1. First of all you are dependent on your employer. That does not sound too great, does it?

2. Your employer could just do away with medical insurance completely. Period.

3. Suddenly your parents could be excluded – and if they are above 65 you will struggle getting them medical insurance AT ALL.

4. Your employer could exclude your spouse and children (do not look horrified, it happens far more regularly than you wish to accept).

5. What happens if you have quit a job on Friday, decided to join on the coming Wednesday, but your heart decides to attack you on Monday? Remember between jobs you will have no insurance.

6. If you lose your job – and you are perhaps most vulnerable, you lose your insurance too. When you have just lost your job, the chances are insurance premium is NOT likely to be your topmost priority.

7. The waiting period for your spouse and children could be different from the waiting period for you. This means your wife may be without cover for say 3 years because you have changed your job.

8. If you move from a large company (say 15000 employees) to a small company (say 700 employees) – which could suddenly see a reduction in coverage amount.

9. Rarely, if at all, do companies increase the sum assured to cover INFLATION.

10. Many companies take medical insurance without realising the impact of non payment of claim.

…10 points per post!!

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1. Suddenly many jobs are being lost: Remember slowing down, closing down are not words that happen only to somebody else! It happens to the best. Only your salary is certain, the variable salary is really variable. I now know of several people who are EARNING about 60% of their claimed CTC. The variable is just not happening.

Learning: when you commit to a life style, emi, etc. IGNORE a big portion of your salary. Assume only 50%, it helps.

2. Sorry kids, I got it wrong: Many kids in the age group under 26-7 who have done their SIP in equity funds may have to hear taunts from their parents! All SIPs started in the past 1-2 years are under water. If their parents are saying ‘see I told you, keep your money in the bank’ – frankly I do not know what to say. Equities will do what it does. Keep your cool. You have to do what you have to do!!

Remember the returns from 1979 to 2011 was about 18% p.a. – if you add dividends reinvested the returns should be better. However no ONE year may have got you 18% – there have been years of -46% as well as super years like 242%. Be ready for volatility. A terrible 2008 (-40%) was followed by a fantastic 2009 (90%)….so BELIEVE in equity. Accept that volatile assets will not give you linear returns. Have patience it is a test match, not a T 20 match.

3. Debt market is attractive ONLY in the short run: If you think SBI bonds at 9.95% p.a. is attractive, remember money should grow in REAL terms, not just NOMINAL terms. Nominal returns in SBI is 9.95%, but inflation is say 11.95% – in such a case YOUR money is not growing in real terms. It is SHRINKING….so you need to be in equities. Being in debt funds (I am in debt funds too) is a good tactical move for 12-14 months, at the end of that period you will have to come back to EQUITIES.

…..

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Most economists you meet or read tell you that the US problem is worse – much worse- than the Euro problem. Many of us think that the Americans have pushed the dollar too far and it has to fail.

The American debt, the American bank’s date and the NINJA credit cards, NINJA educational loans, etc. have not yet hit. Once all this hit, the so called American growth story will vanish.

The US Gilts and T Bills cannot permanently be at 2% p.a. when inflation in the US is at 5%p.a. – this is not GROWTH, this is just a realistic adjustment to the helicopter Ben’s reckless QE and printing…:-)

Gold cannot keep going up if Americans start selling – simple.

The Chinese Real Estate bubble will also take its toll on the Chinese banking….

ULIPs will come home to roost on the balance sheets of life insurance companies (it is difficult to imagine how many proposals are being surrendered BECAUSE they are 5 years old! So all that assumption of 30 years premium is a nightmare gone absolutely wrong.

The Pound and the Euro will have to get realistic about what is happening in Europe and UK in particular…

The Japanese story is still not fully understood….

What is a bubble?

When the runaway valuation is not backed by cash flows to sustain it at meaningful levels, it is a bubble…now will somebody tell me why these are not bubbles please?

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1. The elephant is a strong animal: Wrong. It is a big animal. The tiger is strong – and the African lion is far stronger. It weighs about 300 pounds and it can carry a 1600 pound bison and walk 500 m. There are many insects which can carry weights far greater than its body weight. Strength is not visible – it is measured in weight carrying and endurance!

2. If you are exercising regularly, you can eat whatever you want. Wrong. A good work out in a Gym (for an hour and under strict supervision) can burn say 800 calories. A couple of samosas will wipe out all the good work done. A healthy life is about eating sensibly, eating regularly, in moderation, exercising regularly, …ALL of this is needed. One cannot substitute for the other. Prevention is better than cure – remember?

