Wise Wealth Advisors

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

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How many people in India are rich in 2016?

Posted by Muthu on November 25, 2016

Every October, Credit Suisse publishes the global wealth report.

This year, they have published the report in November.

For last few years, we are sharing some interesting data points from the above report.

For the purpose of the report, they have taken into account only adult population.

For dollar to rupee conversion, the rate assumed is 1 USD = Rs.68.

A country is considered rich, if the average wealth per person is over $100,000 (Rs.68 lakhs).

The richest country in the world is Switzerland with average wealth per person of $562,000 (Rs.3.82 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 Belgium, Denmark, Norway, Singapore, Sweden, Switzerland, Australia, France, UK and USA.

The average net worth of an individual in the world is $52,800 (Rs.36 lakhs).

73.2% of the world population has wealth less than $10,000 (Rs.6.8 lakhs).

18.5% of the world population has wealth between $10,000 (Rs.6.8 lakhs) to $100,000 (Rs.68 lakhs).

7.5% of the world population has wealth between $100,000 (Rs.68 lakhs) to $1 million (Rs.6.8 crores).

0.7% of the world population has wealth more than$1 million (Rs.6.8 crores).

The top 1% of the population owns 50% of the total assets.

The top 10% of the population owns 89% of the total assets.

If you’ve wealth of $744,400 (Rs.5.06 crores), you’re among the wealthiest 1% of the world.

Wealth of $71,600 (Rs.48.7 lakhs) would put you among top 10% of the world population.

If you’ve wealth of $2220 (Rs.1.51 lakhs), you’re among the wealthiest 50% of the world.

We are a very poor country and we all know it.

96% of the population in India has wealth below $10,000 (Rs.6.8 lakhs).

3% of the country is classified as middle class having wealth above $13,700 (Rs.9.3 lakhs).

0.3% of our population is worth above $100,000 (Rs.68 lakhs).

There are 1.78 lakh people who are worth above $1 million (Rs.6.8 crores).

There are 2260 people who have above $50 million (Rs.340 crores).

There are 1040 people who have above $100 million (Rs.680 crores).

Total wealth of the country is $3 trillion predominantly in real estate and gold.

The average wealth per individual is $3835 (Rs.2.61 lakhs) and the median wealth is $608 (Rs.41,344).

Median wealth means that half of our population has less than Rs.41,000 as wealth.

We’ve a very long way to go even to become a middle income country.

Let us hope it happens in next 2 decades.

Posted in General, Wealth | 4 Comments »

No Pain No Gain

Posted by Muthu on November 21, 2016

I received a document prepared by Franklin Templeton India on demonetisation. I found the same useful.

I’ve given the key points below. Please read the complete report for more details and better understanding.

1)Overall, we believe that the demonetisation exercise should help to accelerate financialisation of the Indian economy over medium to long term.

2) This measure needs to be seen in the context of other far reaching measures effected by the current government, including GST, Aadhar, Jan Dhan Yojana and Unified Payment Interface (UPI). All these measures put together should help in shifting significant portions of the informal economy (estimated at 40% of GDP) into formal economy.

3) This could in turn improve productivity by reducing frictional inefficiencies and improve the government’s tax revenues led by significantly better financial trails over medium to long term. These measures would give more flexibility for the government to manage fiscal deficit, as also potentially enable to shift to lower interest rates in India.

4) However, the demonetisation measure is likely to be negative for growth in the very near term until the level of cash in circulation reverts to normalcy. A sudden withdrawal of Rs.14 lakhs crore (9% of GDP) represents substantial monetary tightening, which could result in deflationary forces due to lower aggregate demand.

5) We believe that there exists a scope of 50 bps policy rate cut by the RBI from current levels over next one year, which may be undertaken in order to offset the deflationary impact.

6) Meanwhile, the flow of substantial cash holdings into bank deposits will mean that banking system will be flush with liquidity and CASA (Current Account and Savings Account) balances are expected to improve. As credit demand is likely to be muted for next couple of quarters, there would be very limited opportunities for banks to lend these deposits. The possibility of this money being channelised towards government securities may lead to a bond rally.

7) We expect aggressive rate cuts by banks, thus helping RBI in achieving better monetary transmission. The lower interest rates, along with a return to normalcy for cash in circulation should set the stage for a stronger recovery in aggregate demand in financial year 2017-18.

I wrote my last piece on the very next day of demonetisation. Now I’ve a better understanding of how benefit would accrue to government.

It is unlikely that the entire Rs.14 lakhs crore that was in circulation would come back to banks. Black money would be a sizeable part of this. The estimates range from Rs.1.5 lakh crore to Rs.5 lakh crore. There are some who argue that entire money would somehow find its way to banks. Even if that happens, the (earlier) untaxed part of that money would result in huge tax revenues for government.

For now, let us assume Rs.3 lakh crore does not come into bank accounts. That is the black money destroyed in this demonetisation drive. Government by necessary legislative changes can ensure that is no longer in the books of RBI as liability. As assets of RBI remain the same and liability is reduced, this excess Rs.3 lakh crore can be transferred to reserve. From reserves, RBI can eventually transfer the same to its P&L (Profit & Loss account) as income and then pay the same to government as dividend. Either government is going to tax and penalise heavily the unaccounted money coming to the system or it is going to get a hefty dividend from RBI or most likely a combination of both.

