Wise Wealth Advisors

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

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Archive for the ‘General’ Category

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 »

How a retired executive built $70 million?

Posted by Muthu on October 31, 2017

Theodore Johnson was born in last century and died at the ripe age of 91 in 1993.

From 1923 to 1952, for 29 years, he worked in United Parcel Service (UPS).

He joined the company at $25 a week, rose through the ranks and retired in 1952. At the time of retirement he was making $270 a week, which is $14,000 per year. For ease of understanding, in today’s dollar, it is worth around $1,25,000.

He had a habit of saving around 25% of his income every month and he invested it in stock. When I say stock, he invested only in one stock, that of his employer UPS.

When he retired in 1952, he has accumulated UPS stock worth $7,00,000.

He never touched the corpus. He might have been living on his dividend income. Assuming a dividend yield of 2%, he would have lived very comfortably with dividends itself.

Thirty nine years after his retirement, in 1991, the stock has grown to the value of $70 million. Please note that he might have received a dividend of $1.4 million a year for that corpus.

He gave a sizeable portion of this wealth to his son and two grand children.

After the same, he donated $36 million for various charitable organisations supporting education for poor and disabled.

He passed away next year. His wife died few years before him. They had a long married life.

From what I read, he has lived a well balanced and good life.

No doubt he was a high earner of his times. Still building a corpus of $70 million is a huge achievement.

Many of you are high earners. You can also save 25% of your income. Instead of investing in only one stock (we would not advice that), you’re investing in equity funds. Shareholders would receive dividends and mutual fund unit holders can do SWP (Systematic Withdrawal Plan).

Five equity funds or a portfolio of 15 to 20 stocks can do wonders if you save with discipline during working years and withdraw only for your lifestyle needs in retirement years. Higher the corpus, even a small withdrawal would ensure an excellent life style.

You can pass on wealth to your children and grand children and also provide for underprivileged in the society.

Leading a good life style, passing on wealth to next generation and giving it back to society, what more a life well lived needs?

Aim big and work for it.

Posted in General, Giving, Stock Market, Wealth | 1 Comment »

Some changes expected in next 5 years

Posted by Muthu on October 21, 2017

I anticipate some changes to take place in next 5 years or so. Though I cannot precisely time, I strongly feel this is the way forward.

As a first step, expense ratios of mutual funds would come down. This would lead to reduction in income for mutual fund companies and advisors. As an investor, it is good for you because the return goes up to the extent of cost reduction.

As a next stop, expense ratio would further come down leading to zero commission income for us. We would be asked to become RIA (Registered Investment Advisor) and charge you a fee. Those who pay fee would continue to get advice and service. Those who cannot or do not want to pay need to take care of their affairs on their own.

Actively managed funds are broadly doing well now because mutual funds are still not a very significant percentage of total market size. At some point, due to growth in their size, they will become THE market. Once they become the market, they cannot outperform markets. As an investor, you may then want to own passive funds. Passive funds simply invest in broader indices like Nifty 50 or Nifty 500 for a very low cost. ETFs (Exchange Traded Funds) listed in stock exchanges would also come into being which also can be owned at very low cost.

The expense ratio paid is worth now because of the alpha (excess returns over benchmarks). When alpha is no longer there, cost cannot be justified.

Not only costs would come down, the returns also would be down. When there is no alpha you get only market returns. This would have huge impact on the entire eco system of investors, asset management companies, advisors and distributors.

It is our responsibility to advice you on the above as and when we feel the time is ripe. As I said, I see it happening within 5 years or so.

We would then tell you whether to only own passive funds or some combination of active, passive and ETFs.

These changes would not be limited only to equity but for hybrid products like MIPs and balanced funds as well.

For those of you who would continue to be with us when our revenue model changes from commission to fee, our advice and services would continue as usual.

This is the way forward.

There is nothing you need to do now on this communication. It is just to keep you updated on the changing landscape in coming years.

