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Personal Finance Learnings from the Pandemic

Personal Finance Learnings from the Pandemic

The Pandemic taught several lessons to first-time and seasoned investors alike. It reinforced the habit of saving, having a sound financial backup plan for a rainy day and devising a prudent asset allocation strategy. Explore 7 investment lessons that help prepare for the unexpected.
www.Quantumamc.com

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Quantum Mutual Fund

September 08, 2021
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  1. Personal Finance Learnings from the Pandemic.. “Never waste a good

    crisis” – Winston Churchill
  2. 2 1) Prepare for the worst.. Emergency fund Health insurance

    Life insurance “Plan to survive reality. Future filled with unknowns is everyone’s reality” – Morgan Housel
  3. 3 2) Your savings are the ONLY thing you can

    count on.. Income – Expenses = Savings Or Income – Savings = Expenses Choose well.. “Save money and money will save you” YOUR MONEY CYCLE
  4. 4 3) Living is not expensive, lifestyle is.. • Lockdowns

    taught us that we don’t necessarily have to spend more to have a good quality of life • Spending money just to show people how much money you have is the surest way to have less money • Ego < Income • Beware of lifestyle inflation • Impulse purchases, entertainment, shopping are all controllable and discretionary expenses • They can instead be channelized into savings and long-term wealth creation “Stop buying things you don’t need to impress people you don’t even like” – Suze Orman
  5. 5 4) Can you count on Low & Falling FD

    Rates for your Savings? 2 4 6 8 10 12 14 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 SBI 1 year FD rate Source: FD Interest Rates | Compare Fixed Deposit Interest Rate Today (myloancare.in) Bloomberg, SBI, Data as of July 2021 Consumer Basket 1990* 2000 2010 2015 2020 CAGR TOTAL SPENDING PER ANNUM 23,759 68,923 151,279 280,064 427,619 10.1% Price of gold, INR/10 grams 3,409 4,528 18,268 26,335 50,104 9.4% Units ( Grams) of gold to consume my basket 70 152 83 106 85 BSE SENSEX 730 4,659 15,585 26,557 47,751 14.9% Units of BSE-30 Index to consume my basket 33 15 10 11 9 Fixed Deposit Basket Index Value (Value of initial investment Jan 1, 1990 =1000) (SBI 1 Year Deposit Rate)* 1,064 2,220 3,550 4,628 5,814 6.0% Units of FD Basket to consume my basket 22 31 43 61 73 Past performance may or may not sustained in future Quarterly compounding and Tax rate on Fixed Deposit assumed to be 30% “Inflation takes from the ignorant and gives to the well informed” – Venita VanCaspel
  6. 6 5) Survival of the fittest Debt is a disadvantage:

    • Income: not guaranteed • Debt repayments: guaranteed “If you think nobody cares if you’re alive, try missing a couple of payments” – Earl Wilson
  7. 7 6) Liquidity & marketability are hallmarks of a good

    asset Cars or designer watches or clothes are not marketable. They are things not assets Money locked into land and property or other hard assets is not easily realized in a crisis Financial assets like shares and mutual funds are liquid and are very handy
  8. 8 7) Focus on what you can control.. How much

    we save and for how long Asset allocation Investment returns WHAT WE CONTROL WHAT WE DON’T CONTROL WHAT WE RARELY FOCUS ON WHAT WE ONLY FOCUS ON
  9. 9 7) Focus on what you can control.. How much

    we save and for how long Asset allocation Investment returns WHAT WE CONTROL WHAT WE DON’T CONTROL WHAT WE RARELY FOCUS ON WHAT WE ONLY FOCUS ON
  10. 10 How much we save • Managing your lifestyle and

    maximizing your savings can have the same impact on your net worth as increasing your investment returns • And its more in your control For how long we save Time in market beats timing the market. The former is in your control Start as early as possible and be patient to enjoy the effects of compounding In the graph, we compare two people who invested $10,000 with no additional investments and earned a 10% return every year. The only difference between the two people, however, is that Person 1 began investing at age 20 and Person 2 began at age 30 Please mention this is for illustrative purpose only to explain the concept of compounding
  11. 11 7) Focus on what you can control.. How much

