12 October, 2017

Bring meaning back in your lives

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“In preparing for a battle I have always found that plans are useless, but planning is indispensable”,

 opined Dwight Eisenhower.

Plan & Planning -  Planning is essential as that is where we consider all aspects affecting the project we are planning for. We would be able to come to different alternative scenarios, some good and some downright in the mud. This allows us to think of the possible scenarios, based on which we need to take some actions and be cognisant of the potential outcomes of such a course.

As sagely opined by Eisenhower, a plan maybe useless overtime as there are too many variables affecting any project situation & we may not reach the result envisaged in the plan. But the planning exercise done is invaluable & we may keep revising the plan as per the changing circumstances.

Financial Planning -  This holds true for Financial Planning. A plan created with all known information at one point may not be true after some time. Life situations change… goals, expenses, income etc. too, can change. Hence, the plan would need to be reviewed & recast. That is however part of the planning process itself.

Even Financial Planning is not a concept that is well understood, still. Many still think that one is doing financial planning if they have started investing in some products for their goals.

Financial Planning starts with understanding the needs/ aspirations of the family & their financial situation. Then the planner analyses & checks feasibility of achievement, comes up with alternative scenarios, evolves a strategy that would work best for the client and then holistically comes up with suggestions on what they need to do regarding past investments/ insurance, liquidity/ contingency requirements, future surplus deployment in appropriate assets after due consideration of their risk profile, years of service left, dependencies in the family, when the goals are coming up etc.

Life Planning -  Now, there is another area called Life Planning. People have virtually not heard about this. So, let’s try and understand what this is.

All of us have goals - like buying a home, a second home, foreign holidays, cars etc. We focus on these and plan to achieve these goals overtime. In fact, in financial planning, these are the goals we come across and plan for. But, the important point is, are these the real goals & are these truly important?

Let’s put it another way - Are these goals the ones which would bring true satisfaction, a sense of achievement & happiness? The unfortunate answer in most cases would be - No!  

Most of us assume that buying a home, car etc. are what are important in life. While we do need the money and the conveniences it brings, we should not become it’s slave. The so-called goal should not drive us so relentlessly that we lose our sense of proportion & pursue them to our detriment.

Why does a person not feel happy after buying the third home? Because, it was a meaningless goal in the first place!

When we pursue goals that don’t really matter & spend time and energy achieving it, we feel tired, burnt out, exhausted. And once we achieve it, there is no satisfaction or delight at having achieved something - because these were meaningless goals in the first place, which were probably taking them away from the real goals that would liberate them, provide vitality, a sense of achievement of one’s potential & the exhiliarating feeling of looking forward to life itself, as it unfolds!

How does Life Planning make a difference -  There is no set formula in which a life needs to be lived. The life we have is the only life there is ( not counting rebirth, for now ! ) and we have the option to make it meaningful, blissful & elevating.

But, for that, we need to understand what is meaningful for us & what is that we really want from life...

Life Planning precisely addresses this. This is a new area where the focus is to find out what is truly important for us in life… what will deliver that freedom from the bondage of a humdrum existence. What would give us the vigour & vitality to look forward with anticipation to the next moment, next day…

To facilitate this, there are exercises to be gone through which will assist the client to focus on a meaningful life, they always wanted to live. There are some fundamental questions which one needs to ask, which will help them narrow down on what they really want to do in life. Once they discover their true, heartfelt goals and see the vision of that wholesome life they can create for themselves, they get hugely excited. The Life Planner acts as a guide & mentor and paints that ideal life for the clients to see. This helps the client to realise what an amazingly fulfilling life they can actually live & they get to experience the entire repertoire of emotions that would arise out of such a life.  

This may call for rework of the life as it exists today. Some of the goals which one had in the past may not retain their appeal any more. New goals would take it’s place, There could be adjustments in income, expenses etc. too, depending on what one may want to do going forward. One may feel an anticipatory thrill as well as a trepidation which comes from a leap into the unknown. Obstacles may present itself, which the client would resolve drawing strength and support from the Life Planner. The next step would be to consider all these goals and create a financial plan & implement it so that the life ahead is smooth.

In a nutshell -  The initial portion of the life planning is very important. This is where the client & the Life Planner jointly explore what is that which may make the client’s life truly lived. Once the client understands what would make their life meaningful, they get veritably excited. The new life envisaged may have problems that need to be surmounted & the planner plays a huge role here in ensuring that the client does not get disillusioned & slide back into their erstwhile existence. The Life Planner holds & keeps the torch of their dreams burning till the client is able to reconcile with the adjustments needed & gets back the strength & fortitude to make it happen. Then a financial plan which accommodates the new life is drawn & the recommendations implemented.

