay the course.

Wishing you a wonderful week ahead.

Posted in Mutual Funds, Stock Market, Wealth | 5 Comments »

How many people in India are rich in 2017?

Posted by Muthu on November 15, 2017

Credit Suisse publishes global wealth report every year.

This year report can be accessed here.

We’re sharing some interesting data from this report every year.

They have taken only adult population into consideration for the purpose of this report.

For dollar to rupee conversion, the rate assumed is 1 USD = Rs.65.

A country is considered rich, if the average wealth per person is over $100,000 (Rs.65 lakhs).

You would be surprised to know that Cyprus joined the list of rich nations this year.

The richest country in the world is Switzerland with average wealth per person of $537,000 (Rs.3.50 crores).Switzerland is the only country in the world where the average wealth per person has crossed half a million dollars.

The top ten richest countries in the world are Switzerland, Australia, USA, New Zealand, Norway, Denmark, Belgium, UK, Singapore and France.

If you are a dollar millionaire (Rs.6.5 crores), you are among the top 0.7% of the world population.

If you’ve wealth of $770,368 (Rs.5 crores), you’re among the wealthiest 1%

The average net worth of an individual in the world is $56,540 (Rs.37 lakhs).

70.1% of the world population has wealth less than $10,000 (Rs.6.5 lakhs).

21.3% of the world population has wealth between $10,000 (Rs.6.5 lakhs) to $100,000 (Rs.65 lakhs).

7.8% of the world population has wealth between $100,000 (Rs.65 lakhs) to $1 million (Rs.6.5 crores).

The top 1% of the population owns 50.1% of the total assets.

The top 10% of the population owns 87.8% of the total assets.

Coming to India, we’ve 245,000 people who are dollar millionaires and above.

0.5% or 42 lakh people have wealth above Rs.65 lakhs but less than Rs.6.5 crores.

7.2% or 6 crore people have above Rs.6.5 lakhs but less than Rs.65 lakhs.

The balance 92.3% of population, roughly 77 crore adults, have less than Rs.6.5 lakhs. This is the most poorer section of our population.

There are 1820 people who have above $50 million (Rs.325 crores).

There are 760 people who have above $100 million (Rs.650 crores).

A dollar billionaire is the one who owns more than Rs.6500 crores.

Out of the 2043 billionaires in the world, 101 live in India.

Total wealth of the country is $5 trillion predominantly in real estate and gold.

The average wealth per individual is $5976 (Rs.3.88 lakhs) and the median wealth is $1295 (Rs.84,175).

Median wealth means that half of our population has less than Rs.85,000 as wealth.

Going through this report reaffirms that other than spending and saving; giving too needs to be part of our financial plan.

Posted in General, Wealth | 7 Comments »

Nuggets for 7th November

Posted by Muthu on November 7, 2017

Some of my recent tweets:

1)We’ve no ability to avoid down markets. We stay invested through both ups and downs with conviction that equity does wonders in long term.

2) It is better to be optimistic always. But many get optimistic at peaks and pessimistic at troughs. Sure way to lose money.

3) Time arbitrage is your greatest edge. When most investors focus on short term, ability to focus on long term is a huge competitive advantage.

4) Even if tempted with super normal returns, don’t abandon the approach which works for you and able to stick during both good and bad times.

5) Luck plays a major role in outcome. But better your process and discipline, greater is the chance of luck leading to good outcome.

6) Look for long term track records. Returns from short term, especially during bull markets, conveys very little about the quality of process.

7) Bad is to live from paycheck to paycheck. Worse is spending in anticipation of future paychecks.

8) Market does not determine your fate. Your behaviour does.

9) Avoiding debt is the cornerstone of wise money management.

10) Traits like delayed gratification, patience and discipline need not be inborn. They can be learnt, put into practice and made as a habit.

11) Other than regular needs, better to postpone our wants by a month and see if we are still interested. This would prevent impulsive buying.

12) Save money during your working years so that money can save you during retirement.

13) Plan in such a way that you work for money for two decades and the money works for you for rest of the life.

14) You need not make money every month or every year. This expectation leads to disaster. Buy and hold knowing that gains are always lumpy.

15) Trying to make money in short term would prevent building good wealth over long term.

16) Knowing what to avoid is very important in investing. Avoid many wrong things, do few right things and then just stay the course.

17) Avoid investments with lock-ins. Hold long because of discipline and not due to compulsion. Never give up liquidity and transparency.

18) Discipline and patience scores hands down than intelligence in investment success.

19) For some, the only investment strategy seems to be making money faster from stocks. This is unviable and would lead to ruin.

20) Whether it is career, wealth or health, thinking long term and avoiding instant gratification is the key to success.

21) Businesses which take long term decisions even if it means short term pain deliver greater wealth to shareholders.

22) How much ever you develop knowledge, there would be many better than you. If you develop emotional balance, there is very less competition.

23) Overreaching for returns many a time ends in wealth destruction instead of creation. Instead of quick, focus on sustainable wealth creation.

24) Don’t look only at returns, especially short term. Look at the quality of process. Long term outcomes are primarily determined by process quality.

25) Mutual funds are best option for those who want to harness the power of equity but may lack time or expertise in stock picking.

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