It’s difficult to make predictions, especially about the future

Hey there, My Money Box Community! 👋

“It’s difficult to make predictions, especially about the future,” said that great baseball-playing philosopher, Yogi Berra. And yet we continue to try, churning out forecasts on everything from the commodity prices, price of oil to geopolitical shifts and even to the next world war.

In the areas of financial markets and planning, the track record of those making forecasts is not good.

For example – In the US, the investment firm Callan publishes every year an illustration of what it calls “The Callan Periodic table of Investments Returns”. Callan’s objective is to highlight the unpredictability of returns across various asset classes. In ranking investments from best to worst each year, Callan’s chart clearly shows the yearly swings of the asset class returns – performance is rarely consistent. It is usual to see asset classes that have delivered the best performance one year fall to last place the following year – there is no consistent pattern to investment performance, and often—just when it looks like there is a pattern developing — it reverses.

Similarly, in India – Mint Newspaper has been publishing the “Quilt ranking” at the end of every year for the last decade and results are (not surprisingly) like the results from Callan.

Yogi Berra was right. It is hard to predict the future, but that does not stop people from trying. 😀

So, what is the solution to this “feature” of the financial market – where they have a personality of their own and unpredictable, volatile, and influenced by millions of factors from global events to market sentiment. 🌍💹

While we cannot predict the future with certainty, we can prepare for it. That is where the art of financial planning comes into play. It is about creating a strategy that is robust enough to handle the market’s mood swings and flexible enough to adapt to life’s curveballs. The bedrock of this strategy is Diversification.

Remember, Diversification is not just a fancy investment term; it is the financial safety net. And an emergency fund is not a luxury; it is a necessity. When it comes to investing, thinking long-term. The market may dance to its own tune in the short run, but it is your steady written strategy that leads the way eventually.

So, what is your approach to planning for the unpredictable? Drop your thoughts, strategies, or questions below. Let us navigate this unpredictable journey together. 🚀

References:

  1. The Callan Periodic Table of Investment Returns: Year-End 2023
  2. Mint Asset Allocation Quilt: Year-End 2023

The Basics – Your Money, Your Way

Hey there, My Money Box Community! 👋

As a Personal Finance enthusiast, I’ve noticed a common trend – a lot of folks are navigating their financial journey without a roadmap. And let’s be honest, that’s like trying to find a hidden treasure without a map or compass. 🗺️💰

Without a solid plan, it’s easy to get swayed by the latest investment buzz, family advice, or even FOMO! But remember, there’s a method to the madness. Personal finance isn’t just about following your gut; it’s a beautiful blend of art and science. 🎨🔬

So, let’s break it down. Here’s a quick rundown of the steps you should consider to craft a truly “personal” financial plan that’s as unique as you are.

1️⃣ Goal Planning: Start by identifying your financial goals. Whether it’s buying a house, planning for retirement, or funding your child’s education, having clear goals is the first step towards financial freedom. As Zig Ziglar once said, “A goal properly set is halfway reached.”

2️⃣ Net Worth: Understand your current financial standing by calculating your net worth. This will give you a clear picture of where you stand today and what you need to do to reach your goals. As Warren Buffet wisely advises, “Do not save what is left after spending, but spend what is left after saving.”

3️⃣ Risk Profiling: Everyone has a different risk tolerance. Understand yours to make informed investment decisions. Remember the words of Benjamin Graham, “The investor’s chief problem—and even his worst enemy—is likely to be himself.”

4️⃣ Insurance: Protect your financial plan from unexpected life events. Ensure you have adequate life, health, and home insurance.

5️⃣ Emergency Fund: Life is unpredictable. An emergency fund acts as a financial safety net for unexpected expenses.

6️⃣ Debt Reduction: High-interest debt can be a significant roadblock in your financial journey. Prioritize paying off your debts. As Robert Kiyosaki suggests, “Good debt makes you rich and bad debt makes you poor.”

7️⃣ Investments: Finally, invest wisely. Diversify your portfolio and align your investments with your financial goals and risk profile. As Peter Lynch reminds us, “Know what you own, and know why you own it.”

Just as each person is unique, so too should be their financial plan. Your financial plan should be a reflection of your life, your dreams, and your comfort levels. It should be flexible enough to adapt to the changes in your life and robust enough to withstand market fluctuations.

A young professional starting their career might prioritize paying off student loans and building an emergency fund, while a mid-career professional might focus on retirement planning and children’s education. A retiree, on the other hand, might focus on estate planning and preserving wealth for the next generation.

I’ve seen the power of a comprehensive financial plan in action. It’s not just about numbers; it’s about crafting a roadmap to your dreams. 🗺️💰

Remember, Rome wasn’t built in a day, and neither will your wealth. It’s a journey, not a race. 🏃‍♂️💨

If this all sounds overwhelming, use Certified and SEBI registered Personal Financial Planners to help you with this important journey.

I’d love to hear your thoughts on this. What steps have you taken in your financial planning journey? What challenges have you faced? 💬

The tortoise wins again!!!

Hey there, My Money Box Community! 👋

Unveiling the newest data on the Active versus Passive investment showdown. The S&P Indices Versus Active Funds (SPIVA) scorecard, our go-to for over a decade, has just published some eye-opening revelations you savvy investors cannot afford to miss. The focus – performance of actively managed Indian equity and bond mutual funds stacked against their benchmark indices over various investment timelines.

The data does make us pause and question the effectiveness of actively managed funds. The SPIVA India Scorecard 2023 reveals a sobering reality – a considerable chunk of actively managed funds have lagged behind their benchmarks across different categories.

For instance, did you know that over half (52%) of Indian Equity Large-Cap funds could not beat the S&P BSE 100 index in 2023? The underperformance rates paint a grimmer picture over three- and five-year periods, making a home run at 88% and 86%, respectively.

So, what’s the takeaway for investors? Yes, actively managed funds have a “chance” to outshine the market. But, there’s a catch – they often struggle to do it consistently. Before you pin your hopes on such funds, do a deep dive into their track record and fees.

This report clearly outlines the potential advantages of low-cost index funds, providing a viable alternative that keeps pace with a specific market index.

And before we feel singled out, let’s remember, these patterns aren’t unique to India. Delve into the SPIVA website and discover similar trends across both developed (US, Canada, Europe, Japan, Australia) and developing (Brazil, India..) markets.

Let’s talk about your financial strategy – are you team Active or Passive? Drop your experiences below and let’s learn together.

Refence: S&P Dow Jones Indices

Material World: A substantial story of our past and future

Hey there, My Money Box Community! 👋

Just picked up my next read, “Material World: A substantial story of our past and future” by Ed Conway – the savvy Economics Editor of Sky News.📚

This captivating book presents the mind-boggling complexity behind creating some of our everyday items – things we often take for granted. The author starts by quoting the enlightening essay “I, Pencil”, written by Leonard Read in 1958, that brilliantly illustrates how global resources are woven together, just to create something as simple as a pencil! 🌍✏️

What really got me hooked in this book, though, is the exploration of six foundational materials – sand, salt, iron, copper, oil, and lithium😲. These materials have etched our journey from the Dark Ages to the Digital Age, are found in our smartphones and computers, constitute our homes and offices, and even contribute to life-saving medications. 

Yet, we don’t give them a second thought!

“Material World” is a revelatory tribute to not just these materials, but the human networks, miraculous processes, and lesser-known companies that transform these raw materials into inventions of wonder. This book is scribing our civilization’s history from a brand new, ‘ground-up’ perspective! 💡

Has anyone read it or is it on your reading list? 🗨️