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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Emergency needs
Emergency Needs Framework

What if water runs out while taking a shower?


Medium term needs
Medium Term Needs Framework

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


Long term needs
Long Term Needs Framework

What will be the requirement 20 years from now?



Different strategies needed at different life stages
Different strategies needed Frameworkat 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 Framework



Debt equity mix will depend on
Debt Equity Mix Will Depend On Framework

  • 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 Environment FrameworkMore Safe ? More Risk?


Asset allocation framework
Asset Allocation FrameworkFramework

DIVERSIFIED FOR WEALTH PRESERVATION

CONCENTRATED FOR WEALTH CREATION


Wealth creation
Wealth FrameworkCreation

  • 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 Framework

  • “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” Framework

  • 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 Framework

  • 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 Framework

  • Based on Market Cap

    • Large Cap

    • Mid Cap

    • Small Cap

  • Based on Style

    • Growth

    • Value