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

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Thoughts on current situation

Posted by Muthu on August 11, 2019

Usually I write to you not less than once a month. This time there has been a gap due to some unavoidable reasons. Kindly accept my apologies.

In the beginning of 2018, all of you were very happy looking at your portfolio.

Last 20 months has changed the situation upside down.

The government in the last term was focused on providing basic but essential things like bank accounts, LPG, electricity, toilets etc. They did a decent job on this front. Balakot attacks saw a significant political will in defending the country’s security.  There were no terrorist bomb blasts across the country; which once used to be routine news.

Initially when demonetisation was done, many of us thought that as essential to fight corruption and black money.  In hindsight, the realisation is that it has caused more damage to the economy than the benefits it brought. In the name of clean up, also started was more instances of harassment by tax authorities. The government’s key focus became wealth distribution rather creation.

The expectation from the government second time was that they would focus on major economic reforms and wealth creation. This was based on Modi’s development record as Gujarat CM. Having focused on helping the poor in the first term, the natural expectation was creating prosperous economy in the second term.

Budget gave an opinion that this government is focused only on distributing wealth with no clue as to who would create it. It was anti wealth creators. Since this government never had a great economic track record to begin with, markets got afraid as to what is in store for the future.  Having realised the damage Budget has caused, the finance minister has started consultation with all stakeholders in the economy.

This is where we stand today. I don’t know how things would phase out from now on. The government with its brute majority may see no need for listening and course correction. Or Modi being identified as one of the pro development chief ministers in the past, there may be real course correction too.

George Bush senior won the Iraq war. He was very popular because of the same. Still he lost the elections as the economy was not doing well. Bill Clinton’s tenure was marked with controversies; still he won the election because economy was doing well.

Economy is less dependent on the government of the day. It’s a complex mechanism having its own life. Like markets or businesses, it also goes through cycles. At best a government can reduce the pain or incentivise the growth. It has no ability to prevent economic cycles.

If the government becomes responsive, the pain would get over sooner than later and we can explore if 8% growth is possible.

If the government continues with its dismal economic performance, recovery would still happen as a part of the economic cycle. Probably we may have to wait for a year or so for the same and accept 6% as our growth rate.

So it is clear, government can advance or postpone growth but cannot stop it. It can be a deciding factor between 6% or 8% growth; still we would continue to grow.

Assume the best and get ready for the worst. You would be fine in both the scenario.

Don’t try to time the market based on this. Market would never wait for actual growth to happen. It moves based on anticipation. This holds good for both upside and downside.

Since I’ve no reason to be a long term pessimist, I continue to be optimistic.

Stay the course.

Posted in Economy, General | 4 Comments »

Don’t talk about wealth

Posted by Muthu on June 23, 2019

Other than your family, close friends, auditor and financial advisor; stop talking about wealth.

More and more we talk about our wealth, relationships become superficial and we end up a terrible bore.

World being what it is, talking about wealth would attract wrong people.

Also don’t tie up your ego to the size of the house or car. What is good for ego is bad for you and your wealth.

Only encourage people who come to you for what you are and not for what you own.

In the same way, relate to others for what they are and not on what they have or don’t have.

Don’t discuss about wealth while looking for marriage alliance for your children. You may then end up with wrong choice.

Also learn to enjoy wealth. Once you’re financially independent, have a good life style. Enjoy things and experiences. There is no use of wealth if it ends up a mere bank, demat or mutual fund balance.

Provide to children for their education, marriage, when they buy their first house etc.

At the same time, don’t promise your entire wealth to them. Even if you want to provide everything to children, better not to promise it. Let them not take your wealth for granted.

Don’t provide everything to children during your life time. That would be a sure shot way for a miserable old age. It should happen only after you and your spouse is no more.

When I was achieving certain financial milestones, I shared that with more than required people. I stopped it subsequently.

Now I value discretion a lot.

You should value it too.

Posted in Wealth | 7 Comments »

Give time to get results

Posted by Muthu on June 20, 2019

For the last couple of years, we’ve stopped adding new clients unless referred strongly by any existing client. I don’t want to get into a situation where I’m unable to personally handle a client. Also I value my free time a lot. To be contented or grow further is an individual choice and I’ve opted for the former.

I’ve been interacting and sharing my thoughts for now close to one and half decades and some time get impatient if the core philosophy is still not understood.

Whether you invest in an equity or hybrid fund, it takes time to deliver. The expected returns of 15% or 12% happen only over a period. The returns would be uneven as well. There are years of positive returns, negative returns and no returns. If the funds you’ve invested are capable of producing 15% year or on year, the entire population would only opt for equity investing. You want the results of equity without paying the price for it. The price to be paid is accepting and undergoing volatility.

There is no way you’re going to enjoy the fruits without allowing the tree to grow. If it is going to take 10 years for a plant to become tree and yield fruits, no amount of frustration or anxiety is going to advance the yield. In fact, these negative emotions are capable of destroying the tree itself.

