Life is one roller coaster of a ride and the experience of highs and lows
are what add wealth to our lives. 2020 has been a remarkable year. An event which none could imagine, actually affected the whole world and
yet it has been a fabulous year of learning and adapting.
Simple line, but when I pondered on this, it has a lot of implications and actionables.
We will look at the first part of this – Always be prepared for the worst.
Those most affected by the covid virus were small businesses and their employees who lost jobs or faced salary cuts. The General Manager of a large establishment with a huge salary, found himself agreeing to get basic minimum pay as per Govt. norms for the last few months and he was lucky. Many businessmen faced huge losses and many salaried employees were out of a job. So, what are my learnings and actionables?
Debt is a
killer of finances and those stuck in EMIs due to buying expensive cars, phones
and even that extra flat they did not need have suffered the most. If you
cannot pay off that credit card fully every month, you should stick to using
debit cards only. Freedom is being debt-free. A corollary of this is - I observed this year that much of fancy stuff we accumulate, we do not need.
3. Have
proper life and medical insurance to safe guard your family
I have always
emphasised on asset allocation and believe me it was the most difficult to
stick to this in 2017 when the market was simply rocketing up. The below 2
charts will show you what I mean.
This first
chart depicts a 3 year lump sum return from 23.3.17 to 23.3.20 when the Nifty fell to a
low. A portfolio consisting 60% of a multicap fund and 40% of a short term bond
fund with yearly rebalancing did better than the Nifty 500 TRI. In fact was
positive when the index was negative
THREE YEAR RETURNS TILL 23.3.20. ASSET ALLOCATION PAYS Balanced portfolio was positive even at the market lows!! |
Chart 2 - same investment continued till 23.12.20 when the market is at a high.
BALANCED, ALLOCATED PORTFOLIO: LESS VOLATILE AND GOOD OUTCOME |
Now to the second part of the learning – Be optimistic, be positive.
IF YOU STOPPED A 5 YEAR SIP IN MARCH- YOU ENDED UP NEGATIVE - 8.7% |
THE SAME SIP CONTINUED HAS GIVEN ANNUALISED 12.4%. THE VERY SAME SIP!!! |
Some corollaries from BE OPTIMISTIC:
Do not panic when things are bad. Those who panicked and redeemed in the months after
covid struck have lost big!!! Do not stop SIPs and withdraw. Stay the course
when you have a plan.
Do not procrastinate. I deal with many investors and a few have been dilly-dallying and procrastinating. A delay can cost big. Guys who spoke to me from June on are still deciding in December!!! The markets have seen a dizzying rise. And those who allocated when the markets were down, certainly have a good start which gives a lot of confidence in one's investment journey.
In brief
1. Debt is a killer. Live within your means
2. Keep an emegency fund and be prepared for the worst.
3. Have adequate medical and life insurance to protect loved ones.
4. Stick to asset allocation!! Have a process!
5. Focus on your career and business and build skillsets. That alone will provide you the money required to grow wealth. DO NOT get distracted by your neighbour trading in options.
Being ready for the worst would mean that you are never stunned into inaction or impusive actions when events like covid happen. Being ready means you adapt with clarity of thought.
6. Be positive. A positive and optimistic attitude alone will let you see opportunities even when the going is tough.
Wishing you all a Happy New Year, filled with health and peace of mind....And Happy Investing
I am a mutual fund distributor and you can follow me on twitter here.
Mutual Fund investments are subject to market risks. Read all scheme related documents carefully before investing.