Riskless portfolios…

I am not sure about the social media and investment advice, but am worried about the people who talk about risk in the media!

Let us see some comments:

1. At this point if you are afraid of the markets you should shift to a RISKLESS portfolio of debt funds, FMP and bank deposits.

Yuck, yuck, yuck.

If a 24 year old is saving for her retirement – or anything which is 5 years or more duration, this advice is cruelly inaccurate. I would have said laughable, but somebody may actually listen and shift to a debt portfolio.

2. People who do not want to take risks should shift to a riskless portfolio of debt funds, FMP, and bank deposits.

If the speaker/ anchor does not know / realise that getting NEGATIVE RETURNS (especially over long periods of time) is A HUGE RISK, he/she will make such comments. For a person investing for a 3-4 year horizon and the ability to weather storms in the interim period, this suggestion is stupid and obviously wrong.

3. As your age increases, you should invest more in debt funds rather than in equity funds.

My take: yuck again. This is only broadly true – while implementing the total amount available, the total expenses, how well the children are doing, whether there is an indexed pension, all these factors have to be considered. Do not use it like a truism!

All the three pieces of advise can be right for a few people and completely wrong for a lot of people. The way people say it it looks like a statement that is always true. Statements like ‘Sun rises in the East’ – is always true. However these statements are not ‘Always true’. At the time of retirement for example there is NO NEED TO SHIFT EVERY THING TO DEBT. You will need to tackle inflation, ability to withdraw during real bad times, ability to handle stress in a market going down for say 10 years etc….

Please understand the difference between ‘has not happened’ and ‘cannot happen’…- risks of watching the media, perhaps? LOL

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7 Responses to “Riskless portfolios…”

  1. Agree. most of the time the defination of Risk is gone overboard. This kind of people while riding the very high of people investing in markets make them shoo away, and then crib people do not participate in market due to fear … dude you are the first to instill that fear in the people.

    People are gullible and will fall prey to such gimmicks by few who want to earn thier 10 minutes of fame on the TV.

  2. Every savvy financial non-trader will tell you that this is a great time to invest if your horizon is five to ten years. I do not want to look back at what their advice was five to ten years ago, or guess what it will be in five to ten years from now. Your fallacy is you assume the market will be up in 5 years while you yourself have claimed in past articles that no one can predict where stocks will go.

    My take is that if the Europe or US will monetize or try to print more to get out of trouble now, the next 1 year would be a good time to invest. After that, it will be a frequent cycles of booms and more busts until the ponzi scheme can no longer be sustained. But If the system implodes, then its a good time to invest for a long term.

  3. Excellent Input Subra.Many thx

  4. Sunil – when I say ‘I do not know anybody who can predict the market’ – is NEVER FOLLOWED BY ‘therefore I will not take a call on the market or sit in the sidelines waiting for the uncertainty to be over’. I traded in and out of banking stocks, I have accumulated Bharti Tele from 280, down till 250…and still holding. Clearly it was a long term call – it has given good returns in a flat market. IT IS MY CALL FOR MY MONEY – and clearly I am not in the consulting / brokerage business, but I need to look after my money. I am an investor for about 80% of my equity portfolio and a trader for 20%. Normally a value investor, in many cases I could see the value coming from the growth.

  5. thanks for this comment subrabhai– food for thought.

  6. One should always take financial advise with a pinch of salt. For anyone planning to invest for long term, it is advisable that they should to their due diligence before acting on anybody’s advise.
    As far as risk is concerned, Warren Buffet has cleared the doubts with his famous remark –
    “Risk comes from not knowing what you’re doing”

  7. Again the idea has to be quite Simple

    Income – Savings = Expenses

    Regards
    Bhawin

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