All our long term investors are seeing excellent results. Those who invested during the last few years are either seeing average or below average results. No amount of mental anguish is going to change the results. All that is required is patience. Every investment is prescribed with a minimum time frame for holding. Unless you give that time, you’re not going get the results.

If you cannot accept volatility and develop patience, equity investing is not for you. Those who want quick money end up making no money. Either you give time to get results or opt for assured return product like bank deposits. If you aspire for 15% kind of returns, you need to pay the price of accepting stomach churning volatility. Else you need to accept and live with 7% kind of assured returns.

Also came across few retired clients of ours taking up trading. Trading requires enormous knowledge, discipline and skills. It cannot be a hobby or time pass activity. If you want to trade, equip yourself first for the same. You cannot become a trader overnight. Be it investing or trading, it needs years of hard work and discipline. Also avoid intraday trading. It is not for you. There are very few winners there and it is extremely risky as well. Intraday trading is the easy way to lose hard earned money.

As you’ve become seasoned investors, when you refer a client next time, please see if they have basic emotional maturity to learn and follow long term investing. If not, request you not to send them to me. Without patience and discipline, it is impossible to create wealth from markets.

Posted in Muthu's Musings, Stock Market | 2 Comments »

Giving

Posted by Muthu on May 12, 2019

Many of our long term clients are building wealth which would last even beyond their life time. So I thought let me cover today about giving.

There are two kinds of giving. The first one is what we give to our own blood, the next generation and even grand children. The second one is what we give back to society, helping the needy. We cannot forget that society helped us in creating wealth.

If your wealth is limited to this life time of you and your spouse, you may not be able to leave your children anything other than primary residence. That is fine. As far as giving back to society, please see what best you can do, given your limited resources.

For those who have wealth that would last well beyond their life time, don’t wait to leave everything after your death. If you live well into your eighties, your children would then be in their fifties, way past their prime. They would not be in a position to meaningfully enjoy your wealth.

Don’t be tight fisted. Help your kids during occasions like setting up their family and buying primary residence. Take care of their education till post graduation so that they don’t start with student debt.

Also learn to help less privileged. While you may be doing something on and off during working years, this should start full-fledged latest by the age of 60. Giving while living and seeing how the money is useful to others is bliss. So don’t ear mark wealth for charity only after your life time. Give and enjoy giving at least during last two decades of your life.

In my view, not less than 10% of one’s wealth should be given back to society. If you find this less, do more. If you find this more, at least start with 5%. Charity should be significant. Having a wealth of Rs.100 crores and giving few lakhs a year to charity is sub optimal. Though philosophical, need to remember that you’re not going to take any money with you once you die.

Enjoy money in your life time. Give a part of it to your next generation while you live. Let them also enjoy your wealth. And don’t forget to give it to needy. This is a well balanced life and living this way is meaningful.

Kanchi Maha Periyava and Ramana Maharishi are the two Jnanis I respect most.

I end this note with what Sri Ramana said on giving:

“Giving to others is really giving to oneself. If one knows this truth, would one ever remain without giving?”

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

The reward is wealth

Posted by Muthu on April 29, 2019

Good things in life never come easy. Take any country, only a small percentage of population is wealthy. Only 1% of us can be in top 1%. Wealth helps to avoid money worries, which is the main worry for most of the population.

Markets over the long run have been providing around 15% annualised returns. We believe India becoming $10 trillion economy over next 12 to 15 years is very much possible. This means growth in many sectors resulting in good wealth creation for investors.

Equity investing is almost the only way for most of us to create wealth. Many private businesses do not have the return on capital of good listed companies. Be it salaried or SME owner, equity is inevitable to create wealth. The path is clear. It is the journey which is difficult.

Markets do not provide returns in the way we like. A stock may not deliver any returns for many years and provide many years return in a single year. Markets can test your patience greatly. Some give up precisely at the wrong time, only to see that stock soaring subsequently.

Markets go through years of positive returns, negative returns and no returns. Our initial experience varies based on when we entered the markets. If in first few years of investment we see negative or no returns, we tend to give up. That’s why we suggest equity for a period of not less than 10 years. Good and bad years get evened out over this period.

Over 10 years investing, 80% of returns come in 20% of time. This means you need enormous patience during the 80% period to reap the reward in the remaining 20%.

Patience is the most difficult trait to develop. Patience involves pain and none of us like pain. But without patience and developing the understanding that returns are never linear but always lumpy; it is impossible to create wealth.

All those who have been investing through for us for last 10 years or more have created good wealth. They would vouch from their experience; the journey has never been smooth. But the rewards are worth the pain.

Only few create wealth from markets because the journey is not emotionally easy. Unless you learn not to react to your emotions, develop right understanding and enormous patience; it is impossible to create wealth.

Nothing meaningful in life can be achieved without pain. So is wealth. Wealth or lack of it makes enormous difference to our life on earth. So embrace pain and patience.

The reward is wealth.

Posted in General, Wealth | 1 Comment »