wm wealth management basics

8/6/2019 WM Wealth Management Basics

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Prof. Rajiv Vohra


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1. Inadequate comprehension of return and risk

2. Vaguely formulated investment policy

3. Nave extrapolation of the past

4. Cursory decision making

5. Simultaneous switching6. Misplaced love for cheap stocks

7. Over-diversification and under-diversification

8. Buying shares of familiar companies

9. Wrong attitude towards losses and profits

10. Tendency to speculate


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` The term wealth management formed with two words wealth &

Management. The meaning of wealth is Funds, Assets, investments and

cash it means the term wealth management deft with funds Asset,

instrument, cash and any other item of similar nature. While defining

wealth Management we have to think in planned manner. "Wealth

Management is an all inclusive set of strategies that aims to grow,

manage, protect and distribute assets in a much planned systematic and

integrated manner


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` Investment planning: Assists you in investing your money into various investment markets, keeping in

mind your investment goals.

` Insurance planning: Assists you in selecting from various types of insurances, self insurance options

and captive insurance companies.

` Retirement planning: It is critical to understand how much funds you require in your old age.

` Asset protection: Begins with your financial advisor trying to understand your preferred lifestyle

and then helping you deal with threats, such as taxes, volatility, inflation,creditors and lawsuits, to maintaining this lifestyle.

` Tax planning: Helps in minimizing tax returns. This might include planning for charity,

supporting your favorite causes while also receiving tax benefits.

` Estate planning: Helps in protecting you and your estate from creditors, lawsuits and taxes.


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Establish Financial Goals

Gather relevant data

Analyze the data

Develop a plan

Implement the plan

Monitor the plan


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` Investor needs and preferences vary with their age and their specific

situation

Younger investors do not seek income, have a long investing horizon and

assume higher risks.

Older investors seek income, have a shorted investment horizon and

assume lower risks.

` Life stage of the investor impacts their saving, spending and

investing habits.

` Understanding the life cycle stage is important in drawing out a

financial plan.


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` Childhood stage Dependent on parents; gifts can be invested for the long term

` Young adult stage High short-term expenses; limited ability to save

` Young married stage

Need to provide for unexpected expenses; joint responsibility to budgetfor expenses and save

` Young married with children Expenses are high; limited ability to save; protection needs are high.

` Married with older children

Ability to save and invest is high; investment needs higher thanprotection needs.


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` Pre-retirement stage

Save to provide for lifestyle after retirement; preference for retirement

plans and health insurance.

` Retirement stage

Focus on income and protection of wealth.


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` Nuclear families

` Women in workforce

` Divorce rates

` Late marriages

` Younger population` Number of children in a family.


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` Young single childless people, financially independent.

` Income and expenses: Almost the same.

` Ability to save: Low

` Housing: Rental or staying with family

`

Credit: Credit cards, auto loans, personal or education loans` Life insurance: Negligible (when there are no dependents)

` Liquidity: High as there is no other source of income.

` Risk Preference: High as there are 40-45 years work life ahead.

` Tax exposure: Moderate to high.

` Retirement Planning: Little Interest.


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` Young married people, presently no children.

` Income and expenses: when both working income more than

expenses.

` Ability to save: Lower initially.

` Housing: lately people have started to buy homes on loans.

` Credit: Credit cards, auto loans, home or personal loans.

` Life insurance: Initially lower when both are working and no loans

taken.

` Liquidity: lower than previous stage.

`

Risk Preference:H

igh as there are 40

-45 years work life ahead.` Tax exposure: fairly higher taxation for the family

` Retirement Planning: Little Interest.


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` This stage starts with the birth of the first child and lasts till the last

child is of school going age.

` Income and expenses: Expenses are more due to birth of the

children.

`

Ability to save: drastically reduces.` Housing: Rental or staying with family

` Credit: Loans for furniture etc.

` Life insurance: High

` Liquidity: Increases substantially

` Risk Preference: Reduces drastically.` Tax exposure: Low to Medium

` Retirement Planning: Lower priority given.


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` The dependent children are no longer in the school.

` Income and expenses: Income levels are at the highest and

expenses increases due to childrens educational requirements.

` Ability to save: Low

` Housing:

` Credit: Education loans

` Life insurance: Substantial

` Liquidity: Moderate.

` Risk Preference: Moderate

` Tax exposure: High` Retirement Planning: Most Interest.


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` The children have entered the job market and the parents are still in

the job

` Income and expenses: Income levels are at the high and expenses

reduce dramatically.

` Ability to save: High

` Housing:

` Credit: Low

` Life insurance: Low

` Liquidity: Low.

`

Risk Preference:L

ow to Moderate` Tax exposure: High

` Retirement Planning: Extremely high.

` Estate Planning: Important.


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` Retired from active work.

` Income and expenses: Income levels are at the low and expenses

higher.

` Ability to save: Limited

` Housing:

` Credit: No

` Life insurance: No

` Liquidity: High.

` Risk Preference: Low

` Tax exposure: Low` Retirement Planning: No longer required.

` Estate Planning: To be in Place.