Thus black money is transferred from the hands of corrupt individuals to government of India.

Posted in Economy, General | Leave a Comment »

Clean India

Posted by Muthu on November 9, 2016

You would have heard, read and discussed a lot over last 24 hours on demonetisation and destruction of black money.

I want to just share few points I understood from reading and watching television.

The total currency in circulation is about Rs.17 lakh crores.

Out of this 86% (around Rs.14 lakh crores) consist of high denomination notes (HDN) or Rs.500 & Rs.1000 notes.

Out of this, around Rs.4 lakh crores is considered as unaccounted or black money.

This black money is not going to come back to the system. Any deposit over and above Rs.2 lakh for a PAN may be scrutinised by Income Tax department.

This 4 lakhs crore simply vanishes into thin air. Government can print a similar amount without raising inflation and can say use it for developing infrastructure. There may not be even need to print; it may even simply be a credit entry in government books. By this, the black money of Rs.4 lakh crores is transferred from corrupt people to Government of  India. It is one of the greatest transfers of ill-gotten wealth.

Manish Chokani explained in detail about this and said it would lead to softening of interest rates, strengthening of INR, reduction of fiscal deficit, controlling of inflation and adding few percentage points to GDP.

Already real estate has been sluggish for last few years. This move would further choke the lifeline of real estate and can result in property prices correcting significantly. Also real estate regulatory bill and benami transaction act would further streamline real estate sector. So it is going to be very difficult to use real estate for parking black money.

If anyone still suspects this government intention to root out black money, wait to see some future steps (which are under discussion) like a legal ceiling on cash a person can hold, limited and channelized supply of high denomination notes etc.

This action against black money would strengthen the economy, reduce slippages, cut down parallel economy and improve GDP. Financial assets, especially equity markets, would do very well in the long run because of this. Softening of interest rates would be good for bond markets as well. We need to go through short term pain for long term gain.

So far, honest tax payers were always mocked at. Cheating the government was considered the smart thing to do. This is going to change. It has just begun.

Modi is really a great leader. My respect for him has gone up. He has the guts to take on his own tribe, politicians. They are in the top of corruption food chain.

Lakhs of crores of black money lying in lockers, godowns and farm houses have become worthless papers.

Clean India!

Posted in General, Muthu's Musings | 4 Comments »

Morgan’s key learning over 9 years

Posted by Muthu on November 7, 2016

Morgan Housel is a personal finance writer I admire a lot. I keep reading and re-reading his posts.

I would suggest you read this piece he wrote few months ago.

I’m sharing two points from the same.

Most investing mistakes and frustrations come from trying to run a marathon in an hour. Diversified investing is so simple. Companies earn profits, and over a long period of time those profits accrue to shareholders. If you leave it at that – and you should – investing is such a basic game that doesn’t require much action. But instead of letting profits accrue over time, a lot of the investment industry attempts to speed up the process by front-loading gains into shorter periods. This is done by guessing what other investors will do next and trying to get ahead of them. It’s a billion times harder than true investing, and it’s the cause of most investment mistakes. Alas, it’s too potentially lucrative for many to pass up.

“Don’t do anything” is the best advice for most people most of the time, but it’s not intellectually stimulating enough for many people to take seriously. Most fields have a positive correlation between effort and results. Investing is one of few where the correlation is negative, especially for amateurs. The higher your IQ is, the harder it is to accept this.“

Enjoy reading. Better, follow Morgan Housel and his writings.

Posted in General | Leave a Comment »

You’re better off holding on

Posted by Muthu on November 2, 2016

We always keep saying that once you buy right, the best thing is to stay the course. We also repeatedly point out that the ride would be very bumpy but the reward is worth the effort.

I’m currently reading Chris Mayer’s book, 100 baggers. I want to share a small passage from it.

“The list of reasons to sell is always long. But if you’ve done the job of picking right, you’re better off holding on.

This reminds me of an anecdote by Chris Mittleman, an exceptional investor, published in one of his shareholder letters. An excerpt appeared in Value Investor Insight. Savor this:

Imagine if a friend had introduced you to Warren Buffett in 1972 and told you, “I’ve made a fortune investing with this Buffett guy over the past ten years, you must invest with him.” So you check out Warren Buffett and find that his investment vehicle, Berkshire Hathaway, had indeed been an outstanding performer, rising from about $8 in 1962 to $80 at the end of 1972.

Impressed, you bought the stock at $80 on December 31, 1972. Three years later,on December 31, 1975, it was $38, a 53% drop over a period in which the S&P 500 was down only 14%.

You might have dumped it in disgust at that point and never spoken to that friend again.Yet over the next year it rose from $38 to $94. By December 31, 1982 it was $775 and on its way to $223,615 today—a compounded annual return of 20.8% over the past 42 years.

I may print out the above and frame it.

So, anybody can do this. What you need to learn is how to buy right and then hold on. The latter sounds easy but is hard in practice.”

We also understand as to how difficult it is to practice this. So we use every interaction, communication and transaction with you to keep reinforcing this. By repeatedly saying it, we are able to internalise this trait in ourselves. Over the journey as an advisor for last 10 years, I’m also becoming a better investor, especially for the last few years. I would like to thank you for the same.

Do not worry about bear markets or temporary under performance of funds. We regularly monitor your portfolio and would suggest changes if and when required. In all other times, you are better off holding on and staying the course.

Posted in General | Leave a Comment »