1. The Biggest Concerns To Our Wealth
The Biggest Concerns To Our Wealth
Preserving wealth and growing wealth is one of our life's greatest pursuits. A lot of our time and effort goes into this pursuit, which begins right from the time we begin earning and continues for as long as we live. The recent events and consequences of the pandemic also brought to focus the vulnerability and uncertainty we now face. The concerns are not just limited to our existing wealth but also to our source of income, either through business, profession or employment. In this article, we dig deeper into some of the biggest wealth concerns that we face in the real world, either knowingly or unknowingly.
The constant and the biggest concern we face is something we are well aware of - inflation. Milton Friedman once famously said, "Inflation is taxation without legislation". With inflation ranging between 4-6% in the last few years, even by doing nothing we are losing value on idle wealth. You have to grow your wealth with this minimum benchmark rate just to preserve the existing value. Remember, that these returns have to be considered as net after adjusting for taxation, something we call 'real returns' or the returns after adjusting for taxes and inflation. Having proper investment planning or financial planning led by a trusted expert can help us to preserve and grow our wealth.
Benjamin Franklin once said, "In this world, nothing can be said to be certain, except death and taxes". Every income earned is subject to taxation, and the amount of tax depends primarily on the nature of income and the taxpayer. Most of us fall in the tax rate of 30% (plus surcharges) as individuals, and this can easily go over 40% for high earners. This makes taxes one of the most hated things for many, and we all actively engage in tax planning to reduce our burden, legally of course.
Marriage is not just a big decision on the personal front, but it is also on the financial front. With good families spending a fortune on marriage, it comes as a big financial goal. However, beyond emotions, the biggest financial risk is when the marriage does not work out. While the husband may face prospects of paying huge alimony, the wife on the other hand is at the receiving end of losing financial support after having lost productive years of career growth in a sour marriage; add child care to this complexity. It is said that a marriage can either be the best or the worst thing to happen to you, both on the personal and financial front. Needless to say, it can be a big concern, which most of us only think about when things do not go as expected.
There is a popular quote in the Hindi language which literally translates to 'Why do you need money if you have a good child, and what is the use of money if you have a bad child?' Families, today, spend a fortune in raising, entertaining and educating children. We sacrifice our own comfort and luxuries to put them in a position to exploit the best opportunities in life. However, many run the risk of making things too easy and comfortable for them. Many successful parents today have little reason to get impressed by the success of their own children. Relations between children are also a big concern, especially where a big family business is involved. There is a challenge of distributing business interests, only if they are eager to take it up with vigour. Needless to say, beyond emotions and responsibilities, having children has big financial implications in different forms- some good, some bad which last throughout the lifetime.
Wealth transfer to the next generation, either during the lifetime or after death, is a big concern not just for the rich and famous but even for most of us having any wealth created or property acquired during the lifetime. Wealth transfer becomes even more complicated when there are dependents to be cared for, multiple claimants/eligible persons for property or worse conflicts. Writing of wills, estate planning, formation of trusts, etc are the ways to tackle this problem. In absence of any solution, the law would take its own course and that can be something which may not be to our liking.
The recent pandemic exposed our vulnerability and laid bare the fragility of most small businesses. Unforeseen and unpredictable events like health crises, natural calamities, man-made conflicts, wars and even political instability can be potentially damaging to your life, business, livelihood and even the way you live. At a personal level, health, accidents, illness, death, professional liabilities, etc, can again be life-altering. One of the easiest and most effective ways of managing a lot of these risks is through insurance, but it can only protect you against some financial loss that has occurred but not everything.
With a constantly evolving world, one of the greatest threats is technological disruptions which can potentially make jobs, roles, products, services and businesses disappear in no time. We have seen this, time and again. Many studies have shown that a lot of today's jobs and skills will not even exist in the next decade, while many new opportunities will crop up. Are we as individuals and businesses well-equipped to survive the disruptions? This is a big concern to have and to think about. Upskilling, learning, innovation, investment in research & development, etc are some ways with which we can manage these risks.
Wealth preservation is a big challenge, and it involves managing your wealth /assets in such a way to ensure that the value of your assets does not decrease or erode. Maintaining and growing your wealth is not easy, and we are constantly faced with many challenges, some known and a few unknown. Investment /financial planning, diversification of investment and business risks, hedging against risks with insurance, upskilling and innovation to stay relevant, are some of the ways we manage the risks that we foresee. However, our wealth may be even more vulnerable and face other risks, not to mention bad decisions and frauds, thefts, etc.
We would recommend that some of your time should be spent in broadening your outlook and horizon to the risks that we face in our lives. As said, some of these may even be at a personal /family level, which you might not have even thought of. However, they do exist and carry huge financial implications. We would encourage you to discuss these matters with people you trust. The first step would be acknowledging your vulnerability from these risks and quantifying it, if possible. The next step would be chalking out a solution, or a path, direction to pursue. These may not necessarily be financial in nature but can be related to our own relations and behaviour. As we should now be able to see, everything that happens in our lives and what we do does carry with it, opportunities and risks in financial terms.
