What happens when you stay invested for the long term ignore short-term market movements
Investing Safely, Investment News

What Happens When You Stay Invested For The Long-term & Ignore Short-term Market Movements

Hi everyone, I'm back for this week's video and I hope you all of you are staying at home and practicing social distancing. It's a really scary time with what's happening in the country, in the markets and in the economy as a whole. And so I thought of shooting this video from home instead of from the office for these very reasons.

The main purpose of shooting this video is - I want to take away the fear of investing, the fear that most investors get when we watch the media and what's playing in the news channels all the time of all doom and gloom and how markets are collapsing and all the next recession is happening and how we are all basically doomed.

All we have to do is take a deep breath, stay calm, and know that the good principles of investing work as long as we let them
work for us.  

The topic of this video is 'What happens when you stay invested for the long term and ignore short-term market moments'.

  1. The first thing that happens is your money gets time to work for you,
  2. The second is the risk of loss reduces, and
  3. The third, you have less financial stress

Now I'm going to talk about these three points by showing you some actual numbers with a file that I have created and that file shows you the performance of markets over the last 20 years.

The first example I'm looking at for this is, the performance of stocks over the last twenty years and this file is having 10 stocks - names that you know and you have grown up with. Most of these names would be very familiar to you.

Companies such as:

  1. Apple
  2. Caterpillar Inc.
  3. Vertex pharmaceuticals.
  4. Boeing
  5. Pepsi
  6. Walt Disney,
  7. Marriott International
  8. McDonald's
  9. Tractor Supply Company, and
  10. Northrop Grumman.

These are some of the top companies from each of these industries that we have chosen, and as you can see this is a very diverse portfolio with one top company from each industry. 

Now I want you to imagine this scenario where you have invested $10,000 in each of these stocks and just let the money sleep for various periods of time. Then in this file what we are going to see is how the markets perform given various amounts of time for the stock to grow. 

So let's assume that you invested one year ago, $10,000 in ten stocks that equals $100,00. Now as you have seen what's happening in the last one year, the turmoil in the markets, everything that's played out. In this example, if you had invested one year ago, you would have lost 11% of your portfolio value over the last one year. That's scary and many people think that's the reason why I'm not in the stock market. 

But let's imagine what would happen if you had invested three years ago. Now in the same example if you invested three years ago you and decided to that you just leave the money in there and how would your money have grown. So if you had invested three years ago, your money would have gone from $100,000 to $123,000, and you would have netted 8% per annum as a growth. 

Now considering inflation is 3% per annum, 8% per annum is a pretty decent number.

Now take that to the five year mark, and imagine you invested in 2015,  the $100,000 has grown to $134,000 which is 7% per annum. It's more or less similar to the three year performance. By this time you're saying - Amit what's so special about this video you're making because 8 or 7% is nothing to write home about. I agree with you - it's not anything to write home about, but still it's a decent growth that you get, if you just leave your portfolio alone, and let the money work for you without fiddling too much.  

Now let's look at the 10-year number. In ten years, that is if you had invested in 2010 instead of 2015, the same $100,000 would have grown to $160,734, which means you have got an annualized growth of 26% per annum. Now this is decent by anyone's standards in a portfolio which has not been fiddled with, there has been no buying or selling, and there has been no timing the market at all. We just followed Warren Buffett's principle of staying invested for a long term. 

There's still one more column, and I'm sure its going to blow your socks off. The last column is the 20-year growth column, and as you can see if you had invested $100,000 not in 2010, but in the year 2000 itself that $100,000 which was invested 20 years ago and forgotten about completely, would have grown to $1.6 million, with an annualized growth of 72% per annum. Now that's something to write home about.  

What I want you to take away from this particular file is - 'Markets and money need only one thing to grow and that is time.'

As long as you allow enough time for your money to grow there is no way your money would be lost, or you would get less than what you invested, unless something like a big global war happened.

As you can see a period of 7 to 8 years, or even a 5-year period is a decent period where the chances of you getting less than what you invested reduce, and the chances of you getting way more than what you invested increase dramatically.

In summary, the three things that happen when you leave your money invested for the long term and when you ignore short term market moments is -

  1. Your money gets time to work for you,
  2. The risk of loss reduces, and
  3. The third and the most important thing that happens is you have less financial stress.

I'm sure you got much more better things to do like spending time with your family, following the hobby that you like, or even doing the work that you like, without having to worry about how markets perform, and whether your future is protected or not. Those things are not relevant in the short-term, they are relevant in the long-term. 

I wish you good luck with your financial goals and as usual, if you have some questions feel free to leave them in the comments section below.

Thank you stay at home, and

God bless

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3 Reasons Why The Markets Are Volatile Today and What You Can Do About It
Investing Safely, Investment News

3 Reasons Why The Markets Are Volatile Today, and What You Can Do About It

For the last 7 days I have been getting calls and emails from clients who are concerned about their investment portfolios and what they can do to mitigate the effects of the current market volatility.

Reason 1 - COVID19 Effect on Stock Markets

There are many companies globally that depend on Chinese manufacturers and suppliers for their business. One of the examples is Apple Inc. The main product that Apple manufactures is the iPhone. The turnover of iPhone alone is more than the annual turnovers of many companies. This year the delivers of the latest iPhone models are going to be delayed because of the stoppage of manufacturing in China.

The Chinese government has rightly been trying to contain the spread of the virus by stopping manufacturing and activities that require many people to be in the same area together. So this has obviously affected the deliveries of the iPhone, and when deliveries are affected, turnover is affected. When turnover is affected, profitability of the company for that year reduces. When profitability reduces, the stock price drops.

When investors globally see different manufacturers and companies get affected by COVID19, obviously the stock values of those companies and markets as a general drop. Now how is this going to play out. Hopefully with the rising temperatures, COVID19 might die down in the next 3-6 months, because of the all the measures that different companies are putting in place to make sure that it does not spread and also because of the rising temperatures in summer. So COVID19 is hopefully not going to be an issue after the next 5-6 months.

Reason 2 - Upcoming US Elections

The second reason is the US elections. Now as you know Donald Trump is trying his best to get elected for the second term and all the measures that he has been putting in place such as the tariffs and the sanctions on different companies is a bid to get reelected.