From time to time, the Life Planner is in touch with the client to find out if they are on track and offer any guidance that may be required.

We all deserve a life where we experience the freedom in our lives to achieve our true potential & live a life that is truly meaningful, garnished with vigour & vitality in good measure & anticipate each day with bated anticipation. Life Planning can make this possible.

When Life planning is made a part of Financial Planning, it becomes a tremendous force multiplier for the client. As George Kinder, the father of Life Planning movement says, “ Life Planning is Financial Planning done right”. How True!

Author  -   Suresh Sadagopan  | Founder | www.ladder7.co.in

#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7

19 September, 2017

Park your money in liquid funds to get higher returns than on savings account.


Here are some of the queries in "Ask mint money" :

I have read in many articles that liquid funds are better than bank fixed deposits if you want to invest for a short term. I wish to start making some investments in mutual funds and begin with something that is less risky. Kindly advise on how I should choose a liquid fund.
—Marion Saldanha
A liquid fund is one where the underlying investments are real short-term papers (up to 91 days) like T-bills, government securities, overnight debt securities, and others.
The credit rating of these papers is generally high and due to the short tenure nature of the underlying funds, the risk is low. These funds, on an average, are offering about 6.5%, which is significantly higher than what savings accounts are generally offering, which is 3.5%. Hence, liquid funds score on the return front. Liquidity is high and assured as mutual funds are the counter party. Choosing a liquid fund should not be a difficult exercise at all. Since all liquid funds are low-risk, the only real differentiator would be the expense charged, which would reflect in the scheme performance. Lower the expense ratio, the better it would be for you.

I am 30 years old and want to start planning for retirement. My retirement is 30 years away as I will retire at the age of 60 years. What factors should I keep in mind?
—Arun Jaipal
Thirty years is a fairly long period in which you can plan for your retirement. The first thing to keep in mind is to resolve never to touch the money kept aside for retirement, for any other purpose. This is usually the problem as retirement is a long way off and a holiday seems too exciting to pass up for something that is going to come 30 years hence.
At 30, you could take a fairly aggressive call on your allocation to equity as your risk capacity would be good now. But risk tolerance, even for a 30-year-old, can be anywhere between low to high on the slider scale. Hence, you need to assess that before allocating resources among asset classes.
Consistent and disciplined investments throughout the period would ensure accumulation of a good corpus. There should be a certain sum going towards retirement every month and over time, this figure should go up. As the salary increases, one should also augment allocations towards retirement, as necessary. Similarly, any bonus, ex-gratia, or incentives, which one may receive, should also be used to augment the retirement corpus as may be necessary.

Also read other articles on Retirement:

I took an education loan for my higher studies . I wish to finish paying off my loan in the next 5 years. I have to pay back a little less that Rs5 lakh in all, including principal and interest. I earn Rs80,000 a month post-tax and want to save in order to be able to pay off the loan in 3 years. Where should I invest?
—Nitika Bahl
Education loan is not a high-cost loan if one takes into account the tax breaks given on such loans. You would be aware that the entire amount you pay as interest would be available as a deduction. Suppose your education loan interest is 12.5% and you are in the 20% tax slab, your effective tax would be about 10%, which is not very high.
Hence, you could even look at allowing the education loan to continue and invest your money in avenues that have the potential to earn more than this. However, if you have set your mind on paying back the loan in 3 years, you may probably have to invest in debt funds only to accumulate a corpus for that purpose. I am not suggesting equity funds as the 3-year period is a short time frame for equity.

Author  -   Suresh Sadagopan  | Founder | www.ladder7.co.in

#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7

12 September, 2017

Enjoying the journey called life!