3. Real estate never goes down: Too amusing, have written about it too many times! Real estate as a saving instrument is good, it is bad as an investment especially over long periods of 30-40 years.

4. Equities are Risky: Especially if you do not understand averaging

5. It will always be profitable if you buy gold, EVEN if you leverage: Complete nonsense. Over long periods of time and adjusted for inflation gold will give NEGATIVE returns.

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Let us look at China. If I had my money there, I would be worried and pulling out. The government has too much money and it does not let the citizens spend – that is the way to keep inflation down. The avg Chinese will end up buying more gold and real estate. Real Estate is cracking and gold may also struggle.

India: It has a government which spends with 4 hands. Clearly RBI has no answer to inflation and the UPA is busy making money. No clue whether it is worth voting NDA back to power – but we may have to do that just to get rid of the Congress. Most of the reforms happened under Narasimha Rao and Vajpayee – our current PM is …well no comments. No control on inflation, no control on deficit (55 billion US $ soon). No reforms, growth in mid single digits, and the Rupee heading to 55 shortly…NO way how an American will be in a hurry to invest. We thought if we got US $ 30 billion once, we will get it every year.

If Subramanyam Swamy can get some order from the Supreme Court – the government will have to go. Kaput.

So India is out.

Brazil, Russia ….hmm no comments..

So there will be ‘flight to safety’ – so the American bluechips will get more money …..all IMHO….

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Why do I find so many attractive targets to write about?

Just found an article on Rediff.com saying ‘Six reasons why property prices WILL NOT FALL in your city’.

Let us look at it reason by reason?

“Property prices across the country are unlikely to see significant price corrections of more than 10 per cent in the coming few years.”

YOU NEED GUTS TO MAKE SUCH A COMMENT…RAW GUTS.(my comment!)

Reasons given in the article:

1. Because it is a cash haven for BLACK MONEY: come on Indians know that now you pay 30% Income tax and 10% short term capital gains tax. Long Term cap gains is 0% – much easier to convert and invest wherever you wish. Even in cities like Mumbai, only some locations can you do a 70:30 (Cheque: Cash) transaction. Much, much easier to do small transactions in gold.

2. Investors are willing to pay the high interest rates: Complete nonsense. Seen a deal where a builder borrowed Rs. 200 million @ 28% p.a. for 2 years. This builder would have happily given a 35% discount on his rack rate – but needed a big committment from the buyer. As it was not forthcoming, it got converted to a secured loan at 28%.

3. Inflation: I did not understand this as a reason, pardon me.

4. Wages have gone up, thanks to NREGA – so labor is not available….

I think the author means that because of inflation and non availability of labor prices cannot come down. Funny, prices of existing housing stock will fall – because the builder may be going out of business!!

5. Contrary to popular belief only a few builders are leveraged: Do not have enough audited figures to dispute this, but take a look at the balance sheets of listed companies – there is surely some leverage, and further loans are JUST NOT AVAILABLE for builders…

6. You are likely to get about 18% p.a. return: Did this working over the last 25, 30, 35 years…did not find any location where property prices doubled in 4 years…feedback welcome. And I am not even talking about interest cost, borrowing costs, term insurance, maintenance, ….etc.

the bold print is in the article – the normal print is my view. Sorry rediff, find it difficult to agree…

Now I know a bunch of people who have LOST money in real estate transactions – bad builder, bad timing, …many reasons and in many locations too! Pune, Chennai, Bengaluru, Mumbai, Navi Mumbai…..will do specific stories…not sure when!!

here is the link

http://www.rediff.com/getahead/slide-show/slide-show-1-money-six-reasons-why-property-prices-will-not-fall-in-your-city/20111121.htm

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- Domestic growth has slowed in recent months to pretty low levels, and a senior banker saying be happy with 6% growth next year

- A fallen and further falling Rupee?

-Inflation stuck at double digits – latest is 10%!

- RBI’s constant raising of interest rates have NO impact on inflation.

Foreign investors have bought just a net $800 million of Indian shares vs.  $29 billion last year!

Korean won has slipped about 1% this year

Malaysian ringgit is down around 2.4%.

The rupee has fallen 14%, ONLY  Turkish lira, down 17%, and the Kenyan shilling, – 15% are behind us.

In October, India’s trade deficit rose to $19.6 billion!

Exports are falling, oil, gold, and coal imports are hurting bad…

Slow FDI and slow FII – The benchmark Sensex is down 20% this year.

Indian government has  raised the limit for foreign institutional investment in sovereign and corporate bonds by $5 billion each. Impact on the currency? Marginal and short term!