Again, that’s a temporary situation, and one or the other if Donald Trump gets elected or not, or if some other president replaces him, the market fluctuations that are happening will subside and the portfolios will stabilize again.

Reason 3 - Oil Price War between Saudi Arabia and Russia

The third reason which should take longer to subside is the oil price war between Saudi Arabia and Russia. The Saudis are content to keep the oil price at 25-30 dollars per barrel, and so is Russia as well.

Having said that, these prices aren’t sustainable for more than 5-6 months at the most, because this will reduce the turnovers and foreign exchange buffers that these countries have been building through the revenues from oil production and this definitely cannot last long. Russia will eventually reach an agreement with Saudi and the OPEC on oil prices.

In summary, the three reasons that are disrupting the markets today are temporary.

What can investors do about this situation?

Firstly, try and remember that unless you need the money from your investment portfolio in the next  5-6 months, you don’t need to be overly worried about what’s happening.

Remember our financial goals and milestones are long-term, whether we are planning for our own retirement or we are planning for our children’s college education fees, or buying or home, what have you. Unless we need the money in the next 6 months, we should not be worried.

Now I have one client whose savings plan is maturing in May and I know for a fact that he does not need the money even though his savings plan is maturing in May, and what he can do about it is leave the money invested, wait for the markets to recover and then take the money and use it for his son’s education.

If you have specific types of investments, this is what you can do about it.

If you have a Savings Plan:

The savings plan is built in such a way that you contribute a monthly, quarterly, or a yearly amount regularly, and keep buying units. That’s how dollar cost averaging works. If you have a savings plan, my suggestion is to prepay the contributions for the next 3, 6 or even 12 months if you can afford it.

What will happen in this case is, all the money that you are pre-paying in advance will buy more units at way lower prices. You will get the biggest bang for the pre-payments that you make today and over time when the markets recover, your savings plan will perform well.

If you have a Lump sum Investment:

The recommendation for a lump sum investment is simple. If you have Stocks, ETFs or Mutual Funds that are positive in value, my suggestions is to book the profits and get into a physical gold fund. There are many ways to buy physical gold online. My favourite physical gold ETF is the iShares Physical Gold ETF or the iShares Physical Gold Trust ETF which is slightly cheaper.

Gold performs inversely as compared to the broader market. When markets are up, gold goes down, and when markets are down, gold does well. If you have gold in your portfolio great, if you don’t this is the time to switch the funds that are up into physical gold. If your stocks or funds are down, my suggestions is to not panic and hold on till the time the funds recover to at least the value at which you bought them, and then book the profits into physical gold.

Either ways, if you have a savings plan or a lump sum investment you don’t need to worry about this temporary fluctuation in the market, keeping in mind that your goals or long-term.

Please feel free to leave your comments, questions or suggestion in the comments section below.

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Investors Trust Assurance S&P500 Wins Best Savings Plan Award 2019
Investing Safely, Investment News

Investors Trust Assurance S&P500 Wins Best Savings Plan Award 2019

Investors Trust Assurance S&P500 Wins Best Savings Plan Award 2019

Who triumphed in the Global Financial Services Awards and Best Practice Adviser Awards UK?

International Adviser hosted its annual Fund Links Forum event in London’s JW Marriott Grosvenor House Hotel on 17 October and recognised excellence across the industry with two sets of awards.

Investors Trust Assurance won the award for the best savings plan with their product the 'S&P500 Index'.

Investors Trust Wins Best Savings Plan Award For 2019

I am very happy about this achievement by Investors Trust because of the following reasons:

  1. I use the S&P500 index savings plan myself to save for my daughter's college education.
  2. A lot of my clients have put their trust in this savings plan, and
  3. Because Investors Trust puts their client's interests first, by being very responsive to their feedback and suggestions, and innovating continuously over time.

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Euro Medium Term Notes EMTNs A Smart Way To Invest
Investing Safely, Vetted Investments

Euro Medium Term Notes, (EMTNs) A Smarter Way To Invest For 3-5 Years

When you are searching for the right investment for your investment goal, the most important consideration apart from 'Risk to your capital' is 'The Investment Term' i.e. the time frame after which you need your money back.

The Rule of Thumb For Different Investment Time-Frames

  1. Investment Time Frame - Upto 2 Years: If your investment time frame is less than 3 years, the primary consideration is 'Access to the money' - the best option is to keep your money in the bank in Fixed Deposits or money-market funds. 
  2. Investment Time Frame - more than 5 years: If your investment time frame is more than 5 years, you can use the traditional investments vehicles of Stocks, ETFs, Mutual Funds, Real Estate or Commodities, as 'Investment Returns' are the primary concern as opposed to 'Access to the money'.
  3. Investment Time Frame - between 3 to 5 years: This is a tough nut to crack because the challenge is to find an Fixed Income Investment that is 'Safe', but also one that gives 'decent returns' over and above inflation, i.e. more than 3% p.a..

Why Bonds May Not Provide the Solution

  1. Government Bonds: Decent investment grade government bonds offer upto 3.5% p.a. Government Bonds with lower credit rating offer higher returns, but the risk to the capital is higher as well.
  2. Corporate Bonds: This means we have to look at corporate bonds as an option to get returns over and above inflation (3.5% p.a.). Investment grade corporate bonds offer around 4.5% p.a., but need a minimum investment of USD 200,000, which is out of the scope of many investors.
  3. Rising Interest Rates & Falling Yields: Rising interest rates in the current environment, reduce the bond yields, thereby making this option even less attractive. And junk bonds are very high risk, thus defeating the purpose.