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` Establish the Client Wealth Manager Relationship

Explain the services being offered. Process of planning and documentation required.

The fee or commission structure to be followed.

` Gather data and determine the goals

Financial resources and obligations.

Time horizon and risk tolerance. Personal and financial goals and there preferences.

Assess clients values, attitudes and expectations.

` Analysing and evaluating clients position

Asset and liability status

Cash flow and debt management

Investment planning

Risk Management & Retirement planning

Taxation and Estate Planning


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` Developing and Presenting the Plan

Meet the clients goals and objectives

Explain the underlying assumptions

` Implementing the plan

`

Monitoring the plan


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` Avoid presenting self opinion as a fact.

` The goals should be as specific as possible.

` Identification of issues and problems.

` Cash Flow Management

` Risk Management` Written Plans


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` Power of compounding

` Choose a strategy to Maximise the Results

Buy & Hold

Rupee Cost Averaging

Value Averaging

Jacobs Recommendation of both.

` Right Wealth Management Strategies

When to Invest

When to Cash Out

x When the goal for which the investment is done is nearing.

x When the markets seem over valued in terms of fundamentals and historical

valuations. Start Planning and Investing Early

Have realistic Expectations

Invest Regularly


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` This determines the percentage of my clients investments to be

held in equities, bonds, cash and cash equivalent.

` Benjamin Grahams 50/50 Balance

Basic defensive or conservative approach.

When equities move up liquidate the excess returns and put the money

in debt instruments & vice versa.

A Basic Managed Portfoliox 50% in diversified equity funds

x 25% in Gilt Funds

x 25% in High Grade Corporate Bond Funds

A Basic Indexed Portfolio

x 50% in Total stock Market/Index Funds

x 50% in Total Bond Portfolio

A Simple Managed Portfolio

x 85% in a Balanced Fund (Equity 60% & Debt 40%)

x 15% medium term bond funds


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A Complex Managed Fund

x 20% in diversified equity fund

x 20% in aggressive growth funds

x 10% specialty funds

x 30% Long Term Bond Funds

x

20% in Short Term Bond Funds Ready Made Portfolio

x Single Index Balance Fund.

` Boogles Strategic Asset Allocation

Older Investors in Distribution Phase : 50 E - 50 D

Younger Investor in Distribution Phase : 60 E 40 D

Older Investor in Accumulation Phase : 70 E 30 D

Older Investor in Accumulation Phase : 80 E 20 D

debt portion of an investors portfolio should be equal to the age of the

person


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` Fixed Versus Flexible Allocation

` Tactical Asset Allocation

` Increased Return without Increased Risks


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` Accord top priority to a Residential House.

` Integrate Life Insurance in Investment Planning

` Choose risk exposure consistent with your stage in Investment Life

Cycle

` Include Gold in your Portfolio.` Avail Tax Shelters

` Select fixed income securities judiciously

` Focus on fundamentals but keep an eye on technical

` Diversify Moderately

` Periodically review the Portfolio.


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` Focus on investments, understand and play well.

` Monitor the environment with keenness.

` Scout for special situations in secondary markets.

` Pay heed to growth shares.

` Beware of games which the brokers play.` Anticipate the earnings ahead of the market.

` Leverage the portfolio when bullish.

` Take swift corrective action.


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` Avoid certain kinds of stocks.

` Apply stiff screening criteria.

` Look for relatively safe opportunities in Primary Market.

` Participate in Schemes of Mutual Funds.

` Join Suitable Portfolio Management Schemes` Consult an Investment Advisor.

` Refrain from Short Term Switching


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Warren Buffet` Turn off the Stock Market.` Dont worry about the economy.` Buy a business and not a stock.

Business Tenetsx Simplicity and Understanding

x Consistent History

xFranchise

Management Tenetsx Management Rationality

x Management Candour

x Resistant to Institutional Imperative

Financial Tenetsx RoE

x Profit Margins Market Tenets

x Value of the Business

x Purchase at a significant discount

` Manage a portfolio of business.


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John Templeton

` If you begin with a prayer, you can think clearly and make fewer mistakes.` Outperforming the market is a difficult task.

` Invest and don't trade or speculate.

` Buy value not market trends or economic outlook.

` When buying stocks search for bargain among quality stocks.

` Buy low (simple in concept difficult in execution)

` Never invest on sentiments.` Do your homework or hire an expert.

` Diversify by company and industry.

` Invest for maximum total return.

` Learn from self mistakes.

` Aggressively monitor your portfolio.

` An investor who has all the answers doesnt even understand all the questions.` Remain flexible and open minded about types of investments

` Dont panic.

` Dont be fearful or negative too often.


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` Address basic personal issues before buying shares.

` Devote time and effort.

` Try going alone.

` Invest in something that you can understand.

` Look for companies that are off the radar scope of the market

` Apply simple fundamental criteria.

` Dont try to predict the market.

` Avoid market timing

` Avoid generic formulae

` Diversify flexibly

` Be patient` Carefully prune and rotate based on fundamentals.

` Eschew financial derivatives.


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wm wealth management basics

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