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Wealth Management

Wealth Management is the sum of many parts - money earned, spent, saved, invested, inherited, and donated. Everything adds up to this. Assessing and accepting risk, striving to get higher returns on the wealth you have, deploying different asset classes or products for this aim is Wealth Management.

We invest in an experience when we buy food at a restaurant. We know the risk is that it may or may not be to our taste, or might be insufficient value for money. The return on investment is the degree to which we enjoyed the experience.

It’s that simple. We need to use exactly the same thought process although with more care, when we go out and buy an asset or financial product. The return in this case is the escalation in value of the investment or preservation if we are angling for a tax saving investment.

The task of a wealth manager generally includes advising about investing of surplus funds, allocation of accumulated wealth so as to maximise returns. The aim is also to derive additional benefits such as covering life, financial interest and tax benefits. The goal of wealth management is to sustain and grow long-term wealth.

Wealth management incorporates

ü Financial planning,

ü Investment portfolio management,

ü Aggregated financial services

...and to get the right formula that will suit us best, a mix of asset managers, custodial banks, retail banks, financial planners, chartered accountants and others work with us, or even for us behind the scenes. For example, when an insurance consultant offers you a policy and customises it for the premium you can pay, the value you want at the end of the tenure, your age, time frame etc., the agent collates this with information from the risk analysis team, asset managers etc.

The Wealth management industry is a fragmented, decentralised industry. There is no equivalent of a stock exchange to consolidate the allocation of investments and promulgate fund pricing. One key reason is that the demographic that it serves has a lot of variables - urban &, rural, working class or UHNIs, nuclear family vs Undivided Families, retirees, young people with dependents and countless other combinations. High-net-worth individuals (HNWIs or HNIs), small-business owners, families who desire the assistance of a credentialed financial advisory specialist rely on wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management. Wealth managers can have backgrounds who work to enhance the income, growth and tax-favored treatment of long-term investors.

Life is about change. So is wealth management. These changing goals and priorities can be summarized as a cycle with four broad stages:

ü WEALTH ACCUMULATION: During this phase, individuals are primarily focused on acquiring the assets they are likely to need to help meet their long-term financial goals.

ü WEALTH PRESERVATION: As investors move into their peak earning years, their financial focus may gradually shift from asset growth to risk management—protecting their families and their portfolios from unexpected adversity or market volatility.

ü WEALTH UTILIZATION: At some point, most individuals will need to draw on their accumulated resources to fund specific needs, such as Children`s higher education, their marriage, retirement expenses, buying 2nd home, world tour or pilgrimage, setting up NGO for the cause dear to you, build school, do something for your Alma Mater or your home town etc.

ü WEALTH TRANSFER: Many, if not most, affluent individuals hope to leave a sizable legacy for their children, their grandchildren and/or their communities.

Life goals

As the term ‘wealth management’ has gained currency and visibility, advisors have shifted towards a model which asks about life goals, working environments, and spending patterns. All this leads to increase communication and mutual understanding - the client on one side of the table and the concept-plus-advisory across from them. Wealth management is more than an investment advisory discipline. If it is studied well and applied astutely, it can really be "financial life management”.

Golden Rules to Build Wealth

Broadly speaking, there are basically only 4 roads to wealth:

1. You can marry it - don't laugh. Some do!

2. You can inherit it - several of us get lucky here,

3. You can get a windfall - a lawsuit settlement, a lottery, or some unexpected good fortune; or,

4. You can accumulate it - which every one of us can.

To make the most of No. 4 - Accumulate Wealth, you need to understand how to manage cash flow.

Whether you have the required wealth by retirement age depends on how you manage your cash flow. For a start, answer the following questions:

ü What do you need now?

ü What do you want now? and

ü What can you save and invest for the future?

Skip doing a mental exercise - take a sheet of paper or 3 sheets. Write down each question and draw up a list. Keep this so you can compare, make changes & build on it.