Euro Medium Term Notes (EMTNs) - A Smarter Choice

  1. A Euro Medium-Term Note is a medium-term, flexible debt instrument that is traded and issued outside of the United States and Canada.
  2. The principle characteristic of an EMTN programme is its flexibility. This flexibility benefits both the issuer and the investor. Once a programme is established, companies can use an EMTN programme to raise funds when they need it.
  3. Investors also benefit from the flexibility of EMTNs. The flexibility of EMTN programmes means that issuers can sell instruments that meet investors’ requirements exactly, for example by issuing debt with a maturity that fits investors’ needs.
  4. These instruments require fixed payments and are directly issued to the market with maturities that are up to five years. EMTNs allow an issuer to enter foreign markets more easily to obtain capital. 
  5. Firms also offer EMTNs continuously, whereas a bond issue, for example, occurs all at once.
  6. It costs less for the issuer of an EMTN than to issue a corporate bond, and borrow money from the market. This also allows the issuer to offer higher annual coupons to the investors.
  7. You can invest in an ETMN for as low as USD 50,000 as opposed to USD 200,000 for a comparable corporate bond. 
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Why Investing In Bonds Is Not As Safe As You Think It is
Invest Smart, Investing Safely

Why Investing In Bonds Is Not As Safe As You Think It is

Investing in bonds is not easy and safe as people think it is. There are a number of risks involved. While the first 5 risks are well-known, the last two and are more important in my humble opinion.

These risk of investing in bonds are:

  1. Interest rate risk
  2. Reinvestment risk
  3. Call Risk
  4. Default Risk
  5. Inflation Risk
  6. Portfolio Concentration Risk
  7. Opportunity Cost Risk

Interest Rate Risk For Bond Investors

Market interest rates are a function of several factors, including the demand for and supply of money in the economy, the inflation rate, the stage that the business cycle is in, and the government's monetary and fiscal policies.

From a mathematical standpoint, interest-rate risk refers to the inverse relationship between the price of a bond and market interest rates. 

  1. To explain, if an investor purchased a 5% coupon paying corporate bond with a 10-year maturity that is selling at par value, the present value of the $1,000 par value bond would be $614. This amount represents the amount of money that is needed today to be invested at an annual rate of 5% per year over a 10-year period, in order to have $1,000 when the bond reaches maturity.
  1. Now, if interest rates increase to 6%, the present value of the bond would be $558, because it would only take $558 invested today at an annual rate of 6% for 10 years to accumulate $1,000. In contrast, if interest rates decreased to 4%, the present value of the bond would be $676. As you can see from the difference in the present value of these bond prices, there truly is an inverse relationship between the price of a bond and market interest rates, at least from a mathematical standpoint.
  1. From the standpoint of supply and demand, the concept of interest-rate risk is also straightforward to understand. For example, if an investor purchased a 5% coupon and 10-year corporate bond that is selling at par value, the investor would expect to receive $50 per year, plus the repayment of the $1,000 principal investment when the bond reaches maturity.
  1. Now, let's determine what would happen if market interest rates increased by one percentage point. Under this scenario, a newly issued bond with similar characteristics as the originally issued bond would pay a coupon amount of 6%, assuming that it is offered at par value.
  1. For this reason, in a rising interest rate environment, the issuer of the original bond would find it difficult to find a buyer willing to pay par value for their bond, because a buyer could purchase a newly issued bond in the market that is paying a higher coupon amount.

    As a result, the issuer would have to sell the bond at a discount from par value in order to attract a buyer. As you can probably imagine, the discount on the price of the bond would be the amount that would make a buyer indifferent in terms of purchasing the original bond with a 5% coupon amount, or the newly issued bond with a more favorable coupon rate.
  1. The inverse relationship between market interest rates and bond prices holds true under a falling interest-rate environment as well. However, the originally issued bond would now be selling at a premium above par value, because the coupon payments associated with this bond would be greater than the coupon payments offered on newly issued bonds.

    As you may now be able to infer, the relationship between the price of a bond and market interest rates is simply explained by the supply and demand for a bond in a changing interest-rate environment.

Reinvestment Risk for Bond Investors

  1. One risk is that the proceeds from a bond will be reinvested at a lower rate than the bond originally provided. For example, imagine that an investor bought a $1,000 bond that had an annual coupon of 12%. 
  1. Each year the investor receives $120 (12% * $1,000), which can be reinvested back into another bond. But imagine that over time the market rate falls to 1%. Suddenly, that $120 received from the bond can only be reinvested at 1%, instead of the 12% rate of the original bond.

Call Risk for Bond Investors

  1. Another risk is that a bond will be called by its issuer. Callable bonds have call provisions, which allow the bond issuer to purchase the bond back from the bondholders and retire the issue. This is usually done when interest rates have fallen substantially since the issue date. 
  1. Call provisions allow the issuer to retire the old, high-rate bonds and sell low-rate bonds in a bid to lower debt costs.

Default Risk for Bond Investors

  1. This risk refers to an event wherein the bond's issuer is unable to pay the contractual interest or principal on the bond in a timely manner, or at all. Credit rating services such as Moody's, Standard & Poor's and Fitch give credit ratings to bond issues, which helps to give investors an idea of how likely it is that a payment default will occur.
  1. For example, most federal governments have very high credit ratings (AAA); they can raise taxes or print money to pay debts, making default unlikely. However, small emerging companies have some of the worst credit (BB and lower). They are much more likely to default on their bond payments, in which case bondholders will likely lose all or most of their investments.

Inflation Risk for Bond Investors

  1. This risk refers to an event wherein the rate of price increases in the economy deteriorates the returns associated with the bond. This has the greatest effect on fixed bonds, which have a set interest rate from inception.
  1. For example, if an investor purchases a 5% fixed bond, and then inflation rises to 10% per year, the bondholder will lose money on the investment because the purchasing power of the proceeds has been greatly diminished. The interest rates of floating-rate bonds (floaters) are adjusted periodically to match inflation rates, limiting investors' exposure to inflation risk.

Portfolio Concentration Risk

  1. This is a simple risk to understand. In simple words it means ‘How much of your portfolio is any particular bond investment as a percentage?
  2. If you plan to invest in corporate bonds, the typical starting amount is USD 200,000. 
  3. Even if your total investment portfolio is USD 1 million, you would be investing 20% of it into one particular investment when buying a corporate bond directly.
  4. That means if the issue of that bond was to go bankrupt, you would lose the USD 200,000 and 20% of your total portfolio would be lost overnight.
  5. If your total investment portfolio was less than a million dollars, the portfolio concentration would be a higher percentage, thereby increasing your portfolio concentration risk even higher.