The great Mani Shankar Iyer says we should not let the currency float…and should be in the pre 1991 era.

For any good thing to happen, we should get rid of the Congress, or ensure that the Congress gets rid of the ‘left’ inside the Congress.

My vote is for a grinding to lower levels of the sensex – no dramatic fall…but a slow process of 16500-15000 but via 17000 – so SIP will work, do not try timing…

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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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1. Equity is risky, it has no place in your portfolio. I write so much about equity, I am sure my readers know how stupid this line is. Do I need to elaborate? Just read my blog..and you will know about the risk of inflation.

2. Equity returns are not guaranteed, so it is risky: This is perhaps worse than the first point, so I will ignore this too. Just a little tear for the client and his planner.

3. Buy a big house and you can sell it and use it as a retirement kitty: You need to be extremely lucky to get good returns on a single property portfolio. Almost impossible. If at the time of your retirement the only asset you have is a piece of real estate in which you are living, man you should sack and sue your advisor. Or shoot yourself for listening to such bad advice.

4. You will be able to withdraw 9% from your portfolio (planner’s logic – senior citizen’s account pays that much, dude): Complete bull. You should be lucky if you can withdraw 4% of your portfolio if it has a healthy mix of equity and debt – and this amount may be completely insufficient by the time you are 70. Inflation adjusted withdrawal, post tax making a 9% assumption is a financial crime. Shoot your planner, guns are available.

5. At retirement all your money should be in debt instruments: OMG I have heard this too many times. Even after you retire you will have to battle with inflation. Not more than 50% of your LIQUID net-worth should be in debt oriented instruments. At the age of 80 you may be able to move to 90% in debt, not earlier…and if you have a younger spouse – at her age of 80.

6. You can start saving for retirement after you have accumulated money for your daughter’s marriage: I seriously debated whether you should shoot, poison or throw your planner in front of Shathabdhi for such advice. I would do all 3. The worst thing you can do is delay the start of investing for retirement. One girl I know has started at the age of 24years – she is now 32 and is going strong with her SIP in equity funds. Please remember the title of my book ‘Retire Rich: Invest Rs. 40 a day’ – this is true only for 24 year olds doing a SIP in an equity fund and increasing it by 10% every year. Time is your best friend when you are young. If you do not start young it becomes your enemy soon. At age 40 you will need to do a SIP of about 55,000 per month if you did not do 40 at age 24.

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I have no clue whether Mark Twain, Warren Buffet, Peter Lynch, Taleb, or anybody else has made this statement…if they have not, here is a original statement from Subramoney. As originals are very rare, please remember you read it here first.

One risk that all of us HAVE to understand is the risk of inflation. So for all those experts who think a portfolio containing public provident fund, national savings certificates, bank deposits are ‘No Risk Portfolio’ please think again.

The youngsters whom I meet have got the following advise….

1. Over the next 3 years nothing good will happen in this country so keep your money in debt.

Vow…why should a 24 year old worry about ’3 years from now’? Beats me. Ok let me stick out my neck. Over the next 3 years (starting Nov 2011) Hdfc Top 200 would have out performed the best FD that is available today (let us say SBI FD – not some risky debentures).

2. You will not incur a loss if you are in a debt portfolio. Correct.

You will NOT RETIRE either. My dad’s dividend income today is HALF the amount that he got as PF for his 37 years of service. If he had not invested his money in equities, he would not have the lifestyle that he enjoys today WITH HIS OWN MONEY staying in his own house.

A kid of 24 today runs the biggest risk of inflation and will not be able to RETIRE AT ALL (leave alone at 60) if he has a portfolio sans equity.

3. Invest in Real Estate – God does not make it any more.

Look at the 30 year figures, put it in excel and then take decisions. Maths and logic should prevail – not parental pressure – just heard of a 25 year old committing to buying a house because she was emotionally blackmailed by her mom to commit to a house.

Mom’s Logic: It is her house – at least it is forcing her to save by paying the EMI…

Like the depression babies of the US, India has the ‘Harshad Mehta’ and ‘Ketan parekh’ babies. These people keep talking of ‘My father lost his 3 lakhs in the market…or some such stories. Take a closer look – it is YOU who is to be blamed.Not the market, not Harshad Mehta, not Ketan Parekh, not SEBI…JUST YOUR LACK OF KNOWLEDGE..of course risk also comes for people who think websites and blogs can replace good advisers. For such people risk comes from reading too – because understanding is not a given, is it?

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