Wise Wealth Advisors

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

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Archive for the ‘General’ Category

Points to remember

Posted by Muthu on February 8, 2018

1) Equity beats inflation and provides superior return over other asset classes in the long run.

2) Good years are more than bad years. Based on the past we can say 70% of the time it is good years.

3) Not possible to time the market. Need to stay invested through both good and bad years to reap the long term return.

4) 10% correction once a year is a normal. Should not be surprised whenever it occurs. Only non occurrence should be a surprise.

5) 20% correction once in few years and 30% fall once in a decade is also very normal. Need to live through this roller coaster ride to enjoy high returns which equities offer.

6) Better to avoid checking portfolio during the periods of market turbulence. Once a year review is good enough, more so during bear markets.

7) Need to withstand emotional pain during the corrections and falls. Any adverse reaction to emotional pain would convert temporary notional loss into permanent real loss.

8) Invest when you’ve money. Redeem when you need money. Ensure there is not less than 10 year time gap between both.

9) Have strong filters when you consume market news. If it is not possible, you would be better off ignoring such news and updates.

10) Patience, discipline and staying the course would ensure you reach your goals and become wealthy. Always work on developing these traits.

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

LTCG tax is back

Posted by Muthu on February 2, 2018

As you are aware, your debt fund investments like MIPs and liquid funds are subjected to both short and long term capital gains tax (LTCG tax).

For equity, there has been tax only on short term capital gains. Long term capital gains have been exempted from taxation for the last 13 years.

This has been changed by the budget presented yesterday.

Henceforth, long term capital gains on shares and equity oriented funds would be subjected to a tax of 10%.

For the purpose of calculation of long term capital gains, the NAV or share price would be taken as on 31’st January 2018.

Let us assume, you invested in an equity fund in 2010 at NAV of Rs.100. The NAV as on 31’st January 2018 is Rs.300. In 2020, when you redeem this fund, the NAV is at Rs.400. For calculating long term capital gains, your cost would NOT be taken as Rs.100 but only at Rs.300. This has been done to ensure that investments made till 31’st January 2018 does not suffer long term capital gains tax. Any investment from February 1’st 2018, would be subjected to long term capital gains tax of 10%.

There has been strongly divided opinion whether the taxation is correct or not. That debate would continue. But what matters to us is the fact that this tax has to be paid for equity investments made from now on.

We’ve to wait and see how this impact markets in the short term. I would not be surprised if markets react adversely in near future. These things are difficult to predict and does not affect the long term growth trajectory. Earnings have started picking up from last quarter and structurally corporate India is expected to deliver robust growth over next few years. In the long run, only earnings matters and sentiments which are so prominent in near term dissolve.

In 2014, I shared with you a tweet of Ben Carlson.

https://twitter.com/awealthofcs/status/542520113933864960

Start with a $1 investment that doubles in value year.

1) Sell the investment at the end of the year, pay the tax and reinvest the proceeds.

Do the same thing every year for twenty years.

End up with $25,200 clear profit.

(Or)

2) Don’t sell anything.

At the end of twenty years, end up with $692,000 after-tax profit.

See the difference in long term wealth creation when there is no churning.

We advised no churning even when there was no tax on long term capital gains. It now becomes all the more important to keep the churn very minimum.

Equity as an asset class delivers superior returns over all other asset classes in the long run. This was true when there was no tax and continues to be true when there is a 10% tax.

Currently there has been no indexation benefit for LTCG on equity. This is because the cost price of previous years has implied indexing as only the price as on 31’st January 2018 would be taken from now on.

Till 2004, long capital gains from equity was taxed either a flat 10% or 20% with indexation. I would not be surprised, if in the coming years, both the options are again provided to investors.

Now that you are aware of the changes, what you need to do?

Nothing. Just continue to stay the course, as always.

Posted in General | 1 Comment »

Bad News and Good News

Posted by Muthu on January 2, 2018

Bad News: Inflation destroys wealth

Good News: Compounding builds wealth


Bad News: Discipline is painful

Good News: Outcome is enjoyable


Bad News: Equities are extremely volatile

Good News: Equities create immense wealth


Bad News: Media amplifies greed and fear

Good News: Good books and blogs impart wisdom


Bad News: Short term is unpredictable

Good News: Long term is reasonably predictable


Bad News: Bad things can happen any time

Good News: Proper planning & risk covers can reduce negative impact


Bad News: Life is ephemeral

Good News: Most of us would live to reach old age


Bad News: Cannot control returns

Good News: Can control savings


Bad News: Markets are not under our control

Good News: Behaviour is under our control


Bad News: Disruptions can happen anytime anywhere

Good News: Continuous learning is the available antidote

Posted in General, Muthu's Musings, Wealth | 5 Comments »

12th Year

Posted by Muthu on January 1, 2018

Wishing you and your family a wonderful 2018.

We never believe in forecasts, especially of short term. In the beginning of 2017, there were many predictions that markets would do badly due to demonetisation. GST implementation strengthened these voices further. However Sensex has delivered around 28% return in 2017. As a policy, we don’t make any index forecasts and would stick to the same for 2018 as well.

If past is anything to go by there are more good years than bad years. Roughly markets are up 70% of the time.  Need to stay invested during the 30% bad years as well, to reap the benefit of good years.

As our clients, you all have created significant wealth. This would accelerate in the years to come. We hold views based on broader picture. India’s GDP per capita would continue to grow over next decade and this would result in many companies doing well. When companies do well, earnings would grow. Growing earnings would get reflected in stock prices and hence in mutual fund NAVs.

We believe that there is huge potential for wealth creation over next decade though the ride, as always, would be bumpy. You’ve been sticking to your investments despite bull and bear markets, positive and negative news flows and your own emotions of greed and fear. Once we buy right, all we need to do is to sit tight.

We are entering into 12th year of our profession today and are grateful to you for being our client.

Though we started the profession in January 2007, it took around 3 years for us to get our focus right. We then realised investor management is more important than investment management. Choosing investments or making portfolio changes is only 10% of the work. 90% is focusing on investor management, which is managing behaviour, emotions and psychology.

By helping you focus on what is important, we’re able to make you achieve excellent results. Through all our communications and interactions, we would continue to focus on investor psychology and behaviour.

Good investing is very simple. It is like daily exercise or consuming good diet. Though these are simple to understand, very difficult to implement on a consistent basis. Our focus would continue to be making you do these simple things consistently. Simple and right discipline, when repeated regularly, would lead to exponential results.

Be it health, wealth, career or relationships what we do everyday matters. To quote Darren Hardey

“You will never change your life until you change something you do daily. The secret of your success is found in your daily routine.”

Stick to simple and effective discipline. Keep reinforcing it regularly. You’ll then be successful in whatever you focus.

Once again, wishing you a great 2018.

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

Hard and Harder

Posted by Muthu on December 23, 2017

Hard: Making money

Harder: Keeping money


Hard: Start investing

Harder: Stay invested


Hard: Saving

Harder: Properly investing the savings


Hard: Avoiding fads

Harder: Sticking to a portfolio for 10 years


Hard: Controlling greed in bull markets

Harder: Controlling fear in bear markets


Hard: Saying no to easy money

Harder: Sitting tight for long term compounding


Hard: Not looking at daily prices

Harder: Not reacting to price fluctuations


Hard: Looking at opportunities in bear market

Harder: Looking at risk in bull market


Hard: Analytical skills

Harder: Discipline and Patience


Hard: Not chasing multi-baggers

Harder: Contentment with modest returns

Posted in General, Wealth | 1 Comment »