Picture credits: www.pixabay.com

Oh God. It’s Monday and I need to get ready for work, thought Ravikiran. He dragged himself out of bed and got ready for office, 45 minutes later. After a couple of cups of coffee, he was feeling a lot better now. Driving to the office, he was thinking about his life…
He had joined a good Indian multinational as a trainee in the Sales function. He has risen to the position of Sr.Vice President - Sales in the same company, in a matter of 16 years. He was the blue eyed boy of the then MD and was fast-tracked in his career. RaviKiran was no slouch - his performance was fantastic and he was always an outlier.
He had all the trappings of success… he had his own home in a tony neighbourhood, his wife & kids were well provided for & he is virtually rolling in money. Ravi was well regarded in his office for his professional competence and his affable manner. All in all, he was in the pink and should have been delighted at his wonderful placement in life. Instead he keeps feeling a vacuum & has this sinking feeling. He keeps thinking as to what he is doing with his life… where it is all heading... he feels drained these days & derives no satisfaction, even when his department is setting water on fire!
His lack of vigour & unhappiness was a mystery even to himself. He was wondering as to why he was feeling that way. When he discussed this in the passing with his wife she suggested him to meet her friend’s brother - Seshadri. Seshadri was a Life Planner and Geeta, Ravi’s wife, had heard good things about him. She understood that Seshadri may be able to help Ravi.
Ravi fixed up a time with Seshadri. In the initial meeting, Seshadri explained to him the concept of life planning. “Life Planning seeks to unlock the deepest yearnings/ longings & seeks to deliver the dream of freedom - a life that one has always dreamt & felt was impossible to attain. The idea here is to live a life imbued with meaning, values and rich potential. Inshort, living a life that you can’t have enough of and which you eagerly look forward to every single day”.
That seemed too good to be true. But, Ravi felt it was worth trying, considering the dreamlike payoff.
Ravi had to answer certain questionnaires, which gave him some insight & clarity. Seshadri understood where Ravi was and explored more about his motivations, his deepest desires and what would be an ideal life for him.
Ravi’s ideal life was one where he wanted to slow down a bit and have time for his passions. He has multiple passions - he is an environment evangelist, a person concerned & interested in indigenous arts & crafts and has a passion for music.
Seshadri had understood what would make Ravi tick and probed further. Ravi had an interest in indigenous handicrafts & he told excitedly about how wonderful it would be if he could start a firm in areas that interest him. Seshadri asked Ravi to elaborate this vision a bit further. Ravi got very excited. Ravi said," If I can identify a place on the seacoast with a beautiful mountain backdrop, that would be an ideal place to live and work from. Ravi was an avid trekker & he felt such a place would help him indulge in his passion and be healthy. Being environmentally conscious, he also expressed his keenness to rejuvenate denuded mountain slopes by planting shrubs & trees. Ravi was mighty excited at the life he was now able to clearly visualise.
Seshadri told him that there are many beautiful places like what he described all across India & he could virtually pick & choose the place of his interest. Ravi wanted to be near where some indigenous artisans lived & created their handicrafts. Ravi had visited Orissa & felt that there are good places in Orissa where he can locate his firm near where the artisans worked. While talking of all these, he came up with the idea of setting up kiosks in malls & operating independent shops in tourist places to sell the wares. Ravi also wanted to sell these handicrafts online, which will give reach and scale.
After this discussion with Seshadri, Ravi was visibly happy. He was grinning and a strange light gleamed on his face. It showed excited anticipation of living a life with a true purpose. He was walking on air, literally.
The next time they met, Ravi brought up a few problems like what will his son do, if he lives in a remote area. Seshadri suggested that since his son Hari, being in 8th standard can be admitted to a boarding school. Ravi was not sure if Geeta would agree. The other problem that Seshadri raised was about cashflows. Ravi had good investments and assets. He said that he has no problems in selling some assets to fund his business. Ravi was optimistic that cashflows from the business would start from year 2. Ravi had an idea for corporate & festival gifting, which if successful, would bring in good money. Seshadri revised the cashflows with the numbers shared by Ravi & showed it would work. Ravi was happy to have surmounted most obstacles. But, he still had to find his ideal location. He wanted to take off for 15 days and find a base.
Ravi was fired up. Seshadri showed him the plan in the next meeting which confirmed that the plan would work in the new avatar. Ravi confirmed that Geeta was game to put their son Hari in a boarding school. The only thing was to identify the location where they would drop anchor. And another… his MD was aghast when he heard that Ravi might be leaving. Ravi softened the blow saying that he would spend time - 8 days a month, for upto a year in which time they can find a replacement. His MD had reluctantly agreed.
Ravi’s days have started getting exciting. He had gone to travel sites, arts and handicraft portals and pored over for suitable locations. He was able to identify half a dozen locations he needed to check out. He was so excited that he went on a road trip almost immediately with Geeta, to look at these places. They hit the bulls eye in the second place itself. They found their ideal destination in Orissa. The destination was Puri. There were no mountains there - but that did not matter. Geeta instantly okayed it as her Lord Jagannath was there. It worked wonderfully for Ravi too, as Raghurajpur was not too far, which is a hub for Pattachitra paintings and other handicrafts. Ravi went on a recce to Raghurajpur and came back suitably impressed, with a couple of paintings as souvenirs. Geeta could see how excited he was - he did not stop talking about the painters, the beautiful & intricate pattachitra paintings, how he went to their home, had food with the artists etc. Geeta was happy to see this Ravi.
Seshadri learnt from Ravi that the location was to be Puri. Seshadri did a few last minute touches to the plan and expressed his satisfaction. Ravi will be able to live this second innings & love it.
All this is part of the EVOKE process of life planning ( as propounded by George Kinder ) in which the planner and client find out what is exciting for the client & see how the client can pursue his heart's core yearning. Life becomes exciting when it has a purpose. It’s a wonderful thing to behold when the client gets back their mojo and the planner is able to guide the client in the process & help the client live the life they truly always wanted & will now be able to live and cherish.
From here on, the client will live a life they truly dreamed of and wake up to one exciting day after another. That’s infact the true reward a life planner would look forward in an engagement - a client whose torch has been lit & is enjoying every moment of this journey called life!

