Becoming Rich ~ Basic Of Investments
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Asset Allocation
The most important component of your investment. Sadly, not many use this. It’s a hero honda bike, fill it, shut it and forget it.
Next few lines can be very boring, techincal and out of world so you may skip and concentrate on formula only.
Your allocation can vary depending on your risk tolerance, age, and personal exposure to certain asset classes, but given below strategy can serve as a useful rule of thumb. It is loosely lifted from DSP Black Rock Asset Allocation fund however in past most financial advisors used similar method and is widely used too in the world to allocate asset class.
There are few prerequisites required. 1, understanding how much market is valued which is measured in price to earning ratio. Without knowing what market valuation is, it’s stupid to put money, any money.
Price to earning basically relates current price of share to it’s earnings. For example if 1 reliance industry share is trading at 900 and earns 45 rupees, it’s p/e would be 20 i.e. 900/45. Since 20 is taken as fair value (25 p/e is high, 15 is low) someone can get ready to pay 905, 910 and so on thereby making p/e overvalued and stock expensive.
Since we won’t touch stocks we leave it here, it’s just to explain. A nse nifty/bse sensex p/e is combination of all companies stock price and their earnings. BSE uses consolidated data hence we will use BSE 100 as it is most traded indices with 53℅ FII and 30 odd ℅ DII actively buying and selling. Thus it gives broad idea of where market is.
Historically, market fells and goes into a bear market once it reaches a price to earning or p/e ratio of 25. Also a bull run starts at p/e of 15. But ideally it stays between 18~22 for most of the time. Current p/e is 20.xx which is fairly-valued.
As said, for our strategy we will take BSE 100 as barometer of valuation, p/e reflects here
http://www.bseindia.com/markets/keystatics/Keys...
select BSE 100 from drop down under S&P BSE 100 and click on 2015-2016
after clicking 2015-2016 down below you will have months like December 2015 November 2015 and so on. Click on Dec-2015 and check today’s p/e ratio which is 20.04
Now remember this figure and divide it by 100. So 100/20.04=4.99
4.99 is acutally Earning Yield of BSE 100 stocks. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each rupee invested in the stock that was earned by the company.
For example if you invested 100, currently market will give you return of about 5℅ with risk invloved! Bad na?
So why would you buy stocks when FD, Govt bonds are giving 7.75~8℅ risk free returns?
But hey, there is something called growth, something called inflation. You just cant beat inflation by keeping money in FD, bank, cash, even gold, now real estate too or just bonds, debt funds or liquid funds.
So logically, since you want growth (using equities) and security for uncertain future (using bonds, FD, gold), you either put money in growth (dangerous but grows as inflation increases simply because products made by listed company is sold after inflation ajusted in price), or safety (no inflation adjusted returns, money will finish sooner or later due to rising inflation and devaluation of purchase power)
Thus we use ASSET ALLOCATION!
You need India’s 10 years Government Security Bond Yield from here https://www.ccilindia.com/OMMWC...px
Currently Govt Security of 2025 is treated as 10 years 07.72 GS 2025
We use this as this is considered as safest investment in any country. Only on India’s default and bankrupcty it will become useless paper.
What we will do is simple, take 10 years yield and divide by earnings yield which is yield gap.
Here today’s 10 year bond price is 7.7731 and earning yield is 4.990 from bse 100 data calculated earlier.
dividing 7.773 to 4.990 we get 1.55, yield gap! Match this with chart given below which says 40℅ between 1.50-1.60
So you should invest 40℅ of amount in equity funds and 60℅ in debt, liquid, bond, cash, gold etc.
Will elaborate on where to allocate next time!
coming up – how to allocate asset, aggressive vs conservative allocation depending upon age, money. how to select equity and debt fund fund, how much portfolio diversification required, when to go for a kill in market blazing all guns and when stay cautious, what to expect in future, direct funds, how can one save money, sip, etfs, short term buying, RSI or MACD or williams ℅ r method of trading and so on.
awsome tips and i like concept of reservation 
vu + suggested +KG…
good info
8. Stop watching CNBC, ETNOW, ZEE Business, reading pink financial porn. Trust yourself.
Just on a lighter note, people do advise to follow the so called advisers on them and do exactly opposite trades as they advise. People have claimed that it works 70-80% of the times.
