HOW TO SAFEGUARD YOUR WEALTH AGAINST
VOLATILTY
1. Get real about your job and income
· If
you have been lucky to move your income up dramatically by switching jobs,
negotiating smartly and taking risks, reassess it honestly.
· Get
ready to take a salary cut, a reduction in revenue, or a lower remuneration for
your professional services.
· Find
a way to improve your skills, even if you have to take a sabattical, so that
the income stream does not dry up.
2.
Recheck your insurance
· If
you are avoiding insurance as you were sold wrong products earlier, or had a bad run-in with insurance
that you bought only to save, you may be shunning a product that holds merit
during bad times.
· The
primary purpose of insurance is to protect your income from unexpected big
losses.
· Without
the protection of insurance, your limited wealth may be lost in hospital bills,
repairs and restoration, unexpected thefts and damages, and avoidable erosion.
· Seek
out protection that is well-defined, reasonably priced and adequate to cover
you and your family.
3.
Repay debt and avoid leverage
· A
combination of high EMIs and risky jobs has taken a heavy toll on the happiness
of several young couples.
· To borrow
is to use tomorrow’s income today.
· When
the income seems to be at risk, keep the charges on it to the minimum.
· Review
your loans.
o
Is
the repayment stressing your finances?
o
Are
the assets really needed?
o
Can
the upgrade for the car wait?
o
Is
there a point in keeping deposits at 8%, while loans at 12% are piling up?
o
Should
the maturing bond be used to repay a loan?
· A
good quality household balance sheet will have to balance out the
borrowings and income.
4.
Realign your assets to your needs
· If
your portfolio is primarily made up of your luxurious home, shares and
derivatives, you need to rework the mix.
· A
part of your wealth should be amenable to being drawn down in instalments to
help manage the loss of income, or generate adequate income to augment your
needs.
· You
will, therefore, need assets that are liquid, flexible, and less volatile.
· If
your optimism for equity led to over-weighing it in your portfolio at the cost
of debt, re-balance it.
· If
you invested in a holiday villa and now your job is at risk, you need a
rethink.
· It is
more important to ask which asset will work for you now, instead of asking which
asset is going to do well in the future.
· If
your children are likely to draw the money soon for higher education, you may
not want to keep the corpus in equity, hoping for the next bull run.
5.
Risk is what you can bear, not what the
market offers
· The
simplest definition of risk appetite in investing is about the downside you can
suffer.
· This
is both about ability, in terms of the wealth that you have, and willingness,
in terms of your attitude to losses.
· You should, therefore, be factoring in risks to your future incomes.
· Your accumulated
wealth will give you the ability to take risks with your money, but your
investments should also have a defined downside, more so when you know your
ability to replenish your wealth would be lower in the future than in the past.
· Ensure
that you have not taken bets that will cost you your coat.
6.
Asset allocation always works
· Ignore
the gurus and pandits who read the crystal ball.
· Discount
all advice about what the future holds.
· Future
is but an imagined set of events, and can, therefore, be only about probabilities,
not certainties.
· Give
up the eternal search for the next best investing opportunity, and stop asking
what will work next.
· Ensure
that your money is put to work across assets, and do not indulge in a risky
asset beyond your personal capacity for risk.
· A
core portfolio, comprising your home, gold, and debt funds, is your
base.
· A
wealth portfolio, consisting of shares, ESOPs and mutual funds, is the
add-on facilitated by your healthy earning, good savings and sensible
investment.
· Your
speculative positions, right from that house you booked for fun, to the
commodities you traded as pastime, is the froth.
· Protect
the core, be sensible with the wealth, and cut out the froth.
· Your
ship might yet sail home to safety, weathering the storm.