When the time for change come, we would handhold you.

Despite any changes, we would continue to assist you in reaching your financial goals, financial independence, building and managing wealth.

Whether it is active or passive, funds or ETFs, commission or fee our focus would be on you and your behaviour. In any form, we would continue to focus on right behaviour of discipline, patience and staying the course.

Have a nice weekend.

Posted in General, Mutual Funds | 2 Comments »

You are rare

Posted by Muthu on October 6, 2017

It is common to have all kind of debts: mortgage, car loan, personal loan, credit card loan and consumer durables loan. Most part of the working life goes in servicing the loans. All the hard work goes towards making banks and their shareholders rich. Always keep slogging for money. Have no control over time.

It is rare to be debt free, financially independent, making money work for us and have time under our control.

It is common to be impulsive, impatient, think only short term, wanting instant gratification, panic during bear markets, chase fads in bull markets, keep swaying to headlines & nonstop noise from media and fail to build wealth.

It is rare to be patient, control fear and greed, have long term outlook, ignore short term bumps, ignore noisy media, stay the course and build sizeable wealth.

Always, 99% would be common and 1% would be rare.

Our learning and sharing is to ensure our clients, friends and family belong to this precious 1%

Our blog and tweets are read by thousands of people. If our sharing helps them too, we would be extremely happy.

I know how difficult it is to control one’s behaviour. I’ve learnt this from my own experience and keep seeing how most of the investors fail on this front.

We are aware that only 1% can be in 1%.

We are ambitious to see if those of you who are in our circle of influence can belong to this tiny minority.

As an advisor, I owe this to you.

We would continue to assist your financial journey so that you can always be the rare 1%

All the best.

Posted in General, Wealth | 2 Comments »

Underperformance is inevitable

Posted by Muthu on September 23, 2017

I always get queries as to why we rarely churn the portfolio. We could always keep changing portfolio based on recent performance and convince you how much we add value to your portfolio. That is an easy path. Why we have chosen the difficult path? Why we prefer inactivity? Why we discourage you from chasing performance?

Based on our experience, we tell you that all funds and fund managers go through periods of underperformance. What matters is the long term track record and not a specific period of underperformance.

I recently came across a study done by Davis Advisors. They have found that all good investors, funds and fund managers underperform around one third of the time. The funds which ends up in top quartile over a 10 year period spends not less than 3 years in bottom quartile. During one third of the time, all long term best performers become worst performers.

We’re committed to provide you long term superior performance and not to keep chasing performance and provide suboptimal returns. Vanguard studies have also shown that performance chasing hurts long term returns significantly where as buy and hold strategy offer good returns. I’ve shared this Vanguard study earlier.

I also shared with you a study came in ‘Mutual Fund Insight’. If you’ve invested in a large cap fund in 2007 and kept changing the same each year based on the previous year top performer, you would have got an annualised return of 3.93%. Whereas buying a fund in 2007 and holding it for 10 years would have delivered an annualised return of 12.84%

Not that we keep quiet during periods of underperformance. We speak to fund houses and regularly keep getting their inputs. Most of the time we feel the issues are temporary and were subsequently proven accordingly. In rare instances, where we believe the future may not pan out well, we recommend change.

So please look at overall portfolio performance and not each fund’s performance. Since you hold around five funds, it is most likely one of them would always be going through a period of underperformance.

Our idea of value creation is not through activities. It is easy for us to do some tinkering frequently and show you action. We’ll never do that. What matters to us is you should reach your financial goals, build wealth and attain financial independence. We would hand hold you through various business and market cycles and help you reach there. We’ll do only what is required. Many a times not tinkering with your portfolio and not allowing you to do so in itself is a big value addition.

Don’t equate activity with progress. Investing is one area where activities should be minimal. Neither you should chase performance nor ask us to do it.

Underperformance is inevitable. Keep this in mind when you look at your portfolio.

Posted in General, Mutual Funds | 1 Comment »