I have done little bit of research to verify these claims though my sample study was for just 10 scripts of Large/mid caps. They trace the targets half way through and all of a sudden just reversed the direction in a bad way. Recent example was coal India. The stock was in such a upward movement after OFS and every adviser was shouting buy even after it crossed its lifetime high. It stayed above 400 for couple of weeks and it slipped very bad.
@bikipatel wrote:
:-D
Biki Patel
Chambers of Commerce
401-404 Maker Tower
Coming soon : Nameplate
Good Share…
VU +18 BRO…
Very well said to pick your own stocks. I started investing this year, and relied on some of my relatives, stock advisors but as time passed I understood what’s best suited at this point. my portfolio is in red but I don’t worry as I started investing keeping in mind that I will be loosing money. however its just 1st year, and I have made pretty safe investment (nifty 50) so I speculate it will rise in coming years.
it is very important to make your own choice. best way to choose the stock is your day to day life. eg. if you choose to buy close up instead of other brands check the company which manufactures close up.
@marketdimer, everyone is worried as there is no catalyst to growth right now. everyone in the neighborhood is scared as nifty is @ 7600. I won’t blame them.
remember, when market falls, gather money and invest at each fall 
@harshk wrote:
This thread has a lot of potential.
Hopefully I will have some reason to be more active on DD now.
thanks for encouraging harsh bhai, my 1st fpd giver and one of thd gems dd misses. hope you contribute too. I’ll keep thread alive with whatever way I can in spreading awareness and improving investment culture. long way to go.
@harshk wrote:
This thread has a lot of potential.
Hopefully I will have some reason to be more active on DD now.
For winning more gold ?
@Bulwark wrote:
VU +18 BRO…
@marketdimer, everyone is worried as there is no catalyst to growth right now. everyone in the neighborhood is scared as nifty is @ 7600. I won’t blame them.
remember, when market falls, gather money and invest at each fall
As warren buffet says
Be careful when others are greedy and greedy only when others are careful
90% burn their money in stocks because they get in and oit at the wrong time..
most are optimistic and dont book loss and see stock price fall down from 950 to 25 because they did the hero Honda and forgit it.
A word of advice from a stock market small timer who bought his 2 econony cars fron stock market profits…
do paper purchase… decide you are buying RIL today and write it on your notebook instead of actually buying it and track if your decision was right till you get your judgments right enough to actually buy them.
keep 6 months worth of money in bank FD for emergency.
BEST investment fot long term is properly. buy it as ealy as possible. for example in pune a 3.5bhk was available for 69 Lakhs exactly 2 years back (nearing completion) . 3 years prior to that the same flat was available for 36 lakhs while booking phase.
And now after 5 years (with possession) its valued at 87 Lakhs. building in same neighbourhood by same builder and same design in booking is being sold 65lakhs for 2bhk.
the idea is. if you can afford and stretch your finances within comfortable limits. seriously consider buying a flat with loan or whatever money you can spare to reduce the emi. put it on rent and let the tenant pay rent to pay those emi’s for you (literally) .
@dharmanath481 wrote:
90% burn their money in stocks because they get in and oit at the wrong time..
most are optimistic and dont book loss and see stock price fall down from 950 to 25 because they did the hero Honda and forgit it.
A word of advice from a stock market small timer who bought his 2 econony cars fron stock market profits…
do paper purchase… decide you are buying RIL today and write it on your notebook instead of actually buying it and track if your decision was right till you get your judgments right enough to actually buy them.
keep 6 months worth of money in bank FD for emergency.
BEST investment fot long term is properly. buy it as ealy as possible. for example in pune a 3.5bhk was available for 69 Lakhs exactly 2 years back (nearing completion) . 3 years prior to that the same flat was available for 36 lakhs while booking phase.