Opportunity Cost Risk

  1. This risk is the cost of opportunity cost of investing in bonds as compared to other investment types.
  2. That means when you invest in a bond, you are prioritising safety and fixed income i.e. a fixed rate of return.
  3. This approach works when the markets are flat or going down, because fixed income portfolio would give a steadier return as compared to traditional market-linked investments. But the other risks mentioned above would still apply.
  4. When the market is doing well, the bond investor would be giving up the upside potential of market returns by committing to a lower fixed coupon from bonds investments.


It is always better to seek professional advice when investing, as the risks mentioned above are not commonly known to the average investor.

The result of the DIY (do-it-yourself) investing is that investors burn their fingers by investing in the wrong instrument or using the wrong approach and get put off from investing completely.

Moreover, there are other ways to invest depending on the money you have to invest. 

Please feel free to ask your questions in the comments section below.


Original article from Investopedia was rewritten to add my perspective - https://www.investopedia.com/ask/answers/05/bondrisks.asp

How 30 minutes Could change your financial future

In 30 minutes, you could squeeze in another episode of your favourite Netflix series.
Or you could take the first step towards planning your finances and getting your money working for you.

Click here to book your Free 30-minute consultation with me on Financial planning without any commitment.

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Markets are falling - Should you exit your investment portfolio now
Invest Smart, Investing Safely, Investment News

Markets are falling – Should you exit your investment portfolio now?

Yield curves have inverted, recession is expected soon, this recession will be worse than the last !!!

It's all doom and gloom, or is it?

Sharp falls in market prices generally make headlines across all media. And no sooner when the index falls, predictions of more doom start pouring in from all corners. Clearly, the mood is that of panic and fear.

And we don't blame investors if they are unwilling to invest or stay invested at this point in time. Simply because our brains are hardwired to make us run from danger at the first sign of it.

And when it comes to investing, nothing can be more scary than seeing your investment portfolio down by 30-40%. The truth is that investment decisions of the average investor are governed by fear

Average investors tend to exit their investment position when they start seeing drops of 20-25% or more. That’s one angle to it. However, the actual fear is of higher losses we may incur by not selling.

Now let us see how fear rules our buying decisions. Head back straight to 2008 when the credit crisis was at its peak. Most stocks were trading at dirt cheap valuations then. Yet there were very few people who stuck their neck out to buy. Why? The answer is again fear. And this happened because their thinking was based on the perceived situation in the market place.

Outside environment created a sense of panic which restricted individuals to buy. But those who overcame fear made a pot of gold out of their investments.

Thus, it can be seen that FEAR makes us take decisions which are not favourable over the long term. However, overcoming fear does not mean you have to be contrarian. It means executing the decision if you feel the process you followed to arrive at any decision (buy or sell) is right.

Stay invested without fear when risks are known. In the long-term prices always reflect fundamentals, and markets always rise in value given an investment term of 5-8 years or more.

Our investment portfolios carry different types of risk, and some of the risks have a lot to do with your behaviour and of others around you, such as:

  1. The risk of selling or exiting at the wrong time (out of fear), especially when markets are down.
  2. The risk of investing in a stock just because others in your office or friend circle (out of greed) are buying the same.
  3. Investing too much in one particular investment because it looks the best on paper.
Risk comes from not knowing what you are doing

In summary, the best thing to do is to stay true to the financial plan you have set for yourself with the help of your financial advisor, and not worry too much about what the markets are doing.

There are better things to think about in life than just your investment portfolio performance. Focus on your investment goals, not market returns.

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Why Investing To Achieve Financial Goals Is Better Than Investing For Returns
Invest Smart, Investing Safely, Investment News

Why Investing To Achieve Financial Goals Is Better Than Investing For Returns

The two basic approaches to get your money working for you are:

  1. Investing for returns, &
  2. Investing to achieve financial goals

Investing For Returns

This is a common way of investing for short-term investors who look at returns over and above inflation to justify the risk of investing. There is no clearly defined financial goals apart from getting 'X' percentage of returns based on their expectations and knowledge.

Pros and Cons

  1. Those who use this approach are happy in some years when the returns are as expected, and unhappy when investment portfolios are down, because no one can control or predict returns consistently.
  2. There is no clear exit strategy when this approach is used. Every year the expectations for returns go up, especially after the portfolio has done well in the current year.
  3. Those who take this approach expect to beat inflation year-on-year, which is unrealistic.
  4. They exit the investment at the wrong times when markets and portfolios are down in value and enter the markets when they are at the top or on the way up.
  5. This approach only works if the investment term is relatively short i.e. 3 to 5 years, that too with fixed income portfolios only.

Investing To Achieve Financial Goals

This is the best way of investing for investors who look at achieving clearly defined financial goals over a set number of years. There is a clearly defined exit strategy for each investment, and the investors knows more or less when and how these financial goals can be achieved.

Pros and Cons

  1. For example if the financial goal is to say accumulate USD 250,000 over 10 years to fund a child's higher education,
    1. the investor can exit the investment, if the portfolio hits this number earlier than expected.
    2. the investor can increase the regular contributions if the portfolio is not performing as expected.
  2. The exit strategy is clearly defined.
  3. Year-on-year investment returns are almost secondary, as long as the portfolio is on target to achieve the financial goal.
  4. The right time to exit the investment is when the goal is achieved, regardless of whether the market is up or down.
  5. This investment approach works for all investment terms, and these type of investors don't exit the markets at the wrong time.
  6. It takes a certain amount of discipline to stay invested, and generally this approach is best taken with the help of a financial advisor who will help you stay invested through thick and thin till the financial goal is achieved.
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DIY Investing Vs Good Financial Advice
Invest Smart, Investing Safely, Investment News

Do-It-Yourself Investing Vs Using A Financial Advisor

My rant about 'The Investment Guru from Canada'

This article is going to generate a lot of 'controversy', so here I go...

Just the other day, a long-time client of mine and a good friend called me up and said 'He wanted to meet me, and discuss a few things'.

