Financial Cocktail Samosas: Bitesized Money Morsels For You, 05/04/2023

Gold is in the news again at 60,000+ levels

It is well-known that Gold as an asset class moves inversely to the equity markets. 

Whenever equity markets behave erratically, investors rush to Gold and vice versa. Same scenario is being experienced currently too. Due to uncertainty around the globe – war, Oil prices, banks going down, inflation unchecked – equity markets across the globe became volatile and the Gold crossed Rs 61,000 per 10 gms in India.

To be very precise, Gold has given annual return of 15% in India in the last 1 year as against -1% annual return of equity markets (SENSEX).   

This brings back to the fundamental principle of a diversified Asset Allocation which, though, is continuously being challenged by novice investors/advisors, considering equity as the only evergreen performing asset class and neglecting others like fixed income, Gold etc.

Is there any option that takes care of this asset allocation automatically?

Mutual Funds have a solution for each and every requirement. Professional fund management, good diversification, good returns, easy liquidity etc have always provided a competitive advantage to Mutual Funds versus other investment avenues.

Asset Allocator and Multi Asset category of mutual funds are the ones that invest in different asset classes: Equity, Debt, Gold and other commodities as well. If a particular asset class doesn’t perform, other asset classes are always there to provide cushion at that time and safeguard the portfolio from declining. But in any investment, do not forget that it should fit into your risk appetite and be as per your future goals requirement, irrespective of how lucrative it seems financially.

No investment product is bad. It’s the poor synchronisation with our goals that degrades our financial and mental wellbeing.

Here comes the role of personal finance professional who takes a holistic view of your financial situation and give rational recommendations accordingly.

Please remember – investing through avenues which help you meet your future financial goals as per your risk appetite is far more profitable than investing through avenues which have performed well in the recent past!!

(Contributed by Jatin Uppal, Deputy Manager, Humfauji Initiatives)

Behavioural biases for every investor to avoid

Most of our life’s decisions are directly linked with our emotions, be it career or investments. Sometimes we regret our choices because we get trapped by our behavioural biases, don’t consider other factors and make costly mistakes. Here are some common behavioural biases that every investor must avoid:

  1. Loss aversion bias: This bias refers to the tendency to feel the pain of losses more acutely than the pleasure of gains. Investors who are loss-averse may hold onto losing investments for too long, hoping to recoup their losses, even when it’s clear that the investment was a bad choice.
  2. Herd mentality bias: You may consider it as the tendency to follow the crowd, even when it’s not in your best interest. Investors are influenced by emotions rather than independent analysis, without considering whether it’s a good investment for their portfolio or not. Think back here of social media influences, Whatsapp forwards and YouTube gyan videos.
  3. Mental accounting bias: This bias refers to the tendency to treat money differently depending on where it came from or how it’s earmarked. Investors may be more willing to take risks with money they’ve won in the stock market, for example, than with money they’ve saved from their pay check.
  4. Availability bias: The tendency to rely too heavily on information that is readily available, rather than seeking out a broader range of data. Investors may make investment decisions based on recent news or trends, without considering the bigger longer-term picture.
  5. Recency bias: It’s about giving more weight to recent events than to past events. Investors may be overly optimistic about a stock that has performed well in the recent short term, without considering its long-term prospects.

By being aware of these common behavioural biases, everyone can make more informed decisions and avoid costly mistakes due to their emotions.

(Contributed by Manish Kumar, Relationship Manager, Team Vikrant 2, Humfauji Initiatives)

Value of an Advisor

In today’s consumerism economy, meaning of needs and wants has changed drastically. But one thing that hasn’t changed is everyone’s wish for financial wellness. And that’s where a trusted advisor can truly provide value. The current geopolitical environment could be the perfect time for you to work more closely with your advisor.

Consider the following cumulative value of services offered by a financial advisor for your Financial Journey:

Customised Experience and Family Wealth Planning – Let’s face it, as life becomes more complicated, with your own personal set of goals and preferences, an advisor who has a deeper understanding of your individual situation can provide significant value to you. The customized client experience and comprehensive wealth planning that advisors can provide can be vital to guiding you and your family through all of your major life events and decisions.

Tax-Smart Planning and Investing – Nobody wants to pay more taxes than they have to. While taxes may be complicated and confusing, they are important. Working with a tax-smart advisor can save you money and we believe, that holds value. 

Rebalancing of Portfolios – You may think you don’t need to worry about rebalancing your portfolio when financial markets are rising. Markets never rise evenly. Some sectors can go up while others go down; some strategies can be fruitful in a particular market situation, in others they may be trash. Also, don’t forget that under certain circumstances, when equity markets rise, fixed-income markets fall. All of that movement can affect your asset allocation which in turn can affect your future returns and the risks you are exposed to.

Behavioural Coaching – While 2021 didn’t have the volatility of 2020, its relatively sudden climb higher through the year still confirms the importance of remaining invested through thick or thin. If you rushed for the exits in mid-April 2020 when the pandemic emerged, as many investors did, you could have missed out on some significant gains, depending on whether and when you re-invested in the market, if at all.

Take it from us, a Client-Planner Relationship can be the best investment of Life.

(Contributed by Aman Goyal, Financial Planner, Team Prithvi, Hum Fauji Initiatives)

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