When To Buy And When To Sell?
When To Buy And When To Sell?
This is it, the holy grail of investing wisdom and all intelligence. While the question seems very innocent and naive which even a child can ask, finding the answer to it is the pursuit of all investors and wealth managers in the world daily, irrespective of how small or big they are. And this even includes us. In this article, instead of looking at the problem from the perspective of an analyst working out the maths, we look at it as a question of cash flow for the investor. The asset class in question here is equities, irrespective of the route taken or the product choice, which can be either direct equities or through mutual funds /ETFs or PMS.
Before taking exposure to equity, one has to clearly see oneself as a 'long-term' investor. This is very different from being a trader or a short-term investor, by whatever name is called. As a long term investor, one would likely have the objective /goal of wealth creation for investing in equity. Obviously, this too shall be backed by the right risk appetite. Such an investor would be constantly looking for wealth creation.
The asset allocation principle is simple; it attempts to allocate your capital between multiple asset classes, broadly equity and debt, as per the portfolio value. Your asset allocation strategy will ask you to rebalance your portfolio either at a set frequency and/or when the market sees a sharp correction. This makes it very easy for us, as we no longer need to look at market valuations to make buy/sell decisions in any asset class. Whatever the market wants to tell you, it gets reflected in your portfolio value. An asset allocation approach to portfolio management also ensures that you have adequate capital in debt/cash to deploy during opportunities presented by the markets, as opposed to a 100% allocation at all times.
The best time to invest would be when the markets present huge opportunities. A correction and the bear phase when there is mayhem in the markets is the best time to invest. The market valuations would be at a considerable discount to their long-term average. However, such opportunities are rare and far in between. In recent times, the 2008 financial crisis and the recent short-correction in 2020 due to pandemics gave the biggest opportunities for abnormal returns. If such an opportunity comes around, don't miss it, is all we can say. Since we can never know the bottom of the market or when it will return to the mean, a staggered approach to investing can be followed.
Market opportunities are rare and one cannot predict them. Waiting for such a correction is meaningless, so what do you do? The answer is simple. Countries and markets holding strong economic fundamentals and positioned for an economic boom always present a strong reason to buy. India is a strong buy story today. Warren Buffet once said, "Never bet against America". We can do much better for the decades to come if we place a strong bet in India's growth story. We are lucky today to be present at such a crossroads of our nation, where we want to leap into becoming a US $5 trillion economy in the next few years.
Availability of investible surplus is always a strong reason to add to your portfolio, irrespective of your asset class choice. Adding steadily whenever you have capital is a good way of building your portfolio over the long term. A disciplined approach to investing, especially through the SIP route, preferably in mutual funds, ensures you always invest, irrespective of the market situation and without waiting for a sizable surplus.
We have already discussed asset allocation earlier. As we now understand, it would also tell us when to exit/sell. Apart from this reason, there are a few others like...
Any unforeseen capital /funds requirement may force you to exit /sell, and this may be a genuine reason to do so. However, we believe that as far as possible, planning should be done in advance. Any unforeseen exits have their costs – one may have to sell at a discount /at the wrong time, there might be huge tax /capital gains which you may have to pay and there may even be marginal exit load /transaction costs in certain products. Investors should also explore the alternatives already available for redemption, like loans against securities and mutual funds, which can be a much more prudent decision. With such loans, your investments would continue to grow as it is and your cash-flow requirement too would be met at a lower /affordable cost.
Another reason might be to book some or all your profits, especially if there is a significant appreciation in value. This decision may be even being driven as part of your tax planning. Booking profits though does require you to answer the question as to where to reinvest? Post booking profits, many investors switch to less promising opportunities. It is the prime reason why many equity investors, who fail to foresee in the distant future, book small profits and exit early from the promising opportunities. Quality stocks or a growth story like India are secular, long term growth stories that will last a few decades and hence, booking profits should be done only if good opportunities are available elsewhere.
Tax-loss harvesting is the opposite of booking profits. It is used to reduce the tax liability by selling your investments at a loss to reduce the net capital gains subject to tax. This makes more sense for short term capital gains, which is at a higher rate than long-term capital gains. However, things like exit load and transaction costs should also form a part of the equation to estimate the net benefits. The process of tax-loss harvesting would be completed when you make reinvestment in the same asset /fund again so that there is no change in the overall portfolio.
The reasons to buy and sell, as discussed above, are personal in nature and are independent of the stock /asset quality and valuations. The science of buying and exiting stocks is something we believe is the domain of serious investors and full-time experts. It is something that can be easily outsourced through products like mutual funds and PMS at a marginal cost. Instead of dwelling on these aspects of investment, what is more, important that we buy and sell for the right reasons only and for the things we can control. This will have a much bigger impact on our journey of financial well-being. Next time you have this question when to buy or sell? Look at your own self and try to find your answers within.
