Friday, Oct 11 2024
Source/Contribution by : NJ Publications

The Investor's Trifecta: Time, Pragmatism, and Pessimism

In the dynamic world of investments, where emotions can often cloud judgment, the three critical concepts—time, pragmatism, and pessimism—play significant roles in shaping investment strategies and outcomes. Understanding how these elements interact can lead to more informed and effective investment decisions.

The Role of Time in Investing

One of the most powerful tools in investing is time. Consistent and disciplined investing over the long term can compound returns and help you achieve your financial needs such as retirement, child education, buying a home, etc. Even with modest returns, the magic of compounding can turn small investments into substantial wealth over time. The earlier you start investing, the more time your money has to compound. Time allows you to ride out market downturns and benefit from potential rebounds.

The Importance of Pragmatism

Pragmatism in investing involves setting realistic expectations based on thorough research and analysis rather than emotional impulses or unfounded beliefs.

Let's delve deeper into the concept of pragmatism and its impact on investment decisions.

- Avoid Short-term Trends or Fads: Many investors are drawn to the idea of getting rich quickly, but this mindset can lead to poor decision-making. Instead, a pragmatic approach encourages investors to focus on long-term financial objectives and avoid making decisions based on hype or speculation.

- Risk Management: Pragmatism also encompasses effective risk management. This includes diversifying portfolios to spread risk, using stop-loss orders, and staying informed about market trends. A pragmatic investor understands that risk is an inherent part of investing and takes proactive measures to mitigate it.

- Ignoring Market Noise: Pragmatic investors tune out short-term market fluctuations and focus on the underlying value of their investments. They avoid making impulsive decisions based on daily market movements.

- Overcoming Fear and Greed: Pragmatic investors avoid making impulsive decisions driven by fear or greed. They base their investment choices on rational analysis rather than emotional reactions to market fluctuations.

When investors approach equity investment with a pragmatic mindset, they carefully weigh the pros and cons, aligning their strategy with their risk appetite and time horizon. This practical approach allows them to anticipate market swings, preparing not only for potential gains but also for possible downturns.

The Pitfalls of Pessimism

Pessimism in investment refers to a negative outlook on the market or specific assets, often characterized by the belief that prices will decline or underperform. Pessimistic investors often anticipate losses or downturns, leading them to adopt a cautious or even fearful approach to investing. While it's important to be aware of risks and potential downturns, excessive pessimism can hinder your investment success.

Let's explore how pessimism can negatively impact investment decisions:

- Avoiding Risky Assets: Excessive pessimism can lead investors to shy away from riskier asset classes, such as equities, which have historically provided higher returns over the long term.

- Timing the Market: Investors who attempt to time the market by trying to buy low and sell high often end up missing out on significant gains. Pessimism can lead to a reluctance to invest during market downturns, even when there are opportunities for long-term growth.

- Selling During Downward Trends: Pessimistic investors may panic and sell their investments during market downturns, often locking in losses.

Maintain a balanced perspective and avoid letting fear dictate your investment decisions. Conclusion

In the world of investing, time, pragmatism, and pessimism are interconnected concepts that can significantly impact an investor's success.

A healthy balance between optimism and realism is crucial in investing. While optimism can fuel your motivation, it's essential to remain grounded in reality and acknowledge the potential risks. Avoid excessive optimism or pessimism, and focus on making informed decisions based on sound analysis. Stay updated with market news, economic indicators, and industry trends to make informed decisions.

Time is your ally, Pragmatism is essential, Avoid excessive pessimism. By embracing these principles, you can navigate the complexities of the investment world and make informed decisions that align with your financial needs.

If you're unsure about your investment strategy, consider consulting with a financial advisor for personalized guidance.

The Big Picture:

Every year, the union budget is one of the most keenly watched events in the country. This year, the first budget of “Amrit Kaal” have fueled expectations for laying down the blueprint for PM’s vision for India@100. Was it successful in doing so? What were the key takeaways? In this article, we will have a bird's eye view of the budget and try to unravel the undercurrents behind it. 

The Vision for Amrit Kaal: The government’s vision for the Amrit Kaal is for an empowered and inclusive economy that includes a technology-driven and knowledge-based economy with strong public finances, and a robust financial sector. To achieve this, Jan Bhagidari through Sabka Saath Sabka Prayas is essential. The economic agenda for achieving this vision focuses on three things: (i) facilitating ample opportunities for citizens, especially the youth, to fulfil their aspirations (ii) providing strong impetus to growth and job creation and (iii) strengthening macro-economic stability. 