Article first appeared on Linkedin:
Enjoying the journey called life!

Author  -   Suresh Sadagopan  | Founder | www.ladder7.co.in

#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7

28 July, 2017

Why it makes sense to pay for a financial advisor?

Today there are lots of distributors of products masquerading as advisors. Many call themselves by fancy names like wealth managers, financial counsellors, financial coaches. It is difficult to make out as to who is a real advisor & who is merely a distributor of products, whose agenda is to just sell products that they have on offer. It is hence very important that investors first understand who is an advisor & what are the qualities they need to look for in them before deciding to go with them.
What do you need to look for in an advisor
1) Find out whether the advisor is SEBI registered investment advisor (RIA), who will charge a fee and offer advice. Such a person should not distribute products. If they also distribute products, there is no point in dealing with them as they are not supposed to advise. Even if they do have a distribution arm or relationship with another entity, they should offer a choice to the investor to choose to implement where ever they want and not coerce them into doing the investments with their entity.
2) Ask them about their qualifications. Ask them about who are there in the team and their qualifications too. Lots of times those who offer advice are just not qualified at all.
3) Find out about their process, who will be the interface, how will the service delivery happen, what are the key deliverables etc. Find out if it is a one person outfit or there is a proper & professional team to support the operation. This is important as a team ensures better & specialised delivery of services and there is no over-dependancy on one person to do everything.
4) Ask them if they have any relationships that will pay them directly/ indirectly. Ask them specifically if there are indirect remuneration/ benefits accruing to them, apart from any direct commissions/ brokerages.
5) A simple rule of thumb - If the “advisor” starts talking about products & starts putting brochures and forms on the table within the first 15 minutes - beware! This person may mostly be a product seller & is there to sell his products.
6) Ask the “advisor” if they are fee-only. To clarify ask them if you could implement their investment recommendations wherever you want. If the advisor says yes to both, then they would be a proper advisor.
7) Find out about their experience in the field. The experienced ones will be better from the investor point of view, though such advisors may come at a premium.
8) Ask for references and talk to a few. Find out from them about how long they have been with them & their experience. There may be “references” who are planted to offer good reviews. Ask searching questions. More often than not, you would be able to find out if the “advisor” is worth considering or not.
9) Find out the standing of the advisor in their field. Search for their articles, references, quotes, peer reviews etc., which will offer you a peek into the kind of person you are going to deal with.
Why should you pay a fee?
1) A true advisor does not earn through commissions. They act in the investors’ best interests & advice what is good for the investor. To get such unbiased advice one needs to pay a fee.
2) A true advisor ensures that the costs to the clients are minimised by choosing the right products that are efficient in every way, including costs.
3) Products put together are truly aligned to the investor needs and are not subservient to the need of the “Advisor” to meet their targets
4) You should pay a fee to a true advisor who acts in a fiduciary capacity. This means they put your interests ahead of everything else, including their own. This of course is priceless & is a dream come true for an investor who otherwise only find people who want to sell them something or other.
5) All costs considered, including the fee which is paid to the advisor, it would be cheaper to the investor, as a good advisor suggests products that are fully aligned with their needs, are low cost & tax efficient, with better fund management strategies.
6) Good advisors save their clients from various investment blunders that they would commit otherwise. Just this alone would save so much money for the investor that would otherwise have gone down the drain.
7) The investor would have a trusted source & a confidante to turn to whenever they need proper advice regarding any financial matter.
Most people are not used to the concept of paying a fee. They wrongly think that by paying a fee they are in fact losing money.
In personal finance area, free advice has been the mainstay. But free advice can hardly ever be unbiased & truly in the client’s interest. It is foolish to believe that product sellers (irrespective of whatever fancy names they give themselves like wealth manager, financial coach etc.) would offer unbiased advice. Conflict of interest is inherent in a distribution model. That gets eliminated when an advisor is just fee-only & does not receive any remuneration from any source.
Look at the gift horse in it’s mouth… It may not be pretty - just like how free advice is actually a money losing proposition.