I thought this was a normal request, so we met and started talking. He had just been to a 'Free Investment Seminar' organised by a "well-known investment guru" from Canada, who's apparently a big promoter of 'DIY (Do -it-yourself) Investing'.

There were three other speakers in this seminar, including one from a robo-advisory investment firm. Robo advisors are the new craze globally, where artificial intelligence and machine learning  "supposedly negate the need for a financial advisor".

This Canadian "investment guru" then started bashing all the 'expensive savings and investment options in Dubai', and started talking about the benefits and virtues of 'DIY investing', and 'ETFs (Exchanged traded funds that track global indices').

He also showed the effect of the costs involved when a financial advisor is used, and the savings when 'You do it yourself'.

The client was ready to stop / surrender all his existing savings plans, investments (at a loss), and put all his money into low-cost ETFs after listening to this investment guru, and I said (in my mind of course) - 'Here we go again'...

I had heard this same thing many times from various people I met, including clients who had attended his seminars, or visited his website.

Don't get me wrong. There is nothing wrong in using low-cost ETFs, index funds and what have you. In fact I promote the same in many of my website articles, my meetings with clients, and my email newsletters as well.

What pissed me off was, this 'Canadian Investment guru', was against employing the services of a financial advisor'. I honestly consider this investment guru to be a well-meaning idiot, because he cannot differentiate between DIY investing and 'What a financial advisor does for his clients'.

Six Reasons To Have A Financial Advisor Manage Your Investment For You

Some people are confident that they can manage their investments themselves, DIY (Do-it-Yourself) platforms are for these people. But if you need help in making the right investment decisions, a 'Managed investment platform' managed by a qualified financial advisor (who represents you), is right for you.

While, the right charging structure and investing without lock-in structures are important, a good financial advisor provides you the following services:

  1. Getting you started on the path to achieving your goals, by developing a proper financial plan of action for you. I cannot stress this enough. Statistically it has been proven that most people left to their own devices, will never 'Invest money' or 'Invest money consistently' unless pushed by a financial advisor, who makes them understand the importance of 'Starting to invest, early enough in life'.
  2. Making sure, with regular reviews that you continue on the path, till you achieve your goals. (This has very little to do with investment returns). Starting an investment is easy. You don't need a financial advisor for this. However, the difficulty lies in 'staying invested', and 'not exiting at the wrong time', for various reasons.
  3. Optimizes The Returns Of An Investment - Now any adviser who sells himself, that he can get a better return is a cheat, because nobody can guarantee better returns, but a good financial advisor can:
    1. Reduce the risk in your investment portfolio, by only suggesting you investments that you understand and you are comfortable with.
    2. Reduce the volatility in the overall portfolio, giving you a slightly easy ride along the way, making things more predictable. Not all types of investments are fit for the average investor, even if they take the shape of an ETF. ETFs can be based on many different types of investments.
    3. Match investment risk and returns to your risk tolerance - how you feel about your investment value going up or down. Each investor has a different attitude towards investment risk. This is very personality driven. Your financial adviser has to choose an investment that suits your investment personality.
    4. Match investment risk and returns to your time scale - The volatility (risk of investment value going up or down) should be the lowest when you need your money back for your important life goal. You cannot take risks with your money, when you need it the most.
  4. Reduce Costs, including tax - They can help you with kinds of investments that you may not normally think about, which give you tax relief or other kinds of tax benefits.
  5. Save you time - They can save you a lot of time, in which you can spend doing the things you like to do, instead of learning how to invest, and manage your money yourself.
  6. Control your investment behaviour - If you are on your own accountable only to yourself, it can be very tempting, and very easy to make bad decisions on your money, in the heat of the moment. When markets are not performing well, you may make a decision without fully thinking it through, and you would have been better off, not doing that. A good advisor can act as a check and a balance against that kind of stuff, and save you a lot of money through costly mistakes ...because no one can control the markets, but what can be controlled is the choice of investment and the level of risk you are exposed to.

I could go on and on, but a good financial advisor who represents you will also give you advice on 'other investments', that you may do outside of his services, e.g. real estate investments, etc...

His main gripe was on charges

I agree with him on the point of avoiding expensive savings plans (especially ones with longer terms), and heavy surrender penalties, but most investors don't have 50 to 75 thousand US Dollars to start a lump sum investment, which is required on good investment platforms as a minimum starting amount.

Currently the cheapest way to accumulate that initial USD 50 - 70 thousand dollars is to start a 5-year savings plan with Investors Trust - Evolution. Read my review of this savings plan here.

Short of asking you for an explicit fee for the above-mentioned services, the financial advisor can only charge you the assets under management fee of 1% per annum or take a commission on the savings plan. What's wrong with that?

This fee has got very little to do just with investment advice (especially in Dubai, where no expat want's to pay an explicit fee to financial advisors for their financial planning advice). 

Good financial advisors will generally charge you 1% per annum of the amount they manage for you in an investment, ideally with no lock-in structure or surrender penalties, as long as they manage the portfolio for you. ...and this portfolio can still be in low-cost ETFs.

The alternative he preached was to buy low-cost ETFs on DIY platforms, and pay very low transaction fees or annual charges (typically upto 0.35% p.a.) only to the platform, not the advisor.

This is the dumbest thing I have heard. It's like saying to a patient that he can google his medical condition, symptoms, and treatment, and get the medicine from the pharmacy himself. This is why I call these kind of investment gurus well-meaning idiots.

To apply an analogy, why does anyone need a doctor at all? Just eat Vegan food, exercise 2 hours a day, quit smoking, drinking, and you will live till a 100 years of age. Right?.

How many people actually do that to stay healthy? They still need the advice and consultation of a doctor to get well. Why don't they just google the symptoms and go to the pharmacy to solve their medical problems themselves?


All I have to say is 'Quality of Advice' counts as well. Choose your financial advisor carefully. Go through referrals from your friends, colleagues and relatives.

If all else fails, research your choice of financial advisor, see what he/she has to say on their website. Look for client testimonials, reviews from existing / past clients, Linkedin profile, experience, qualifications, etc...

But for your own sake, don't listen to 'Investment Gurus' and make decisions that affect your money in the heat of the moment'.

The guy is obviously there to get paid for his talk, not for charity.