In line with this, the Union Budget 2023-24 focused on 7 priorities - the ‘Saptrishis’ which are as follows:

• Inclusive Development- The government’s philosophy of Sabka Sath Sabka Vikas includes development for farmers, women, youth, tribal groups, and other weak sections of society. It moves forward to agriculture for building digital public infrastructure, set-up an agricultural accelerator fund, and making India a global level for millets (Sree Anna). There is an agricultural credit of Rs.20 lakh crore targeted at animal husbandry, dairy and fisheries. Moreover, 157 nursing colleges are to be developed and a new plan is envisaged to promote research in pharmaceuticals. They have also announced to set up of a National Digital Library for children and adolescents. 

• Reaching the last mile- The government has formed a Ministry of Tribal groups and developed the department of the North-Eastern region in India. Hence, a decision to provide financial assistance for sustainable micro irrigation in drought-prone areas of Karnataka has been taken. There will be many more teachers assigned to Eklavya Model. The setup for the digitalization of ancient inscriptions will be done.

• Infrastructure & investment- An investment in infrastructure and productive capacity has been in the bigger picture to focus on impacting growth and development. Thus, there has been an increase in capital outlay to Rs.10 lakh crore which is a growth of 33%. Also, the highest ever capital outlay has been provided for Railways of ₹2.4 crores. Furthermore, the facility of extension for one year of 50-year interest-free loans has been given to state governments. 

• Unleashing the potential- An initiative to ease out the business procedures has been reduced by lowering more than 39,000 compliances and 3,400 legal provisions have been decriminalized. Development and working with AI in India, establishments of e-courts, entity DigiLocker, setting up labs for 5G services, research grants for lab-grown diamonds (LGD), and national data governance are some of the areas where the government has taken a focal point. The government also has plans for AI (Artificial Intelligence) to be made in India to serve India’s problems and announced a lot of measures in this direction.

• Green growth- The government has given a lifestyle for the environment to continue with the movement of an environment-friendly lifestyle. To build a green India, the budget cited that India will continue to move towards net zero carbon emissions by 2070. It also gave ₹19,700 crore outlay to green hydrogen and energy transition outlay of about ₹35,000 crores. In addition to this, a green credit program will also be activated for generating sustainable and responsive actions by firms and localities.

• Youth Power- In order to let the youth achieve their dreams, the government has made a launch of PMKVY 4.0 to skill, re-skill, and upskill the “Amrit Peedhi” with the latest upbringings like AI, robotics, and 3D printing, etc. The appreciation for handicrafts products has also been an inclusion by establishing units malls. This would additionally promote the sale of ODOP (One District-One Product).

• Financial Sector- With the encouragement of the financial sector and to additionally boost this sector, some initiatives were taken. Setting up the National Financial Information Registry, increment of senior citizen savings scheme from ₹15 lakhs to ₹30 lakhs, and facility for women i.e., Mahila Samman Bachat Patra were some of them.

The Budget Estimates: 

• Growth: India’s economic growth in the next year is estimated to be 6.5% in real terms in FY24, being the fastest-growing economy. 

• Rupee Comes From: (i) Borrowings & Other Liabilities: 34% (ii) GST: 17% (iii) Corporation tax: 15% (iv) Income Tax: 15% (v) Excise Duties: 7% (vi) Customs: 4% (vii) Non-Tax Receipts: 6% (viii) Non-Debt Capital Receipts: 2%

• Rupee Goes To: (i) Interest payments: 20% (ii) States’ share of taxes & duties: 18% (iii) Central Sector Schemes: 17% (iv) Finance Commission & Other Transfers: 9% (v) Centrally Sponsored Scheme: 9% (vi) Other Expenditure: 8% (vii) Subsidies: 7% (viii) Defence: 8% (ix) Pensions: 4%

• Expenditure: For 2023-24, the total expenditure is estimated to be ₹45.03 lakh crore higher than ₹41.87 lakh crore (2022-23). 

• Receipts: The revised estimated total receipts (other than borrowings) in 2023-24 are expected to be ₹27.2 lakh crore, under which the net tax receipts are ₹20.9 lakh crore. This implies that the government has the fiscal capacity to maintain the support and increase capital expenditure when required.

• Deficit: There was a retainment of the fiscal deficit target of 6.4% in the revised estimate for 2022-23. The fiscal deficit for FY2023-24 is expected to be 5.9% of GDP and it will be brought down to below 4.5% by 2025-26.

• Tax Revenues: The revised estimates pegged for gross tax revenue of ₹30.43 lakh crore in the current fiscal. Considering both, direct and indirect taxes, revenues are projected to up-level by 10.45% to ₹33.61 lakh crore in 2023-24.