Article first appeared on:
Moneycontrol - Why it makes sense to pay for a financial advisor?

Author  -   Suresh Sadagopan  | Founder | www.ladder7.co.in

#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7

24 July, 2017

Sebi gives a stronger push to advisory practice

Separating distribution and advisory in financial services works in favour of the investors


The Securities and Exchange Board of India (Sebi) has made a move towards ensuring that investors receive appropriate advice and their long-term goals are met. This deliberate move has been happening for a decade now, precipitated in 2008 by the global financial crisis. Financial product manufacturers made arcane products whose structures were difficult to understand even by finance professionals, and distributors sold them widely.
In the aftermath of the meltdown, there was a sudden realisation for regulators across the globe, that they need to regulate more aggressively and ensure that intermediaries don’t run roughshod over investors. 
India has been among the countries in the forefront of investor protection initiatives. Towards this end, regulators started modifying the framework for financial intermediaries to bring in responsibility and accountability, following appropriate processes to ensure the right outcomes, cost control and documentation or trail. 
But an important piece was missing—conflict-free advice. The only option available earlier was advice from distributors. The advice was shallow as it was free and incidental to product sale. Also, most times, the distributor was not equipped to offer advice as she did not have the necessary qualifications, knowledge and experience. But there was no one else investors could turn to.
Realising the importance of providing access to quality advice, Sebi had brought in its Investment Adviser Regulations in 2013. The endeavour was to create a new class of Registered Investment Advisers (RIAs) who would offer advice for a fee and not distribute products. The regulation specified a number of requirements—education, experience, certification, conduct of advisers, net worth and other eligibility requirements; various responsibilities including advising in a fiduciary capacity; proper processes for offering advice; and documentation requirements. These advisers also had to get audited annually for processes and compliance. 
This was a watershed regulation in terms of bringing in fee-based advisory in India. But it also allowed many exemptions, which obliquely indicated that exempted parties may give incidental advice (which was being interpreted loosely). This was a grey area due to which many chose not to register. The RIA regulations also allowed both advisory and execution functions to be within the same entity, though with segregation; but that’s not the optimal way to engender conflict-free fiduciary advice.
There were a couple of consultation papers to amend the regulations; one in October 2016 and another in June 2017.
In the June 2017 paper, Sebi is proposing clear segregation of advisory and distribution services. It suggests creation of a separate subsidiary or entity for investment advisory services. This would enable watertight containers carrying out the two functions, instead of segregated divisions with Chinese walls.  
It also suggests that RIAs who provide advice across multiple categories should take necessary permissions and ensure compliance with respective regulators. However, regulators register those who distribute products under their jurisdiction, and not those who offer advice. RIAs are not product sellers and hence may not be eligible to register with various regulators. This is going to present a problem.
Since RIAs have appropriate certification for advisory functions, they should be allowed to offer fee-only advisory without being registered with various regulators.
As per the proposal, the exemption for mutual fund distributors (and others) to offer incidental advice without registering would no longer be an option. From now on, mutual fund distributors can explain the features or material facts of the product and ensure suitability, but not offer investment advice or financial planning services. If they want to offer advice, they will need to register as fee-only advisers.
There is, however, some relief to RIAs. Representatives of investment advisers can now be graduates in any stream. It was difficult to find employees with 5 years of experience after graduation, which was the condition before. Also, the net worth requirement for body corporates has come down from Rs25 lakh to Rs10 lakh. Application and registration fees for body corporates has come down to Rs10,000 and Rs1 lakh, respectively. But the re-registration fee after 5 years is Rs5 lakh, which is inexplicable.
Agencies and entities that provide ranking of mutual fund schemes are sought to be brought under the regulatory ambit under Research Analysts Regulations, 2014. However, if they provide the same on public media like a newspaper or a website, they are excluded from registering under this regulation. Again, there was no need for this exemption because widely circulated information through a newspaper or website has more impact on the public and should, therefore, be under regulatory ambit.
Overall, the consultation paper sharpens the distinction between distribution and advisory and is clearly pushing people to choose either advisory or distribution as their vocation.  
This consultation paper also puts all the choices before the investor. Sebi has made its intention clear—to have a true-blue advisory community to assist investors. It is now strengthening that framework further.  
It also gives investors an option to engage with distributors, who are very much a part of the ecosystem. For those investors who want to do it on their own, there are platforms of regular or  direct plans.  
Frequent changes can be unsettling. It would be good to have a stable regime for some time, to allow the participants to settle. Apart from that, the changes suggested are mostly positive and welcome. Investors’ hands are strengthened and they will have more choices.