Golden Rules

In answer to the questions you answered above here are few edicts - tried, tested and therefore worth adopting:-

1) Live within your means: You would have overheard this, read it, been nagged about it. And Yes!! It works. Living within your means includes managing debt and learning to budget. In consumer-driven economies you are relentlessly bombarded with zillions of ideas everyday - gadgets, skin treatments, International schools, sports fashion… It's all telling us that we need to buy, buy, buy to be happier, speedier, successful and in sync with the times. This is at cross purposes to financial discipline and sensible behavior, vital to successfully accumulate money and grow wealthy. Possibly the biggest trap out there is easy credit. It allows us to buy numerous things we might not need or can’t afford. We are all aware that a lot of young people buy gadgets on EMIs, particularly the zero-cost EMIs that companies push to sell their products. Even while thinking of goals, they are thinking of the next smartphone or luxury vacation rather than retirement or exigencies. Learning to live within your means and avoid making so many mistakes. Prioritize the long-term over near-term. We have no social security in India and therefore we all must save first, spend second. Once we own this habit, building wealth is simple.

2) Save aggressively: This certainly does not mean "invest aggressively" or deny yourself basic needs. Rather, it means making it an absolute priority to set aside some minimum % of your net-of-tax earnings each year (say 10% of your net income). Of course if your goals are ambitious, your savings need to be bigger. Keep in mind that the longer you wait to start saving, the larger will be the percentage of your current pay that you will have to set aside to reach your goal.

3) Dollar-cost averaging: When buying shares, leave your emotions aside. Shares and equity mutual funds works if you can “buy low” and “sell high”. They should be cheap i.e. in view of the growth they are capable of not in share price itself. Emotional investing gets too many people in trouble. Statistics continue to show that we tend to buy when things are going up and sell when they are going down - in other words, we tend to buy high and sell low. Dollar-cost averaging is also called systematic investment plan. If you want to invest a large amount in a particular share or equity fund, you don’t do it all at once. You break it up over say, 6 or 12 months and put in a buy “order” monthly. This not only removes emotions from investing, but when the markets go up and down you cost will be an average between the high price and the low. Of course in case of a long, steady bull run this will work far less in your favour.

4) Diversify: No investment is risk free; only a diversified portfolio can mitigate the risks of market cycles. We've all been warned against putting all our eggs in one basket, proper diversification does not mean bunch of mutual funds or stocks, but a proper allocation among stocks, bonds, real estate, fixed assets, and other investments. It also means diversifying within those investment categories. You would be better off buying a mix of say automobiles, tourism, and pharmaceutical stocks rather ONLY one type. Similarly mutual funds should be selected based on market cap and industries they invest in.

5) Be patient: Warren Buffet says, "The market has a very efficient way of transferring wealth from the impatient to the patient." But waiting is very hard to do. How long are you willing to hold an asset that is not performing well? One year? Two, three, or four! If you look at the history of asset classes over time, you will see that an asset can be "out of favor" for several years in a row. You have to be prepared to wait. Don't think you can time when bonds will perform and stocks will get hot. If someone could do that, they would own the world by now. Remember: Time in the market is more important than timing the market.

6) Understand volatility: Very few people truly understand the risk and volatility inevitably built into every investment portfolio. Without getting into its complexity, every variable investment has produced a range of returns over its lifetime. It's important to understand what the investment category's "average" annual return means in order to prepare yourself for its volatility. Markets swing between fear and greed of investors. So there are times when the market is "overvalued" and other times when it is "undervalued".

7) Don't chase returns: Before chasing that incredible return, find out how the investment did during the last bad market for that asset class. Find out the risks it faces down the road and ask yourself whether you can stomach a bumpy ride over the long term. The returns you chase are past - the stock/house may have doubled or trebled in value but always consider if it can do the same for you. Is it really worth the cost of cashing out of another, perhaps only temporarily depressed, investment to do so?

8) Periodically rebalance your portfolio: Asset classes vary in performance over time, so after a year or so, the portfolio balance will start to shift as one asset "over performs" and another one "underperforms". If you want to remain adequately diversified you would need to rebalance. Sell some of the over performers and buy some underachievers with good prospects. Though this is probably just the opposite of what your emotions will tell you.

9) Manage your taxes: Have you ever considered how taxes are your biggest expense in life - more than mortgage expense, education expense, or any other expense? So, you must take advantage of all tax breaks available - each and every single one of them. There are breaks for gender, age, occasionally the source of the money or if you invest it in a particular asset or scheme. You have to find all that you qualify for.