Tax Reforms: 

The indirect tax proposals broadly aimed to promote exports, boost the domestic economy, enhance domestic value addition, and encourage green energy and mobility. In direct taxes, the income tax rebate limit was increased from ₹5,00,000 to ₹7,00,000 under the new tax regime. This new tax regime for individuals and HUF would be the default regime, while taxpayers are given the option to continue with the old regimes. 

Conclusion:

Continuity is good and surprises are bad. The government's last full budget before the elections treads a very cautious path. It did not carry any big bang surprises, except for some relief to the middle class in form of tax slabs in the new regime. However, it does maintain continuity and continues to build on structures rather than tinker here and there for appeasement. As expected, the budget continues to build on capital investments, infrastructure, job creation, domestic manufacturing, green energy, start-ups, digital economy and agriculture support. The Indian economy today is a bright spot in the global scene and this budget does well in not falling into the trap of populism and instead maintains the balance as is required. The budget surely adds to the vision for India@100 and makes sure that we continue to be a shining star on the global front.

By: Mr Vishal Baxi, NJ Wealth Partner, Surat Ring-Road Branch.

In a world that believes in manifestation, higher power and superstitions and puts trust in gurus, gems and gimmicks, there are still a sane few who have managed to keep themselves away from these. Practicing simple things and preaching about even simpler things is what I believe in.

The power that I have a certain inclination for is the faith that I have in myself and the practicality that my experiences have offered me so far. Everything has to work, even money. Branching out your income sources happens when you allow your money to work. Put it in places where it can continuously offer you a chance to change with the dynamism of the market while ensuring that the risk is according to your risk profile.

Starting with term plans and smart investing, personal finance is no rocket science. It is mere

judgment, strategizing and the ability to take a little bit of risk.

As a part of the financial education services we teach our clients good money habits and the thumb rules of investing and talk about the untangling of investing strategies. These are all the things that we have tried and tested.

I start with practicing and then preaching. My life journey is a testimony of this very thing. I started with a small amount of SIP and kept increasing it (which has now grown substantially) believing that one does not necessarily have to be wealthy to begin investing but has to have an

intention and plan that investing will make them wealthy.

Here is a list of things I undertook and still operating on:

• I tend to keep 9 months' expenses as a contingency fund in Liquid and Arbitrage funds.

• I have kept a provision of 15 lakhs Family floater Health insurance for my family.

• I invested over 15 times my annual Income by Term plan.

• I have been successfully investing for my goals like Financial Freedom, Child Education etc.

• I started a SIP when my daughter was born and started investing for her recurring annual educational expenses as well as making provisions for her higher education.

• I also started a SIP equal to the EMI of my previous car. When I paid off the car loan in 2017, I had enough to buy an automatic top-notch, high-end car from it in 2021.

• I also started a SIP for foreign travel that enables me to see beautiful places around the world every 2 years.

Fortunately, I could formulate a strategic plan to provide Health Insurance to my team and have cultivated a habit of having a contingency plan for them. A well chalked out goal based investing from all the members of my team.

Things I practise before I preach:

• Created a monthly budget which my family and I follow stringently.

• We are following the mantra:

Income (-) Savings = Expenses and not Income (-) Expenses = Savings

• Buy things only when I need them and use a credit card to earn points. My usage of credit cards is not need-based but rather advantage based.

• Invest a lump sum when I have a surplus for the long term.

Earlier as I mentioned that I practise simple things and preach even simpler things. The sole reason is to show everyone that life is as complicated as you make it or as easy as you make it. What a PPF can do, a SIP can do the same thing and so can be trading in stocks. The art here lies in understanding that you cannot expect a fish to climb trees or a bird to live in water.

Investing is not only about getting what you need but also creating enough space to accommodate what you might need in the future and making provisions for the same. For me, wealth building is one goal that I don’t want to reach. Yes! You read it correctly. I want to continue chasing this goal in order to keep my money working. Eventually, wealth will be produced as a by-product of this constant chase.

To understand that investing is a fruit of smart work and not just hard work, let’s talk about the simple concept of ‘Pain is Gain’. The least you have to do while investing is to perform research, and get adequate knowledge before you even begin to think of planning your portfolio structure.

The very idea, thought and understanding is considered as the pain you take to make gains.

Personal finance like its name is a customisable approach to saving. Every profile is different and needs to be treated accordingly. Some trends in the market may work for some people and some may not. This is exactly when strategy comes into play.

The most important strategy and thumb rule - is to be involved in your investments. Just handing over your assets to an advisor to invest in, is not going to help you make the cut. When you as an individual take responsibility for your profile and in a collaborative manner contemplate your next move is when you shall truly reap fruitful results of your planning.