Author  -   Suresh Sadagopan  | Founder | www.ladder7.co.in

#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7

20 July, 2017

How to fund children's education abroad without parents going bankrupt

Giving a lift up is fine but it should not be at the cost of their own future

Children occupy center stage for parents - that is well known and understandable. As a parent you would want to do everything to give them the benefits of good education and help them start life with an advantage. That is reasonable of course.
The only thing that the parent has to guard against is overreach. Today, many parents are guilty of this overreach, in their enthusiasm to confer the advantage of a high quality education. Most students today have the aspiration of going abroad for education. Parents do not want to stand in the way of this ambition - for the parents themselves see this as a passport to a good life ahead.
One of the major problems with education abroad is the cost. The median cost for education in the US could be about Rs 35 lakh per annum. If the student were to pursue graduation, which would be a four-year course, the cost would be Rs 1.4 crore, in today’s terms. The inflation on education is galloping away and it can be considerably costlier in future. After that, post-graduation would cost Rs 70-80 lakh. That is about Rs 2.2 crore per child! We are able to see that the amounts involved are astronomical & funding even one child’s education fully is going to be a huge challenge for all, but the really rich.
Supporting the child in its aspiration is fine. But the parent has to be realistic and can be pragmatic when it comes to the child’s education funding.
Firstly, sending the child at graduation itself is not just costly; they also run the risk of the child going astray in a foreign land as they may not have the maturity at the tender age of 17-18 years. It may be far more desirable and financially prudent to send the child abroad, at the PG level. At the PG level the child would be between 21-23 years and potentially more mature to handle the rough & tumble in an alien land.
The parent needs to consider other ways of funding, apart from self-funding, as a prudent practice. Parents should start talking about all methods of funding to their children, well in advance and prepare them to be more aware & responsible when it comes to their education funding. Parents should not be seen as ATMs & it is important that parents talk about how much they are willing to spend and about how the child can fund the rest.
The first mechanism of bringing down the costs of education abroad is to seek scholarships for the courses being pursued. There are some colleges which are more liberal in offering scholarships as compared to others. The top-of-the-line colleges may not offer scholarships. The child should be prepared to look at second rung colleges which offer scholarships & not be fixated with Ivy league schools alone. This sanity has to be driven into their heads by the parents.
The other way to bring down the cost of education funding for parents is to ask the student to take a certain level of education loan. Apart from bringing down the funding from the parents side, the loan also brings in a certain level of responsibility on part of the student. The parent can pay the interest till the student goes for a job, after which the student has to take care of the loan servicing. This has to be clearly communicated to their child.
The last way of defraying the costs is for the student to actively look for a part-time job when they are studying abroad. They could work as research assistants, as assistants in the library or in other capacities in the university and earn some money. Often this money would be enough to take care of their personal needs.
All these are ways to ensure that the child’s ambition is not squelched and at the same time the parent is not stretched to the breaking point, in their quest to fund their child’s education. Often parents dip into their retirement kitty in their overarching ambition to launch their child into the hallowed orbit. Giving a lift-up is fine but it should not be at the cost of their own future. If one follows these simple rules, the child education funding can happen without much problems. A good compromise would then be achieved, where the parent is happy & the child’s ambition is taken care of too.