And now after 5 years (with possession) its valued at 87 Lakhs. building in same neighbourhood by same builder and same design in booking is being sold 65lakhs for 2bhk.
the idea is. if you can afford and stretch your finances within comfortable limits. seriously consider buying a flat with loan or whatever money you can spare to reduce the emi. put it on rent and let the tenant pay rent to pay those emi’s for you (literally) .
Wise words. 
BTW, so the building project took 5 years to complete? Isn’t that a little too long? I am not familiar with the scene in Pune so pardon me if that’s the norm there.
@bumblefoot @RDX @TronGalaxy This is a good thread. Can you please fix the spelling of “Becoming” in the thread title?
Really useful thread. @dharmanath481 bro, I think you have lot of experience and knowledge to share when it comes to business/investing. Do share some more with us.
@dharmanath481 wrote:
BEST investment fot long term is properly. buy it as ealy as possible. for example in pune a 3.5bhk was available for 69 Lakhs exactly 2 years back (nearing completion) . 3 years prior to that the same flat was available for 36 lakhs while booking phase.
And now after 5 years (with possession) its valued at 87 Lakhs. building in same neighbourhood by same builder and same design in booking is being sold 65lakhs for 2bhk.
(literally) .
Sir Ji Wrong real estate m to sabne banaya paisa bt
If you bought share 3 year ago for long term thinking buy as early as possbile you now officially lost 50-70% in most of stocks – will give u example later
same happen with gold – how much return in last 3 year
and if you have money right now there is no sense to buy real estate at high valuation
better keep @ bank with 8% or 9 with PPF
who liked ur post i dont understand
LOL that golden opportunity has still not come in last 10 years I have been tracking.
Economy is gone bad and what not but have not seen real estate prices gone down so much that it becomes lucrative. Builders are feeling the pain since they don’t want to let go the price hold so its their problem and its the bargaining chip buyer has in hand.
when it comes to lakhs of students graduating each year and want to settle down they need space. gone are the old days when 3 couples shared a 1bhk house parental home with their kids .
my brother exactly sounded like you. why are you buying a house in pune when you can rent it cheap? the market is bad and will fall…
he has the money but its rotting in bank while I stretched and bought my present house in pune for 38 lakhs (had studied the area fully and took the jump in 10 minutes)
38 lakhs property bought in 2010 is now valued for 75 lakhs (buyer gave an offer) plus later found there are hidden gems like society has way too much additional FSI. so if it goes for redevelopment in next 10 years each 2 bhk owner will get 4bhk plus over 30L cash.
not just the value doubled but also got to stay in it for free if i can put it that way.
to smash your comment on keeping money in bank account is absolutely dumb… that 8-9% in FD is actually just 6.8% after deductions. so if we both start on paper as having cash in hand and a good CIBIL score. you would have been poorer with your money in bank because of inflation while I more than doubled it in real estate.
Disclaimer : you have to study a micro marjet in detail and wait till you find a gem. for me its sime times 1 year of research.
please read Robert kiyosaki’s rich dad poor dad and adapt then to your life
@hese wrote:
Bookmarked.
when will it be easy to understand all of these!
You are in a good company
@Troll wrote:@dharmanath481 wrote:
BEST investment fot long term is properly. buy it as ealy as possible. for example in pune a 3.5bhk was available for 69 Lakhs exactly 2 years back (nearing completion) . 3 years prior to that the same flat was available for 36 lakhs while booking phase.
And now after 5 years (with possession) its valued at 87 Lakhs. building in same neighbourhood by same builder and same design in booking is being sold 65lakhs for 2bhk.
(literally) .
Sir Ji Wrong real estate m to sabne banaya paisa bt
If you bought share 3 year ago for long term thinking buy as early as possbile you now officially lost 50-70% in most of stocks – will give u example later
same happen with gold – how much return in last 3 year
and if you have money right now there is no sense to buy real estate at high valuation
better keep @ bank with 8% or 9 with PPF
Do Not buy as Early as Possbile Always Keep Cash and Buy In Good opportunity doesnt matter you have 2 wait 2-5 years and always diversified ur portfolio for Long Term — Unless u find opportunity keep @ bank with 8% or 9
who liked ur post i dont understand
I did liek his post with two others. 
