Asset allocation

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  • what have most of our clients & many a times we too
  • Fighter plane
  • Asset allocation

    1. 1. Asset Allocation 1 www.fpgindia.org
    2. 2. History Till early 1960 the term Asset Allocation did not exist. The Traditional view -  Diversify - Avoid putting all eggs in one basket  Let every man divide his money in three parts, and invest a third each in land, business & balance let him keep in reserve.(Talmud) 2 www.fpgindia.org
    3. 3. What, assets? Assets Vehicles  Equity  Debt  Real Estate  Gold/commodity  Equity Mutual Funds/Private Equity/PMS/ Large /Mid/Small/International  Debt Funds/Fd’s /NSc/ KVP /PF/ PPF/Bonds etc  Direct - House/office/shop(Leveraged)/ PMS/ Reit  Physical/ETF/Options 3 www.fpgindia.org
    4. 4. Why Asset Allocation  Correlation (MPT)  Goal management  Concern & Control 4 www.fpgindia.org
    5. 5. The MPT – a portfolio mgmt technique The four components  Investors inherently avoid risk, then they are with reward  Securities markets are efficient  Focus on portfolio as a whole and not on individual securities  Every risk level has a corresponding optimal combination of asset classes that maximizes returns 5 www.fpgindia.org
    6. 6. The Black Swan  Fragility - Catastrophic  Counter balance complexity with simplicity – equity bubbles proved to be mild, debt bubbles vicious  Incentive bonus to manage a nuclear plant/ financial risks  Teaching people to navigate in uncertain times – times when bankers take risks more than entrepreneurs 6 www.fpgindia.org
    7. 7. Types & Risks  Strategic  Tactical (Pu Shen – PE)  Functional( Bert – Talmud, farmer)  Nick (the bigger risk)  Inflation  Volatility  Deflation  Behavior  Institutional approach to Individuals  Risk per se – Whisky & wada pav 7 www.fpgindia.org
    8. 8. Dimensions  Returns – the fighter plane  Time Horizons  The market timing – existence of inefficiencies, understanding business cycles etc 8 www.fpgindia.org
    9. 9. Timing the market 15.00% 15.50% 16.00% 16.50% 17.00% 17.50% 18.00% Returns From Jan 1980 - Aug 2010 17.60% 16.19% 16.91% Yly Investments @ lowest Sensex value every Year Yly Investments @ Highest Sensex value every Year2 SIP On 1st day of every month 9 www.fpgindia.org
    10. 10. Determinants of portfolio performance Asset allocation 91% Security Selection 5% Market timings 2% Others 2% Asset allocation Security Selection Market timings 10 www.fpgindia.org
    11. 11. Points to ponder  Managing the self & the individual client against the market forces  Understanding of risk per se  Individual challenges – Within control -  Relationships  Health - habits  Redundancy  Behavior 11 www.fpgindia.org
    12. 12. Thank You 12 www.fpgindia.org

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