Financial Year 2008-2009 has been one of the roughest years not just for Corporate India but also for small businesses, individuals and families.
As one enters the new financial year, the key questions in every person’s mind are “Where are we headed? Is our business or job secure? Where do we park our money and more importantly what should be our strategy now?”
Equity markets have their own way of surprising everyone. The rhetoric of gloom and doom was so strong that everyone took for granted that the only way the markets could go was down. Once again, the uncertainty (though on the upside now) witnessed in the last 3 weeks has been unprecedented. The Sensex has once again kissed 11000 but no one knows where the market will head two months down the line.
There is still no improvement in the global economic scenario however there are several measures that have been taken by governments and central banks around the world with the latest being the $ 1 trillion infusion as emergency aid. The scenario today is far different than what has been in the past and looking at history to provide answers might not help at all. Nobody has any clue where we will land up 6-8 months down the line.
Our own markets have been plagued with several problems right from corporate governance issues to the upcoming general elections. BJP or Congress coming to power could be a non event or even a positive trigger for the markets however the formation of a third front could mean pain for the stock markets. FIIs seem to have started buying as is evident by the purchases in the last several days. Mutual Funds and high net worth investors are still sitting on piles of cash that could enter the market once the indices move further by another 10-15%.
At the same time, there are very few buyers of Real Estate and banks have been cautious in disbursing loans. Gold which touched a high of 15700+ is currently down to around 14700 with few takers. On the debt side, interest rates on Fixed Deposits are down and bond markets have become extremely volatile.
So what should your financial strategy be today?
The first step that one must do is to understand one’s financial goals. Ask yourself “What are my short (0-2), mid(2-5) and long term financial goals(5-25 years)? Is my income stable or is there a chance of a job loss or slowdown in business?” Once you have a solid understanding of these areas, the next step is to figure out where you are today and the third step would then be to allocate assets prudently in line with your goals and personal situation. The actions will vary from person to person but here are some general guidelines on what you could do today.
Equity:
There is no way you can time the bottom or invest at the bottom and hence the best strategy is to invest in a staggered manner every month. Wait for sharp corrections to invest lump sum amounts but continue or start off monthly equity investments. A lot of money is actually lost waiting for corrections and when the correction happens, waiting for further correction to happen. Yes there will be days when the sky will look like its falling but that’s how equity markets actually behave. Before you do equity investments, understand your actual tolerance to risk and not what you think is your tolerance to risk. This is easier said than done because it is only when the rubber meets the road do you come to know your actual tolerance.
Gold:
In an era of a weak dollar, Gold will shine and could go much higher from current levels. However if you have bought gold long time back, Rs. 14800-15700 is a great price to partially book profits or get back into cash. There have been noises of gold reaching 20000 levels. However the potential upside from current levels can only be sizeable if gold is bought at much lower levels. A good price to enter gold can be around 11000-12000. Over the next 2-3 years gold could shine but book profits regularly and this is certainly a time to do so.
Real Estate:
Recently we read a column about some increase in real estate sales. The ground reality is that things are getting from bad to worse. There are still very few transactions happening barring a few instances where prices have been slashed down sharply. Banks are offering innovative interest rate schemes though they have not reduced interest rates sharply. October to December period could see a further 20-25% correction in prices and interest rates going back to around 8%. You might well be able to afford a bigger house if you are prudent enough to ignore the noise of last few flats or the best time to buy real estate.
Contingency Funds:
Keep sufficient contingency funds in Fixed Deposits, Short Term Income Funds and Floating Rate Income Funds. Make sure that you do not pile up too much of loans just because it is going to get cheaper. Your repayment ability is far more important and in an uncertain economic environment, it’s always better to be low on liabilities (Debt Diet).
Finally it’s not how much you earn but how much you keep that’s important. Aim to save far more today than you would in good times. Savings done in these times can ensure that you sail through future financial storms comfortably.
-Amar Pandit
As one enters the new financial year, the key questions in every person’s mind are “Where are we headed? Is our business or job secure? Where do we park our money and more importantly what should be our strategy now?”
Equity markets have their own way of surprising everyone. The rhetoric of gloom and doom was so strong that everyone took for granted that the only way the markets could go was down. Once again, the uncertainty (though on the upside now) witnessed in the last 3 weeks has been unprecedented. The Sensex has once again kissed 11000 but no one knows where the market will head two months down the line.
There is still no improvement in the global economic scenario however there are several measures that have been taken by governments and central banks around the world with the latest being the $ 1 trillion infusion as emergency aid. The scenario today is far different than what has been in the past and looking at history to provide answers might not help at all. Nobody has any clue where we will land up 6-8 months down the line.
Our own markets have been plagued with several problems right from corporate governance issues to the upcoming general elections. BJP or Congress coming to power could be a non event or even a positive trigger for the markets however the formation of a third front could mean pain for the stock markets. FIIs seem to have started buying as is evident by the purchases in the last several days. Mutual Funds and high net worth investors are still sitting on piles of cash that could enter the market once the indices move further by another 10-15%.
At the same time, there are very few buyers of Real Estate and banks have been cautious in disbursing loans. Gold which touched a high of 15700+ is currently down to around 14700 with few takers. On the debt side, interest rates on Fixed Deposits are down and bond markets have become extremely volatile.
So what should your financial strategy be today?
The first step that one must do is to understand one’s financial goals. Ask yourself “What are my short (0-2), mid(2-5) and long term financial goals(5-25 years)? Is my income stable or is there a chance of a job loss or slowdown in business?” Once you have a solid understanding of these areas, the next step is to figure out where you are today and the third step would then be to allocate assets prudently in line with your goals and personal situation. The actions will vary from person to person but here are some general guidelines on what you could do today.
Equity:
There is no way you can time the bottom or invest at the bottom and hence the best strategy is to invest in a staggered manner every month. Wait for sharp corrections to invest lump sum amounts but continue or start off monthly equity investments. A lot of money is actually lost waiting for corrections and when the correction happens, waiting for further correction to happen. Yes there will be days when the sky will look like its falling but that’s how equity markets actually behave. Before you do equity investments, understand your actual tolerance to risk and not what you think is your tolerance to risk. This is easier said than done because it is only when the rubber meets the road do you come to know your actual tolerance.
Gold:
In an era of a weak dollar, Gold will shine and could go much higher from current levels. However if you have bought gold long time back, Rs. 14800-15700 is a great price to partially book profits or get back into cash. There have been noises of gold reaching 20000 levels. However the potential upside from current levels can only be sizeable if gold is bought at much lower levels. A good price to enter gold can be around 11000-12000. Over the next 2-3 years gold could shine but book profits regularly and this is certainly a time to do so.
Real Estate:
Recently we read a column about some increase in real estate sales. The ground reality is that things are getting from bad to worse. There are still very few transactions happening barring a few instances where prices have been slashed down sharply. Banks are offering innovative interest rate schemes though they have not reduced interest rates sharply. October to December period could see a further 20-25% correction in prices and interest rates going back to around 8%. You might well be able to afford a bigger house if you are prudent enough to ignore the noise of last few flats or the best time to buy real estate.
Contingency Funds:
Keep sufficient contingency funds in Fixed Deposits, Short Term Income Funds and Floating Rate Income Funds. Make sure that you do not pile up too much of loans just because it is going to get cheaper. Your repayment ability is far more important and in an uncertain economic environment, it’s always better to be low on liabilities (Debt Diet).
Finally it’s not how much you earn but how much you keep that’s important. Aim to save far more today than you would in good times. Savings done in these times can ensure that you sail through future financial storms comfortably.
-Amar Pandit
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