Article first appeared on :
Moneycontrol - How to fund children's education abroad without parents going bankrupt
Author  -   Suresh Sadagopan  | Founder | www.ladder7.co.in

#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7

13 July, 2017

Stubbing the toe on Wealth Creation

picture courtesy : www.pixabay.com

When we talk of wealth creation, many people tend to switch off as they think it is not for them - it’s for the money bags! There are others who would feel that this tiresome topic detracts one from enjoying life and financial advisors keep reiterating on savings all the time that there is no fun left in life! These are from the two extremes.
There are many others in the middle who want to create wealth but are unsure as to how to go about it. Also, there are lots of misconceptions dogging them at every step due to which they tend to go wrong in many of what they do.
Let me try to dispel some of these wrong notions here.
A)  Money should constantly be churned to the best performing asset class -  This is a major fallacy among the public. People want to move their money to whichever asset class is doing well at that point in time. This has become a fad with people. When Gold is doing well, they want to move their money to Gold; from there it will go into equities, real estate, FDs etc. Depending on what catches the mass frenzy at every point.
This moving from one asset class to another presupposes that one will get the timing right. Also, moving from one asset class to a completely different asset class changes Mostly, the public at large gets the timing horribly wrong and get in after the asset has run up and get out after the rally has waned. Both ways, they get it wrong and hence end up with a poor yielding mish-mash portfolio.
B) Yields are very important -  A portfolio is to be constructed after due consideration of liquidity, risk, tenure, return considerations, credit quality of the investments under advisement etc. Yield is a byproduct of a proper portfolio construction. A well constructed portfolio offers an optimal return which would suit the person concerned.
The yield from such a portfolio should be enough to meet all the goals - that is how it should be planned. We have seen that even portfolios yielding 9% overall are good enough to meet all the goals in life. It is a huge fallacy that the returns have to be sky-high to ensure that one’s goals are achieved.
Sticking with the budgets and discipline while investing are important. In fact these are the only things that are important.
C)  Portfolios should be constantly monitored - Many of our clients keep looking at the portfolios as frequently as they refer to daily newspapers! Portfolio once constructed will have to sit there and has to be given time to perform. By constantly looking at the portfolios they are not going to somehow perform miraculously. One will only get palpitations by looking at the gyrations of the portfolio values in line with the fluctuations of the markets.
It makes sense to look at portfolios once every half year. That’s what we do professionally! And that is more than enough!
D)  Every single component of the portfolio should do well -  Another fallacy… Portfolio components are put in place to offer diversification in the portfolio & make it a well rounded portfolio. Obviously, different segments of the portfolio would do well at different times. That does not mean that one should get out of some portions which are currently not doing well. Having different components in the portfolio is part of the strategy. That cannot be undone on the spurious premise of lower returns.
E) I will invest when I have decent money to invest - This is a chicken and egg situation. You get to decent money only when you have invested for long, in a disciplined way. It does not matter if one has a modest amount to invest, to start with. MFs allow even investments of Rs.500 - so the entry barrier is really low. Also, there is no point in accumulating first in the bank account and then investing the same, when it builds up to a decent amount like say Rs.25,000. People like to invest round lumpsums. There is just no merit in holding more than the required amount in the bank and earning a paltry 4% on it.
F) Investors want to invest in every product that comes into the market -  Investors somehow feel that they should not miss any “opportunity” that comes their way. Hence, any shiny thing that gets advertised promptly gets their custom!
This results in a jumbo portfolio of unwanted components, when clients come to us. Investors also attribute their actions to diversifying their portfolios!
G) Humoring the uncles & friends -  Insurance is bought not on merits, but based on which uncle or which friend’s wife is cornering one “to complete their target”. Most people we meet have lots of life insurance policies, by not of the right kind. Most do not have the required cover, even though they have over a dozen policies with them. It’s better to help people directly than to get into an unholy mess with one’s insurance portfolio.
H) Tax savings at any cost -  Indians somehow have this penchant to save taxes, at any cost. They would borrow money to save tax! In their extreme overreach to save taxes, they sometimes forget the basics. The products they buy ( like insurance ) may save tax for them but may not be suitable for them in any way.
I) Wrong advisors -  Most investors are just doing what their friends & colleagues are doing or what their parents have been doing ( like investing in FDs ). This kind of investing ensures that there is no overall strategy or direction and serves no purpose at all. It is like one blind man leading another!
What worked for their parents may not be what would work today. One needs to carefully evaluate one’s needs and invest or if that is too much for them to do, they just need to go to a professional advisor, preferably a Fiduciary.
Conclusion -  Investing principles are pretty simple. One just needs to stick to the budget and invest the surplus as per plan. There is no need to keep shuffling the portfolios or keep investing in new stuff. One need not have to keep agonising on yields - the returns will come - overtime.
We have found that the ones that end up with decent amount of wealth are not the one’s with huge earnings, but the one who has been disciplined and travelled along the planned path diligently. 

Article first appeared on:
Stubbing the toe on Wealth Creation
Author  -   Suresh Sadagopan  | Founder | www.ladder7.co.in

#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7

27 June, 2017

Three behavioural biases that can ruin your portfolios

Awareness & consciousness of the biases would prevent one from stepping on the banana peel of wrong conclusions.