What is wrong?
Sorry for missing from dd. Had no mobile, ordered 1 in black friday sale, aramex lost it, reshipped one still not delivered. surfing on windows lumia and writing long posts is painfully irritating so avoided login. will have replaced mobile delivered in 2-3 days, will update thread!
@dharmanath481 wrote:
90% burn their money in stocks because they get in and oit at the wrong time..
most are optimistic and dont book loss and see stock price fall down from 950 to 25 because they did the hero Honda and forgit it.
A word of advice from a stock market small timer who bought his 2 econony cars fron stock market profits…
do paper purchase… decide you are buying RIL today and write it on your notebook instead of actually buying it and track if your decision was right till you get your judgments right enough to actually buy them.
keep 6 months worth of money in bank FD for emergency.
BEST investment fot long term is properly. buy it as ealy as possible. for example in pune a 3.5bhk was available for 69 Lakhs exactly 2 years back (nearing completion) . 3 years prior to that the same flat was available for 36 lakhs while booking phase.
And now after 5 years (with possession) its valued at 87 Lakhs. building in same neighbourhood by same builder and same design in booking is being sold 65lakhs for 2bhk.
the idea is. if you can afford and stretch your finances within comfortable limits. seriously consider buying a flat with loan or whatever money you can spare to reduce the emi. put it on rent and let the tenant pay rent to pay those emi’s for you (literally) .
nature of personal finance is such that it should be kept personal and whatever suits ownself, one size fits all doesn’t apply bro. for you, buying a flat/getting loan could be easy but for someone else even paying rent could be difficult. also in my humble opinion buying a flat is necessary for consumption and if one is seriously looking to invest in real estate, a land or commercial property is better option, someone can agree and someone else can disagree, it is all because of what suits that someone and his or her pocket. if flats or real estate makes money for someone, very good, our aim should be wealth creation irrespective of method used.
I was on some expense calculator site which asked for present expenses per month and 10 years later calculation gave a figure of 14 lakhs per month.
some find it difficult to pay their monthly rent true but that is because of their past actions it would not remain the same if the person doesn’t accept it as faith and stops trying harder.
What I learnt is if you travel forward with an objective you reach faster.
I gave this stupid advice the my friend.. with a leap of faith the couple took it. was strange these guys lived in a rented small house (latwr with parents) while the flat they owned was rented to someone else. now its loan free and they stay in that house. when they look back… its almost absurd how they did it. wife had to take up a job, had to delay kids, parents took them seriously and pitched in some finances.
“wealth creation irrespective of method used " leads to fraud because there are so many vultures waiting to grab the opportunity.
pacl, sahara, samruddhi group are just few names who got behind bars.
@dharmanath481 wrote:
I was on some expense calculator site which asked for present expenses per month and 10 years later calculation gave a figure of 14 lakhs per month.
some find it difficult to pay their monthly rent true but that is because of their past actions it would not remain the same if the person doesn’t accept it as faith and stops trying harder.
What I learnt is if you travel forward with an objective you reach faster.
I gave this stupid advice the my friend.. with a leap of faith the couple took it. was strange these guys lived in a rented small house (latwr with parents) while the flat they owned was rented to someone else. now its loan free and they stay in that house. when they look back… its almost absurd how they did it. wife had to take up a job, had to delay kids, parents took them seriously and pitched in some finances.
“wealth creation irrespective of method used " leads to fraud because there are so many vultures waiting to grab the opportunity.
pacl, sahara, samruddhi group are just few names who got behind bars.
what may be good for you might not be someone else. not that people have not made money in real estate but for that one either needs big money or good income to have debt burden and keep paying emis. your perception on other method of wealth creation could be right, for others might not. and as for frauds, today itself India’s biggest real estate company heads took bail for fraud for not giving possession of flat even after getting full amount, unitech it is. thanks for your views though.
