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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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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?

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

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
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
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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