    we save and for how long Asset allocation Investment returns WHAT WE CONTROL WHAT WE DON’T CONTROL WHAT WE RARELY FOCUS ON WHAT WE ONLY FOCUS ON
  12. 12 What is Asset Allocation? Asset allocation involves dividing an

    investment portfolio among different asset categories like equities, bonds, property, commodities and cash
  13. There have been years when equity markets had a brilliant

    run, years when only bonds were dependable, and years when gold shined the brightest, and these periods did not typically overlap Past performance may or may not sustained in future The chart ranks the best to worst performing indexes per calendar year from top to bottom *Data as of July 2021 Past performance may or may not be sustained in future. Based on S&P BSE Sensex; Domestic Gold prices and CRISIL Composite Bond Fund Index Source: Bloomberg Imagine someone holding an all equity portfolio in 2008, or holding none in the equity rally that followed? 13 Why Asset Allocation matters.. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021* Sensex 49% Sensex 49% Gold 26% Sensex 83% Gold 23% Gold 32% Sensex 28% Sensex 11% Sensex 32% Bonds 9% Bonds 13% Sensex 30% Gold 8% Gold 16% Gold 28% Sensex 11% Gold 20% Gold 16% Bonds 9% Gold 24% Sensex 19% Bonds 7% Gold 12% Bonds 4% Bonds 14% Sensex -4% Gold 11% Gold 5% Sensex 7% Sensex 14% Sensex 17% Bonds 1% Bonds 4% Bonds 7% Sensex -52% Bonds 4% Bonds 5% Sensex -24% Bonds 9% Gold -5% Gold -8% Gold -7% Sensex 3% Bonds 5% Bonds 6% Bonds 11% Bonds 12% Gold -3%
  14. 14 2020: A Reminder On Virtues Of Asset Allocation Past

    performance may or may not sustained in future
  15. Combine Asset Classes for better Risk Adjusted Returns One asset’s

    down cycle is balanced by another asset’s up cycle Risk-Return Equity +Debt +Gold * Equity + Debt ** Equity Debt Gold CAGR 11.13% 11.13% 12.80% 7.18% 11.45% Annualized SD 9.37% 13.45% 22.02% 3.27% 17.34% Maximum Drawdown 21% 36% 56% 6% 25% Sharpe Ratio 0.524 0.365 0.299 0.293 0.302 The most diversified strategy yields similar returns with the lower volatility, compared to a pure equity strategy 15 Time frame is November 2004 to July 2021. The period is taken from 2004 since the asset allocation weights are calculated based on normalizing the historical monthly equity and debt indicators. Given the normalization time frame used in the strategy, data availability for certain parameters beyond the time frame analyzed was a constraint. Compiled by Quantum AMC *Equity-Debt-Gold in ratio of 40-40-20. **Equity-Debt allocated in 60-40 range Based on Sensex Index, Crisil Composite Bond Fund Index, and Domestic Gold Prices Note: Past performance may or may not be sustained in the future
  16. Disclaimer – Terms of Use The data in this presentation

    are meant for general reading purpose only and are not meant to serve as a professional guide/investment advice for the readers. This presentation has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been suggested or offered based upon the information provided herein, due care has been taken to endeavor that the facts are accurate and reasonable as on date. Quantum AMC shall make modifications and alterations to the performance and related data from time to time as may be required as per SEBI Mutual Fund Regulations. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. None of the Sponsors, the Investment Manager, the Trustee, their respective Directors, Employees, Affiliates or Representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the data/information/opinions contained in this presentation. The Quantum AMC shall make modifications and alterations to the performance and related data from time to time as may be required. Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme. Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-). Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956. 30th August 2021 Mutual fund investments are subject to market risks, read all scheme related documents carefully.
  17. Thank You 17