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| Mr.Samir Bimal |
- Mr.Samir Bimal
“let the buyer beware” sort of sums up what the markets and economies appear to be telling investors as they go into the year of the dragon after an extremely excruciating 2011.
Sovereign bankruptcies and downgrades, enhanced market volatility, persistent inflation, policy inaction, governance issues, rising interest rates , washed out equity markets, resistant real estate values etc, The list is long.
Most of these issues would continue to exist or could even exacerbate in 2012.
A guide map for investors in this scenario needs to be more structural than specific, flexible than firm.
Here are some pointers towards this.
Longer term Investment Horizon.!
In a market like this, opportunities presented will be plenty and visible. One does not require a steroidal push to search and seize them as in normal times. Prices of most, if not all, assets — reacting to the mass reactions — are/will be attractive.
More the uncertainty, higher the probability of bargains. Armed with advice on the sectors/companies where the long term story remains intact, cash in portfolio, conviction to go against the herd, a staggered investment approach and, above all, a longer term horizon, an investor is well poised to create long term wealth.
But you have to commit to action; bottom catching is a notional concept and more dependent on luck than astuteness. I came, I saw, I slept should not be the mantra in 2012.
Asset Allocation Model..!
Depending on the state of your existing portfolio, you need to continue following an asset allocation model which is suited to your needs. The various asset classes are..
Cash,
Equity,
Fixed income,
Real estate (Plot and Property)
Commodities would have been allocated a proportion by you/your advisor.
Review the same for a sanity check and then largely stick to it.
Revisit Asset Holding..!
The following environment is affecting the areas which lead to wealth creation.
1.Business performance,
2. Returns on investment assets,
3. Compensation uncertainties.
Unless you have already done so, this is a good time to revisit asset holding/protection strategies for your existing pool.
Understanding the possible solutions and strategies for using trusts, wills, etc to secure the existing investment pools for HNI is encouraged and you should take help of institutional advice in this endeavour.
Approach Debt Wisely..!
Interest rates, while high, are near its peak levels. Combined with uncertainty facing the environment, loan/credit in a portfolio needs to be reviewed carefully.
In spite of high levels, debt could still make sense subject to it being used to create assets and not for consumption, returns from proposed asset purchase higher than cost, debt to total own capital ratio to be comfortable, servicing ability.
Any existing debt which do not meet these parameters should be considered for reduction (terms for repayment to be considered of course).
Liquidity Very Important..!
As briefly mentioned earlier, access to liquidity becomes very important in times of uncertainty, whether to meet unexpected demands or take advantage of opportunities.
Access to liquidity is different from just holding cash. One should explore possibilities of setting of credit lines on one’s assets, which can be drawn upon in case of any usage. You can now also lend the securities in your portfolio and earn yields on them and also create liquidity. Such options would help keeping the ammunition ready for any contingency/opportunity.
Opportunities & challenges..!
Just like good stocks which are down and which should not be trashed because of this; good advisors, institutions/people who have been consistent in sharing advice, are transparent and long term in approach, should not be blocked out even if the performance has been less than expectations over the past few years.
As long as the financial advisors add value in managing return, risks and requirement in line with your objectives, a bad portfolio year(s) should not be the reason for shutting them out as more than ever, professional and ongoing advice is invaluable to navigate the current environment.
By all means, however, engage, benchmark and evaluate them constantly, but do not deny yourself flow of advisory and information.
The next one and one and half year would see multiple moving parts which would impact portfolio performance. This would throw up both opportunities and challenges.
As long as one follows a sound, consistent strategy, one will be able to confidently maneuver this coming phase. And most importantly, sleep well.
Have a great 2012.
About the Author :
Mr.Samir Bimal is Country Head,
ING Private Banking India, ING Vysya Bank
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