Rant over - LOL !!!

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How To Be Wealthy Slowly But Surely
Investing Safely, Money Basics

How To Be Wealthy Slowly But Surely

In the previous article – “Rich or Wealthy, Which is Better“, we saw that Wealth is measured in time, i.e. the more money you have, the more time it will last at a given rate of spending.

So is there a way that we can work for our money once, build our wealth and get paid forever?

Make Money Work For You

This was the question asked to me by a young man starting out in his career. He was around 25 years old when he met me, and was just starting to realise that he needs his money to work for him, rather than work for money forever.

My answer was of course, Yes.

Because there is a way to Create a Second Income through investing as recommended by Robert Kiyosaki and Warren Buffett.

The steps to Accumulate Wealth and Create a Second Income are below:

  1. Accumulate (Save) money, over a period of time by setting yourself clear savings targets.
  2. Once you hit your savings goal, Invest the money to create a second income.

Am I joking, not at all, the process is as simple as it sounds, but it is not easy.

Not easy because you need to be committed to the goal, and not let yourself be distracted by the easy avenues of spending money around you.

Steps to Accumulate Wealth

Pay Yourself First – Practice Delayed gratification

Everybody (including me sometimes) wants instant gratification today. Many youngsters are living a lifestyle of ‘Living for the moment’, because it is supposedly the ‘Cool thing to do’. They don’t want to look bad in front of their peers if they are seen as being stingy and not spending money. The same is true for most adults I know, who are living paycheck to paycheck, driving expensive cars, living in lavish houses, but having no savings at the end of the month.

These people are a ‘Financial disaster – waiting to happen’, where a simple issue like a job loss or health issue that stops them from working could ruin their finances completely.

Have you been in this situation? I know, I have.

I made some changes in my finances, after realising the problem. Today, I have no debts and a significant amount of savings. I still drive a decent car, I still live in a modest home, and don’t sacrifice on my lifestyle in a big way.

I just ‘Pay myself first’ and then spend the rest.

If You Find Yourself In A Hole – STOP DIGGING

This is a statement, I read online. In The Bankers Magazine, it was published in 1964 as: “Let me tell you about the law of holes: If you find yourself in a hole, stop digging.” The part after the colon in that version has also been attributed to American humorist Will Rogers.

This part is relevant to your Debt situation. If you have a lot of Debts, stop accumulating more. Do yourself a favour and cut down on your debts. There are different types of Debt. You can follow the steps in this Debt Consolidation Guide to get yourself out of debt faster.

Decide On An Amount To Save Each Month

The ideal amount to Save Each Month should ideally be atleast 10% of you income. If you can do more, you are a champ.

Just make sure that the amount you plan to save each month should not be too small or too big, it should be something you can afford to put aside consistently.

Start a Regular Savings Plan

I know, you have heard this before, from many people, mostly financial advisors, but it is common sense, isn’t it?

I mean you can save the money in a bank if you wanted to, but that would hardly beat inflation, and it would take ages before you save a meaningful amount, because your money would not be working for you, it would only be working for the bank.

You need to get your money working for you, even when you are saving it.

But don’t go with what I am saying, just because I am a financial advisor, let some logic prevail.

If you need let’s say USD 350,000 in 15 years to buy a house for example,

…you would need to put aside (350,000/12/5) = USD 1,944 per month in the bank.

If you were to use a regular savings plan, to achieve the same figure,

…you would need to put aside USD 995 per month in the savings plan (at an assumed growth rate of 8% p.a. compounded over 15 years)

That’s a saving of almost 50% where you could spend the difference or even invest it.

The choice is simple. Start saving now to accumulate wealth.

Read the next article in the series…

How To Invest Money Safely

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Rich or Wealthy - Which is Better
Investing Safely

Rich or Wealthy, Which is Better?

Why being wealthy is different (and better) than being rich

Many people think that being Rich and being Wealthy are the same thing. But there is a difference between the two: The rich have lots of money but the wealthy don’t worry about money. - Robert Kiyosaki (Author of 'Rich Dad Poor Dad').

The 'Rich' might have lots of money, but they also might have lots of expenses that keep them up at night. Or they might have a high paying job but have to get up to work everyday and have fear of getting fired or laid off.

The 'Wealthy' on the other hand, don't have these worries, Why? What's the difference? 

The Definition Of Wealth

The definition of wealth is the number of days you can survive without physically working (or anyone in your household physically working) and still maintain your standard of living.

For example, if your monthly expenses are $5,000 and you have $20,000 in savings, your wealth is approximately four months or 120 days. After that you are broke.

Wealth is measured in time, not in dollars.

The Difference Between Being Rich and Wealthy

In short, the difference between 'Being Rich' and 'Being Wealthy', is 'The Wealthy' have a source of income apart from their 'Day Job', or 'Business', that is greater than their 'Monthly expenses'.

It's Not What You Make...

Ultimately, it’s not how much money you make that matters but how much money you keep—and how long that money works for you. - Robert Kiyosaki (Author of 'Rich Dad Poor Dad')

As an Independent Financial Advisor, I meet many people who make a lot of money, but (for many of them), all their money goes out of their expense column. Every time they make a little more money, they go shopping. They often buy a bigger house or a new car, which results in long-term debt and more hard work. Nothing is left to go into the asset column. It’s this kind of behavior that separates the rich from the wealthy.

There is nothing wrong in liking the finer things in life.

The difference is the 'Wealthy' don’t have to work to purchase them, or go into deep debt. Rather, they spent the time necessary to be smart with their money, work hard, and build investments that provide enough cash flow each month to cover their expenses—including fun liabilities like cars and houses.

They don’t work for their money. Money works for them.

Lots of people can become rich. But only financially intelligent people can become wealthy—and that takes a strong financial education that allows you to build cash-flowing investments and assets.

Read the next article in this series -

How To Be Wealthy - Slowly, But Surely

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Save or Invest - Which is right for you
Investing Safely

Save or Invest? Which is right for you?

So, we have been through the first two steps of ‘How to Invest Safely’ series.

