Financial planning asset allocation and investment decision framework
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Financial Planning, Asset Allocation and Investment Decision Framework. Bharat Phatak. Emergency Needs. What if water runs out while taking a shower?. Medium Term Needs. What if Municipal Water Supply is not there for 3 days?. Long Term Needs. What will be the requirement 20 years from now?.

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Financial Planning, Asset Allocation and Investment Decision Framework

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Financial planning asset allocation and investment decision framework

Financial Planning, Asset Allocation and Investment Decision Framework

Bharat Phatak


Emergency needs

Emergency Needs

What if water runs out while taking a shower?


Medium term needs

Medium Term Needs

What if Municipal Water Supply is not there for 3 days?


Long term needs

Long Term Needs

What will be the requirement 20 years from now?


Life cycle financial planning

Life Cycle Financial Planning


Different strategies needed at different life stages

Different strategies neededat Different Life Stages

  • Early stage

    Income low, Wealth low, Family Responsibilities High

    Use TERM INSURANCE to bridge the gap, Prudent Borrowing

  • Accumulation Stage

    Income rising, Wealth low, Family Responsibilities High

    Continue Insurance, Start Long Term Investments, Prudent Loans

  • Maturity Stage

    Income High, Wealth High, Family Responsibilities low

    Insurance less important, Wealth Building centre stage,

    Use of Trusts to ring fence wealth from Liabilities

  • Distribution Stage

    Income low, Wealth High, Family Responsibilities low

    Withdraw for own expenses, Estate Planning important


A balanced meal

A Balanced Meal


A balanced portfolio

A Balanced Portfolio


Debt equity mix will depend on

Debt Equity Mix Will Depend On

  • Personal / Family Situation

  • Risk Appetite

  • Risk Tolerance

  • Expected Cash Out Flows in next 3Years

  • A Risk Profile and Asset Allocation Mix of each family needs to be determined


It will also depend on environment more safe more risk

It will also depend on EnvironmentMore Safe ? More Risk?


Asset allocation framework

Asset Allocation Framework

DIVERSIFIED FOR WEALTH PRESERVATION

CONCENTRATED FOR WEALTH CREATION


Wealth creation

Wealth Creation

  • Wealth Creation does not happen in the markets,

  • It happens in the Farms, On the Shop Floor, On Road, In the Ports, In Services

  • Markets only allow us to participate in the value creation

  • Markets also allow Companies to Raise Risk Capital

  • Portfolios can benefit from this growth in the long term

  • For Wealth building, debt alone is not sufficient

  • The Keys to success are:

    • Equity Bias

    • Value Orientation

    • Diversification, and

    • Rebalancing


Debt market returns

Debt Market Returns


Birla sun life income plus returns

Birla Sun Life Income Plus Returns


Equity market fluctuations

Equity Market Fluctuations


Franklin blue chip fund returns

Franklin Blue Chip Fund Returns


Look what happened over 17 years

Look what happened over 17 Years

30x


But finally equity will track earnings

But finally, Equity will track Earnings


Earnings drive equity

Earnings Drive Equity


The magic of compounding

The Magic of Compounding

  • “Compounding is the 8th Wonder” – Einstein

  • The Rule of 72

  • Divide 72 by number of years of Doubling to get Rate of Return and vice versa


Doubling time

“Doubling Time”

  • At 6% per year inflation, expenses will double in 72/6 = 12 years

  • If rate of return is 9%, money will double in 72/9= 8 Years

  • At 12%, 72/12= 6 Years

  • At 18%, 72/18= 4 Years

  • At 24%, 72/24 = 3 Years


Equity market participation

Equity Market Participation

  • Low Risk

    • Index Funds

    • Large Cap Diversified Funds

  • Medium Risk

    • Sector Funds

    • Midcap / Small Cap Funds

    • Direct Stock Portfolio Investments

  • High Risk

    • Delivery Based Trading ( Buying & Selling)

    • Intraday Trading /Futures & Options

  • Highest Risk

    • Writing Options


Types of equity

Types of Equity

  • Based on Market Cap

    • Large Cap

    • Mid Cap

    • Small Cap

  • Based on Style

    • Growth

    • Value


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