10) Get advice: Never underestimate the value of good advice. Someone who manages investments full time certainly will find things you have overlooked or done wrong. A good financial adviser is like a personal trainer for your finances and can get you on track and keep you there until your goals are met. And even more critical than getting the advice is ensuring you consistently follow your game plan.

Wealth Planning

Wealth Planning is a person-centric process. It primarily focuses on charting out a roadmap to help HNIs, Business families & NRIs to build, protect, and transfer their wealth. It delves into all areas of their financial life including retirement, tax, legacy, as well as business planning & restructuring. Wealth planning is about much more than retirement or wealth transfer, it’s about fully realizing your personal goals and vision.

ü Preparing your current wealth statement, asset, risk wise & liquidity wise.

ü Providing A Roadmap to Build your wealth

ü Investment Advisory in sync with your risk profile

ü Wealth Protection and Transfer

ü Asset-Specific Analysis & Planning

ü Estate Settlement and Administration

ü Family Governance

Financial Planning

Personal finance is a term that covers managing your money and saving & investing. Financial Planning is a tool which helps you to identify & prioritize your future needs & dreams. You then put a value to each and manage your resources in such a manner so as to fulfill all your goals. You have to list those goals in keeping with your risk profile. If you can save only a small sum every month owing to health issues or responsibility of parents, you would have to adjust your ambition. Financial planning provides a roadmap to fulfill financial goals & aspirations, by identifying risks and managing resources & by taking into consideration different aspects of one’s financial assets & liabilities. It all depends on your income (net of taxes), expenses, living requirements, and coming up with a plan to fulfill those needs within your financial constraints. We will advise as to how resources should be managed so as to achieve the financial goals. Financial planning is a continuous process, if not yearly at least once in 3-5 years. As a person walks through different phases of life, he has different responsibilities & obligations to fulfill. For example, post marriage, he has to meet the expenditures of his dependents, meet the children’s education and subsequently their higher education & marriage expenses. The amount of money coming into the family unit - single or double, large or small will determine the financial plan.

Common Mistakes in Personal Finance

Below are some of the common potholes we fall in when dealing with our money.

1) Spending more than we should

2) No Financial Education to Spouse or Kids

3) Imbalanced Asset Allocation

4) Misunderstanding Insurance as an investment

5) Misguided purchase of multiple Insurance plans - Buy it on priority for the earning member of your family. In case of something happens to them, you will get financial support till you find your feet.

6) Unrealistic expectations of returns

7) Feeling special when it comes to Life or Health Insurance

8) Excessive Leverage

9) Short vision -

10) “Papa Kehte Hain” Psychology - No Idea of Investments or documents, No self-reliance and hence lack of knowledge

A lot of the older generation among us still sees money-back policies, FDs as key investments. Today things are speedier, multifaceted and ever-evolving. There are investment ideas in Agri commodities, company shares, real estate, art, overseas markets and plenty more. While we have all these to work with, it also demands greater knowledge of what all is available, individually suited and to stick with a manageable selection.

To ease your introduction to the process of financial & retirement planning, here are a few key steps:

1) Gather relevant financial information

2) List your life goals

3) Examine current financial status

4) Strategize how to meet the goals at present - funds needed, fees for agents or brokers, amount of loan needed, interest rate on it and how much that leaves you for everyday expenses

5) Continuous monitoring & adjustment with future plans so that the plan stays on track.

Ability and capacity to take risks varies for each individual. In fact each individual’s tolerance changes with life events, health, finances etc. And so the horizon for investments changes depending on the life stage one is at. The type of instrument best suited for an individual depends upon the life stage he or she is at.

If you are between 20 and 40 years of age

People in their twenties and early thirties are usually at the beginning of their careers. The type of financial planning they do is often influenced by their work sector. Some are married and either thinking about having children or already have young ones around the home.

Thinking of India’s millennials: We need a more nuanced understanding of this generation. If we look beyond the middle class, urban youth, their aspirations and motivations differ greatly. They are also demanding—they seek frequent positive strokes and approval, have a large number of expectations having been brought up to think they are the best, need flat work environments, and crave work-life balance. Millennials have received a lot of media attention, from speculations about their spending habits (Urbanisation of Cars or Co Share of Housing), saving habits to whether they are the most depressed of all generations and are not worried about their future and spend not just current earnings but also spend by borrowings against their future earnings. Millennials with family responsibility have to begin the process of Financial & Wealth Planning.