  1. Step 1 – Understand the Basics.
  2. Step 2 – Know the 3 Musketeers of Investment.

Now we look at the difference between ‘Saving’ and ‘Investing’, and which is right for you. These terms may sound very similar, but are very different in reality.

Be careful not to mix up the two. Do what is right for your particular situation. If in doubt, ask me what’s right for you.


‘Saving’, is for people who want to accumulate money towards a particular goal, could be ‘saving for children’s college fees’, or ‘saving for old-age independence’, or ‘saving to buy a home’, etc…

In most cases, people are ‘saving’ money for some time in the future. Since ‘Saving in a bank account’, does not beat inflation, most people tend to save in ‘Regular Savings Plans’, that offer some kind of underlying investment to beat inflation, i.e. mutual funds or index funds. For more information read the following:

  1. The Best Savings Plans in the UAE.
  2. The Guaranteed Savings Plan I took for my daughter.


‘Investing is a different beast altogether. This is mostly for people who have a lump sum amount of money accumulated already, and want to get returns better than inflation on it.

More often than not, the objective is to ‘Protect’ the money’ that has been saved over a number of years, or a lump sum received from any source.

Note: When investing a lump sum the amount of money, consider the fact that you may not have the latest and most up-to-date information on the different types of investments out there. Always seek expert advice first, then use your judgement.

Investment term

Probably the most important and most underrated factor of all is the ‘investment term’. ‘Investment term’ is nothing but the amount of time after which you need your money back.

More often than not, people make mistakes with this decision and regret it, after losing money. The investment term will dictate, what kind of investment instrument you can get into:

  1. Bank accounts are the safest place for an investment term of upto 1 year.
  2. If you have 1 to 3 years, before you need the money, consider some sort of fixed income investment like Fixed Deposits, Government Bonds or Index based Structured notes.
  3. With an investment term of 3 to 5 years, you are better of with a portfolio of index funds (ETFs) and Structured Notes.
  4. With 5+ years, you can take higher risk, (in return for higher returns) and get into a diverse portfolio that includes all the asset classes mentioned in the 3 musketeers article.

Risk Profile

Risk profile is the ability of an investor to absorb risk. Risk is omni-present, managing risk is key. When you take money out of your pocket and give it to anyone, ‘There is risk’.

The amount of risk depends on ‘Who you give it to’, ‘Their financial strength’, ‘Their ability to pay you back, within the stipulated amount of time’, and ‘What they intend to do with your money’.

The same applies to investing. ‘Who you give it to’, and ‘financial strength’ talks about the organisation you are lending the money to. ‘Ability to pay you back’ is their credit worthiness. ‘Stipulated amount of time’ dictates, what they can do with your money.

‘What they intend to do with your money’, relates to the type of investment. In summary, ‘high risk = high returns / loss’, ‘medium risk = medium returns / loss’, and ‘low risk = low returns / loss’.

Your Financial Advisor

Again, I cannot stress enough - ‘Don’t pull out your own tooth, get expert advice'. There is reason why financial advisors exist.

When in doubt, try and find a financial advisor through your friends, colleagues and relative’s recommendations. A good financial advisor will not cold-call you.

Here is an article on ‘How to choose a financial advisor’.

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Investing Safely

How To Invest Money Safely In the UAE

By now, if you have been in Dubai for more than 6 months, you would have been called by 8 banks, 56 ‘financial experts’ and countless other people vying for your attention and money.

The script is often the same and so are the products, with financial advisors a dime a dozen. It is safe to say that most of the advisors and institutions who call you, are out to ‘make a sale’.

Believe me, I get the calls myself.

So I write this article in the hope of showing you what’s ‘Good’, what’s ‘Bad’ and what is downright ‘ugly’ in the investment world in the UAE, at least in my humble opinion. I have been a client of the industry myself since 1998. I started my first ‘Savings plan’ back in 1998 on the advice of a financial advisor who was referred to me by a dear friend.

I respect people who are referred to me because they tend to be honest more often than not, and since I trust the judgement of my friend or colleague who may have used their services.

I joined the company that was my financial advisory firm 5 years ago because I liked what they did for me and the positive impact proper financial planning had on my life. I still am a client of the industry myself with my own investments and insurances that take care of my personal goals. So most of the following advice is also based on my own investment experience.

You see, I have been there, done that, and learnt from my mistakes.

Step 1 – Understand the Basics, and consider the following

[ultimate-faqs include_category=’before-you-invest’]

Step 2 – Know the 3 Musketeers of Investment

The next biggest hurdle you will face is balancing the 3 musketeers of investment. Read about them here.

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Investing Safely

The 3 Musketeers Of Investment

When you invest in anything, you generally tend to worry about only the 3 musketeers of investment, ‘Safety’, ‘Access’ and ‘Returns.

  1. How Safe is my money?
  2. What Access do I have to it?, and
  3. What Returns do I get from my investment?

There is no investment vehicle or ‘asset class’ in technical terms that offers you the best of all the three. Like the 3 musketeers, they complement each other, and each investment objective dictates which one will prevail. For example, look at the picture below and you will understand what I am saying.

Some of the examples illustrated above:

  1. Cash in the bank is Safe, you have access, but no returns.
  2. Stocks are not Safe, you can sell them any time (access), and historically have provided the best returns in the long-term.
  3. Property (real estate) is considerably safe, you cannot sell it immediately at the price you want (access) and gives decent returns depending on its location.

Which investment (asset class) is the best?

Unfortunately, the answer is not so simple, you need to be invested in all of these asset classes in equal proportions. Simply put, diversifying into more than one asset class is the only way to protect your money. Like this article? Please share it with your friends and feel free to comment on this article below. I would love to hear your views. Next step in the ‘How to invest safely’ series is Step 3 – Saving or Investing – which is right for you?

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Warren Buffett Bet A Million Dollars On This Investment
Investing Safely

Warren Buffett Bet A Million Dollars On This Investment

This article is probably the most important newsletter you will read, ever!

This week was the most exciting week for the world of investments. Berkshire Hathaway had a live webcast of their 51st shareholder’s meeting in Omaha. Not only that, Warren Buffett and Charlie Munger, chairman and vice chairman of Berkshire Hathaway took questions from shareholders on various topics for 7 hours.