Investment decisions differ based on risk, income and age profiles. What is good for the goose is often not good for the gander. Investment decisions are also shaped by the taxability aspects. The objective and methods of lifespan planning for someone in the 20‘s would be different from someone who is nearing 50 years of age.
For a salaried person having taxable income, the first and best option would be PPF which gives highest tax free and risk free return. The moment a persons gets a job, he/she should open a PPF account and use it to the maximum possible extent.
The second option is property. investing in property, with bank loan, at the first stage of life gives highest chance of capital gains and also works in tax planning.
Then comes other investment options.
A portfolio can be a mix of equity and debt based instruments as well as some hedging in gold. For equity/financial market instruments, initially it is better to start with mutual funds rather than direct markets. From the current financial year, NPS (National Pension Scheme) has become a very good option as it gives tax deductions for upto investments of 50000 pa, gives the option to choose between multiple mutual fund managers and between equity, corporate bonds and govt bonds and also has one of the least operational costs.
It also needs to be remembered that as one becomes older, the overall income increase and naturally the tax liabilities also increase. Shifting a part of the investment to Tax Free Bonds (where the interest is non-taxable) reduces the overall tax burden and gives higher effective net return.
Direct operations in equity market is better to be undertaken only after 6-12 months of shadow practice. It is always better to identify certain specific stocks and be familiar with their movements during the year, rather than make a general sweep. It is always better to remember that to function in equity market one must use the brain and completely switch off the heart/emotions. Also, to remember that equity market is ultimately has an element of gambling and one must only gamble that what he is not afraid to lose. So never to invest in equity using borrowed money or funds that would be required in the immediate future. The best time to buy is when markets have taken a hit. No matter what, sooner or later it would bounce back. It is also advisable to book profit when markets have remained high for some time and shift a part of the profit to risk free investments like bonds and FDs, instead of continuing to hold on to the same stocks for years and years. It is practically impossible to buy at the lowest and sell at the highest, so one should never panic if the stocks dip in the short run or go up after it has been sold, as long as a reasonable profit has been booked.
Investment in gold should only be through non-physical mode like ETF. Gold coins are very easy to purchase but equally difficult to sell. The same banks who sell gold coins do not purchase them back.
And no matter what, never treat insurance as a means of investment. An insurance is supposed to give maximum risk coverage at minimum cost. An investment is supposed to maximise returns. A product that claims to do both, actually fails to do either and only results in profit for the issuer and its selling agent. ULIPs are the worst in this regard. It is better to buy a Pure Term Life cover policy and invest the remaining amount in normal channel. The only exception to this rule is the Postal Life Insurance (PLI) offered by the Dept of Post which offers life cover plus effect tax free return of around 6%. However, for that a person needs to be an employee of Central/State Govt/PSU/Autonomous bodies.
In 2000 every 2nd company had .com in it’s name and people rushed to buy shares blindly. IPOs oversubscribed 100s times, shares opend 100x times. Soon everyone started selling own gold, property and putting PF/Bank cash in these IPOs like mad. Anyone in Bangalore or Hyderabad, in 6×8 shop, was opening an IT firm, only on papers. Result was heartbreaking, many died of heart attacks, suicide. Why? IT Bubble busted. People lost Billions overnight. Know why, because they had no strategy, just greed.
Greed should never come in investment. Goals should. Child’s education, her marriage, new car, home and last but not least, retirement.
One can have different postfolios for separate goals. A generous 15℅ annum return should be goal target and investment to get goal achieved should be done on this 15℅ compound annual growth rate return. Like target of 1 crore could require 18 years with just 8 lacs investment. 25 lacs in 13 years with 4 lacs and so on.
Use this calculator for ascertaining how much money and time will require for your goal to achieve (mentioned in dollars, avoid and think result as in rupee terms.
http://ncalculators.com/investment/cagr-compoun...
Historically, most good funds have given 20~25℅ cagr returns over passed 20~25 years. Going forwards, Indians will increase participation in stocks by mutual fund route but interest rate could go down drastically so picked a generous 15℅ return expectation.