People in their thirties and forties are established in their jobs - business or profession, and in the midst of raising a family. They are concerned about their children's future and, perhaps, equally concerned about elderly parents. The 20-to-40-year span is one where responsibilities are relatively less and hence risk-taking capacity is at its highest. Apart from investing in tax-saving instruments, investing a sizeable portion of your investable surplus in stocks, either directly or through a mutual fund makes imminent sense at this stage of life.

If you are between 40 and 50 years of age

This is typically the age span when one has to plan for expenses like kids' higher education, their marriage, medical expenses for self & parents etc. In this stage, capacity to take risks is lower than in the earlier stage.

Beyond 50:

Many people get serious about retirement planning only when they reach their 50s. It’s like running a marathon race and getting serious about winning when you enter the last mile. As retirement is a lot like running a marathon, investors who have taken the right steps can effortlessly reach the finish line. But even the stragglers can secure a decent place in the race if they make the right adjustments. This week’s cover story looks at smart money moves that pre-retirees should take in the last few years before they hang up their boots.

Personal finance is a term that covers managing your money and saving & investing.

Financial Planning is a tool which helps you to identify & prioritize your future needs & dreams, quantify them into financial terms and manage your resources in such a manner so as to fulfill all your goals based on your risk profile. Financial planning provides a roadmap to fulfill financial goals & aspirations, by identifying risks and managing resources & by taking into consideration different aspects of one’s financial assets & liabilities. It all depends on your income (net of taxes), expenses, living requirements, and individual goals and desires—and coming up with a plan to fulfill those needs within your financial constraints. We will advise as to how resources should be managed so as to achieve the financial goals. Financial planning is not a onetime exercise; rather it is a continuous process, if not yearly at least once in 3-5 years. As a person walks through different phases of life, he has different responsibilities & obligations to fulfill. For example, post marriage, he has to meet the expenditures of his dependents, meet the children’s education and subsequently their higher education & marriage expenses. He also needs to plan to buy a home (some time 2nd or Vacation home), and most importantly to meet post retirement expenses without compromising his lifestyle.

Prosperity is the success and flourishing of any human (it can apply to other animals, but that will be ignored for the sake of this explanation).

Wealth is when a person acquires lots of money, they have a high income or perhaps some other thing that has lead them to acquire lots of cash.

The difference between the two is one is simply the state of having money (wealth), whilst the other is simply living a very successful life — you have resources, you have a shelter, etc (prosperity).

The only similarity between the two is that wealth usually allows you to be very prosperous.

Rich vs Wealthy

Rich and wealthy, two words that many people use interchangeably but mean totally different things. Being rich means you have a lot of money coming in, but it does not mean you are wealthy.

Being wealthy is not only having enough money to meet your needs but being able to afford not to work if you do not have to. It is about amassing assets and making your money work for you.

In fact people struggle to go from rich to wealthy.

If you have created a very expensive lifestyle because you have to show off your status as Rich, you may lose your wealth. Being rich can often mean that you are spending a lot of money. It can also mean that you have a lot of debt. It does not matter how much money you make if your expenses are higher than your income. Being in debt is not something to aspire to.

It is not hard to spot rich people. They often go out of their way to make themselves known. But wealth is hidden. It is income not spent. Wealth is an option not yet taken to buy something later. Its value lies in offering you options, flexibility, and growth to one day purchase more stuff than you could right now.

Being Wealthy would ensure the ability to wake up in the morning and say, “I can do whatever I want today.” The thing that often goes overlooked is realizing that you do not need a specific reason to save. It is fine to save for a car, or a home, or for retirement. But it is equally important to save for things you can’t possibly predict or even comprehend. Risk is what is left over after you think you have planned for everything.

Prosperous vs. Wealthy

Prosperous means characterized by success, whereas Wealthy means possessing financial wealth.

Prosperous and Rich

Prosperous means characterized by success, whereas Rich means wealthy: having a lot of money and possessions.

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