The Things They Said Are Worth Their Weight In Gold, For Those Who Want Their Money To Work For Them

(Just in case you don’t know who Warren Buffett is, ‘He is the 3rd richest man on the planet’ and is known as the Oracle of Omaha as far as investments are concerned.)

PS – one share of Berkshire Hathaway is worth USD 220,139

The highlight of the event was his review of the investment on which he had bid 1 million dollars, almost 8 years ago.

The investment itself

Most people would be better of not trading stocks, better off buying a low cost index fund – Vanguard S&P500, where you don’t put your money at once, but over many years. You will do better than 90% of people who start investing in stocks at the same time. Warren Buffett

The Million Dollar Bet

Now let’s look at the bet itself, which Warren Buffett placed 8 years ago with Protege Partners. In summary, Warren Buffett Says the S&P 500 will outperform any basket of the best funds over a period of 10 years. Protege Partners of course does not agree and hence the bet, where a million dollars would be paid to charity by the loser.

“Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”

Buffett’s Argument

A lot of very smart people set out to do better than average in securities markets. Call them active investors.

Their opposites, passive investors, will by definition do about average. In aggregate their positions will more or less approximate those of an index fund. Therefore the balance of the universe—the active investors—must do about average as well. However, these investors will incur far greater costs. So, on balance, their aggregate results after these costs will be worse than those of the passive investors.

Costs skyrocket when large annual fees, large performance fees, and active trading costs are all added to the active investor’s equation. Funds of hedge funds accentuate this cost problem because their fees are superimposed on the large fees charged by the hedge funds in which the funds of funds are invested.

A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors. Investors, on average and over time, will do better with a low-cost index fund than with a group of funds of funds.

Protege Partners, LLC’s Argument

Mr. Buffett is correct in his assertion that, on average, active management in a narrowly defined universe like the S&P 500 is destined to underperform market indexes. That is a well-established fact in the context of traditional long-only investment management. But applying the same argument to hedge funds is a bit of an apples-to-oranges comparison.

Having the flexibility to invest both long and short, hedge funds do not set out to beat the market. Rather, they seek to generate positive returns over time regardless of the market environment. They think very differently than do traditional “relative-return” investors, whose primary goal is to beat the market, even when that only means losing less than the market when it falls. For hedge funds, success can mean outperforming the market in lean times, while underperforming in the best of times. Through a cycle, nevertheless, top hedge fund managers have surpassed market returns net of all fees, while assuming less risk as well. We believe such results will continue

There is a wide gap between the returns of the best hedge funds and the average ones. This differential affords sophisticated institutional investors, among them funds of funds, an opportunity to pick strategies and managers that these investors think will outperform the averages. Funds of funds with the ability to sort the wheat from the chaff
will earn returns that amply compensate for the extra layer of fees their clients pay.

Look’s like Warren is Winning

A picture is worth a thousand words.

Warren Buffetts Bet

With 2 more years to go, it looks like Warren is winning. I don’t see how the hedge funds can beat these results in 2 years.

S&P500 performance in the last 25 years

Here is a Wikipedia article on the performance of the S&P500 over the last 25+ years.

In summary the row to look at in the results is the ‘Median row’. The annualised average results speak for themselves.

The current CAGR is calculated at 10.47%.

How you can benefit from Warren Buffett’s advice

Warren Buffett recommends investing in the S&P500 regularly over 10-15 years. Although the S&P 500 is not capital protected, we have a regular savings plan that invests in the S&P500 that offers 140% capital protection.

i.e. you can invest a small amount of money, either monthly, quarterly, half-yearly or yearly over a period of 15 years and the minimum guaranteed amount to you would be 140% of your contributionsIf the market performs better as it has in the past, you will get the actual performance.

To find out more about this solution, fill-in the form here and write S&P500 in the remarks section.

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The curse of 9 percent
Investing Safely

The curse of 9 percent

When I meet NRIs in the UAE to discuss their planning and investment needs, they often remind me of the fixed deposit rates being 9% back home. They feel that compared to the U.A.E. banks that offer only 3% per annum, the Indian FD rates are much better. Consequently NRIs in the UAE send a lot of money to India to avail of the ‘higher’ fixed deposit rates.

Have you ever wondered why Indian Banks offer fixed deposit rates of close to 9%, while the US and U.A.E banks offer around 3% per annum?

If the buying power of both currencies was equal, wouldn’t the rest of the world keep their money in Indian Fixed Deposits to get higher returns? Is that happening? I don’t think so.

The questions above have been bugging me for many years till I got into the industry and decided to investigate the reasons behind this. I found that the fixed deposit rates offered by banks in India as well as the U.A.E, or US for that matter are closely linked to the inflation rates in those countries.

  1. Historic inflation rates in India over the past 24 years have been hovering around 8-9% per annum, and
  2. The inflation rate in the UAE has been hovering around 3% over the last 10 years.

The Effect of Indian Inflation on money in India

Here is the part that most NRIs aren’t aware of. They earn their money in US dollars (as UAE dirham is pegged to the dollar). That means that their money in dollars is linked to a 3% inflation rate. If they send money to India and convert it to Indian Rupees, it is now exposed to Indian inflation rates of 8-9%.

The image below shows the effect of both inflation rates on the buying power of their money in each currency.

Historic inflation in India


Assume you had US $100,000 (or equivalent in UAE dirhams) in your bank in the UAE. Also assume that you had the equivalent amount in Indian rupees in your bank in India (i.e. INR 63.35 Lakhs) at today’s exchange rate.

Rule of 72

The mathematical ‘Rule of 72’ illustrated on the above states that you can divide 72  by the relevant inflation rate to calculate when your expenses will double.

By that logic, living expenses in India double every 8 years, while living expenses in the UAE, exposed to 3% inflation double every 24 years.

This also means that your INR in India will halve in buying power by the year 2023, while your US $100,000 in the UAE will halve in buying power by 2039.

Which currency do you think you should keep your money in?
The currency that loses buying power 3% p.a or the currency that loses buying power at 9% p.a.?

Want to inflation-proof your money? Click the button below and ask me how.

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