We all think we are rational beings and we take decisions or arrive at conclusions after weighing the pros & cons of the situation. We also take into account all the data available before arriving at a decision or conclusion. But, still, many of the decisions or conclusions we take turn out to be really wrong, which leaves us scratching our heads. We wonder - Where have we gone wrong?
It is not that we may actually be wrong, but there are entrenched thought patterns which may lead us astray. We may not even be conscious of this!
We need to understand first where the biases are coming from & what some of those biases are. Only when they understand that, can it be tackled.
Hindsight Bias – We are not oracles or soothsayers. Hence, we would not be able to anticipate which events will happen or how it will unfold. But after the event, it all seems so logical and even cogently explainable. This is irrespective of how improbable they thought the event was, before it occurred.
Psychological experiments prove this. Baruch Fischhoff demonstrated this “I knew this all along” effect, through an experiment. Fischhoff conducted a survey on possible outcomes of Richard Nixon’s trip to Russia & China in 1972 and asked people to assign probabilities to various events, before the trip. When the trip was done & he went back to the same people, there were surprises in store.
Whichever event had actually occurred, people exaggerated the probability they had assigned to that event. If it did not happen, people said they always felt it would not happen (though the probability they assigned before that event was higher )! After the event, everything seems so logical & plausible, that we automatically adjust our memory to align with what is now known!
Hindsight bias has huge implications for all of us. For instance, if during a routine surgical intervention an unpredictable accident caused the death of the patient, it will most probably be believed that the doctor did not assess the situation properly & went in for a risky procedure! The benefit of hindsight & knowing the outcome alters how people perceive what the doctor had done. We come to the wrong conclusions due to hindsight bias!
There is also another bias lurking out there. It’s called outcome bias.
Outcome bias – Blaming someone for a good decision which worked out badly & giving too little credit for good moves, that, with hindsight, looks all too obvious, is outcome bias in action. When outcomes are bad, people would blame the decision makers for not seeing the writing on the wall, in spite of prudent decisions that the person might have made with the information available, at the time of the decision.
This again is proved in psychological experiments. In case of 9/11 type incidents, the officials concerned seem negligent, even absolutely irresponsible after the event. CIA had intelligence inputs to indicate that Al Qaeda was planning a major attack, which went to the National Security Adviser. This was not escalated to the President, which was questioned after the event. It did not go to the President as it was one of the many intelligence inputs that CIA got and this one did not look specifically significant.
Predicting outcomes is extremely difficult as there are so many variables affecting an outcome. And yet, after the outcome is known, we all tend to judge all those who were involved in that process, based on how it turned out!
Action Bias - There is another important area where we all go wrong.
Financial advisors are expected to keep shuffling portfolios or keep doing something, in their quest to advise clients. That is why advisors who tell their clients to just stay invested or tell the clients that no changes are needed in their portfolios, are not that popular. People like action. Those that are constantly seen to be taking action are seen as dynamic & proactive. This is called the action bias.
The good advisors who advised clients against unwanted churn are not fully recognised for their wisdom, even if they ended up with good returns. The client thinks that the markets have done so well that the returns they have got would anyway have come and advisor contribution is not much (the advisor did not even suggest any actions in between and asked us to stay put). Even a very good outcome can act against a person. This is a case where outcome bias & action bias are acting in concert.
Action bias is seen even in sports. In a penalty kick, there is a penchant for the goalie to jump to the left or right without knowing the intention of the kicker. Had the goalie been standing in the middle, he would have probably saved more goals. That’s what studies suggest! The goalie does not want to be seen as slothful & the viewers equally expect him to dive to the left or right, instead of planting himself in the middle. That is the classic action bias at work!
What can we do - Knowing that these biases exist is helpful, but that knowledge by itself cannot prevent these biases from asserting themselves.
Before coming to any conclusions, one needs to examine whether it is tinged with any bias that may lead one astray. Awareness & consciousness of the biases would prevent one from stepping on the banana peel of wrong conclusions. Wrong conclusions lead to more wrong decisions. Mind does play games - but we can avoid being kicked around, if we are alert.

Article first published on:
Moneycontrol - Three behavioural biases that can ruin your portfolios

Author  -   Suresh Sadagopan  | Founder | www.ladder7.co.in

#SureshSadgopan #FinancialPlanner #FinancialAdvisor #Fiduciary #LifePlanning #FeeOnly #HolisticAdvice #Ladder7