Second opinion

Twenty six case studies and hundreds of e-mail queries later, we decided to take a break. And assess if our advice through the year has been any good at all.

Kamya Jaiswal        Print Edition: November 1, 2007

This fortnight the doctor is out. Twenty six case studies and hundreds of e-mail queries later, we decided to take a break. And assess if our advice through the year has been any good at all. No we didn’t expect the featured families to amass a fortune. Nor an 80% allocation in debt to become 10% overnight. After all, financial planning yields the best results only in the long run. But we did hope to leave our case studies and our readers a lot richer — in knowledge.

That’s something everyone needs. Managing finances is complicated. You can’t sit one evening after dinner to devise a formula for life. Your financial goals and investments do and must change with time. Also, it is a vast territory.

From the amount you spend on groceries every month to the stocks you bet on — everything is part of financial management. So you really can’t outsource it all. Your chartered accountant can’t decide whether you want a hatchback or a sedan. Or how much you are willing to cough up as down payment. He’ll advise, yes. But you have to write the cheque. The point is, investment strategies need your constant involvement.

Awareness about what works best for you is a must. Which has been our focus from the word go. Portfolio Doctor doesn’t simply tell you what to do. The “why” is equally, if not more important. Hence the detailed prescriptions. We didn’t stop at saying Shashank Kumar should invest in large-cap equity funds like Franklin India Bluechip.

Given his low risk appetite, it was followed by an assessment of the risk in this fund which is lower than others in the genre because of a well-diversified portfolio and large-cap focus. UN Subhash was in a dilemma over his Aviva Ulip. The policy was maturing in a few years but high costs had him fretting. We suggested that he stay put.

Common mistakes...

High savings rate, low investments: Cash idling in savings account usually earns interest lower than inflation rate
Goal and investment mis-match: Investing in equities for short term when they give best results only in the long run
Low equity exposure: Shying away from equities when they are necessary to boost returns
Wrong insurance: Insurance only for tax planning; high premium for low cover; too many policies; no health insurance
All eggs in one basket: Investments concentrated in one asset class or in one instrument type which increases risk
Too many mutual funds: Do not necessarily increase returns potential. Difficult to monitor

He had survived the tough times of a Ulip investment. Little sense in exiting the policy when he was just starting to reap its benefits. Such nuggets are intended to give Portfolio Doctor a long-term reference value. Remember, however carefully you plan, it is impossible to predict your financial needs to the T. Hence, it is vital to grasp principles that can be applied at every age and stage.

But even the doctor is no Know-it-all. So we partnered specialists like Value Research, Edelweiss and Iris for the analysis. Almost every other patient had us going back to the books for clarifications. And we must admit, this inside view of middle-class Indians’ finances has been a great learning experience.

No two portfolios are alike. Equally different are the financial goals. But after one year, we can mark out some typical finance habits and investment patterns. Like the fact that the middle class spends carefully. Even the young lot with fat cheques and zero responsibilities.

One of our first cases, Saptarshi Bhose, surprised many by his careful records of expenditure. Overdoing mortgage is another no-no. Except the occasional Thomases, total EMIs for most case studies remained well within the safety zone.

The concept of a retirement corpus has caught on. Almost everyone has a specific figure in mind. Some, like Srinivas Ganapathi, use Internet tools to make these calculations. What goes wrong is the estimation of future cost of a goal which is pushed up by inflation. Equities is yet to capture the imagination of a majority of investors. And it will be some time before it becomes a mainstream investment option.

True, Portfolio Doctor has seen some investors like Ashish Ladha betting very heavily on the markets (79.1% assets invested in equities). He has seen some tremendous returns too. But Ladha is an exception. Most are content with a fairly conservative allocation ranging from 10% to 25% of total investments.

...and our remedies

Do not keep more than three month household expenses in cash or near cash. Choose liquid instruments with higher returns for parking emergency funds
Determine ideal equity exposure by the following formula: 100 - your age = percentage of savings in equity
Choose term insurance as core insurance policy
Diversify investments across asset classes. Even within each, spread funds in various instruments
Start investing as early as you can. The longer you stay invested, higher will be returns
Limit total debt repayments to 40% of post-tax income

Then there’s Kumar who liquidated all equity investments because he did not believe that the bull run in the markets was sustainable. While you might scoff at him now, there is no denying that the majority still sticks to low-risk, fixed-income investments only.

Portfolio Doctor analyses portfolios from a selection of informed investors, who are aware and willing to make the best of the wealth-creating opportunity offered by equities. Most readers should relate to the problems we discuss. And we hope you benefit from our suggestions.

The number of analysis requests is huge. There is no way we can feature all. But we select those that highlight different aspects of financial planning. For those who filled out the exhaustive questionnaire on our portal but were not included in this section, take heart.

You have taken the first step and are now completely aware of your financial condition. With little help, solving problems should be easier. And what about those who we feature? They must re-analyse our suggestions.

It is best that you understand why we suggest what we do and follow it only when fully satisfied. So how are the finances of our past patients? Have they followed the doctor’s advice? Was something lacking? We spoke to a few of them randomly. Browse on to find out the details.

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