NJ E-wealth
Travel Insurance: A Must Before You Step Out
Travel Insurance: A Must Before You Step Out
With the slow reopening of post-Covid lockdown in many places, we are now seeing a huge wave of travellers visiting holiday destinations in India. People stuck with lockdowns are also now scheduling their travel plans. Very soon, with increasing vaccination and opening up of foreign travel destinations, we could see a huge surge in travel abroad too. While travelling abroad on a holiday may be one of the most memorable & joyful experiences, it may even become a nightmare in a foreign land.
Travelling around the world is a thrilling experience. We give a lot of attention to travel planning, like fixing the itinerary, searching for the best deals and inquiring about food availability & weather conditions. Post Covid-19, we now also check for travel restrictions, tests & vaccination guidelines for the destination nation. However, no matter how precisely we plan our trip, things may go haywire. More often than not, we fail to focus on the most important aspect: travel insurance, and this can be a very costly mistake.
There is no end to what can go wrong. Flights being delayed or cancelled, losing luggage or facing a medical emergency are not uncommon. With huge medical costs in most developed countries, you may even end up losing a fortune in medical care. These and many more issues can ruin your entire trip if you have not planned for the same. Fortunately, travel insurance can help you to safeguard against any such eventualities.
Today, travel insurance is universal and well recognised. In as many as 34 countries, travel insurance is now mandatory and required at the time of visa approval. Included are popular countries like the USA, UAE, and Turkey. For a Schengen Visa, medical coverage of at least Euro 30,000 is compulsory. As these country-specific requirements may change, we would urge you to do a check before fixing up your plans.
Even if travel insurance may not be mandatory for your destination, it is highly recommended that you get it. It will help you as tourists to...
  • Avoid falling into financial crisis due to reasons like medical emergency, accidents, loss of luggage/passports, liability for property damage or bodily injury, etc
  • Access an immediate and reliable source of help and financial support in foreign lands
  • Enjoy your travel with greater peace of mind
Although different policies have different benefits covered, broadly speaking foreign travel insurance protects against:
  • A Medical emergency, either due to sickness or accident.
  • Hospital allowances in the event of hospitalisation
  • The sum insured in case of death or permanent disability due to accident.
  • Loss of baggage.
  • Loss due to delay in flights.
  • Repatriation in case of a medical emergency or mortal remains.
Although this is not an exhaustive list, each insurer /policy will have its own coverage and features. The features and coverage are needed to be studied carefully before buying. Things to consider before buying are:
  • Coverage of risks and features
  • Duration and countries covered
  • Which health services are covered?
  • List of network hospitals where an insurance card is accepted.
  • Plans which offer cashless cover so that no cash needs to be arranged on alien land.
  • Copay charges if there are any.
There are different travel policies designed to cater to the needs of different categories of travellers. Before opting for travel insurance, let us understand the different types available in the markets.
This insurance is offered to customers for travelling within India. Any Indian citizen and even foreigners with an Indian work permit and travelling within India can purchase domestic travel insurance.
This insurance is offered to customers for travelling outside India. As said, it covers the expenses as discussed earlier related to international travel.
This insurance is required if you are travelling abroad alone.
This type of coverage is more suited for corporate employees who travel frequently. Such policies cover multiple trips within a year and may even cover multiple countries.
This policy is suited to students who are travelling abroad for further studies.
This insurance typically caters to senior citizens and has custom features
This policy is for the entire family and the entire family is covered under one policy.
We strongly believe that good travel insurance is of utmost importance for any foreign travel, irrespective of it being for business, study or pleasure. A proper travel insurance cover can not only prevent unexpected financial losses but also ensures that your trip stays memorable. As the restrictions slowly open up, extra precautions are the norm. However, we would recommend avoiding travel, especially for long-duration, unless you are fully satisfied that it is safe to travel. Hopefully, in the coming months, things will take a sharp turn for the better.
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Fund Manager INTERVIEW
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Mr. Dhawal Dalal CIO - Fixed Income, Edelweiss Asset Management Limited
Mr. Dhawal Dala has over 20 years of experience and an MBA from Dallas University (USA). He has joined Edelweiss Asset Management Limited in the year 2016.
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NJ E-wealth

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"We have taken due care and caution in compilation of this E Newsletter.Certain products and services offered may not be traded on exchange. All disputes with respect to the distribution activity, would not have access to the Exchange Investor Redressal Forum or Arbitration mechanism. The information has been obtained from various reliable sources. However, it does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions of the results obtained from the use of such information.In accordance with the applicable laws, we are permitted to only render incidental advice with respect to mutual fund products only to its mutual fund distribution client. For every other purpose, including distribution of non-mutual fund products, this material is for informational purposes only. Investors should seek proper financial advice regarding the appropriateness of investing in any of the schemes stated, discussed or recommended in this newsletter and should realise that the statements regarding future prospects may or may not realise. Mutual fund investments are subject to market risks, read all scheme related documents carefully. Past performance is for indicative purposes only and is not necessarily a guide to the future performance."

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