Welcome 2009!

At the outset a very Happy New Year to one and all. 2008 has been one forgetful year from all perspectives. Globally, we witnessed the biggest and the strongest disappear from the world stage (Bear & Lehman) and these were, for all we knew legacies of 75 year or more. Then nearer home we saw giants like China facing massive job losses and decline in GDP growth (though officially no ones dare talk about it in the mainland) and hoping that the storm passes quickly.

Closer home in India, we saw our worst nightmares come true. Stock markets crumbling, loan rates spiking, EMI’s getting out of hand, negative home equities, job insecurities and not the least terror attacks. And we definitely know deep inside that the terror attacks were not the last one we will see. And we also know that we have not done enough so far to bring the perpetrators to book (but lets not get into that debate right now).

Time to get serious about that asset allocation decision

Why an asset allocation decision important and is it easy to implement it in the current environment? First, we have no doubt that in this environment (which we expect will continue in 2009) it is extremely important to know when and where we need to invest our hard earned money. Second, despite it not being easy to have a strong asset allocation strategy, which will be fool proof, it can be the only way to capital preservation if not earn some positive return on the money.

It also becomes imperative because, with all the volatility in asset classes witnessed in 2008 (remember gold which has never been so volatile in the past has seen amazing swings during 2008) we need to put our money in a diversified basket of assets; distributed of which is on the basis of weights that are likely to make a meaningful hedge and an opportunity to earn a return when asset classes perform.

What does the crystal ball tell us!

If we had one, we wouldn’t have told the world what it told us. But jokes apart, we continue to believe that individuals should take all the opportunity to invest and lock the returns the fixed income markets presents us. These are truly golden times and we might not see double digit returns on fixed income instruments, fixed deposits and term notes after 2009 and therefore people should not waste time in thinking of locking in at rates provided by banks on FD’s.

More importantly, this is also a great time to SIP your way through the cream available in the stock market. We mean that though it is quite early to make a selective stock bets and it would be akin to finding ‘needle in the haystack’, it is truly a time to broad base your investments in the stock market. Great gems are all dispersed on the floor and let’s not waste time to pick one individually and painfully. Let’s sweep the floor.

It’s a great time to invest in systematic investments plans (SIP’s) of select mutual funds. For one you get to participate in the broad market, second it is a classic buy at lows and more units over a longer period in time.

Go for Gold!

Why gold and that too at top you might ask. Gold is an excellent hedge against inflation (which is going to come down over the near future) but that’s not the precise reason to buy into it now. It’s our classic Indian trait of saving for a rainy day, is what we mean. Try to collect it in physical form and in low quantities. For one, it will remain illiquid and mostly locked in the vault, second it will build over time and you will tend to forget about it (which is the classic case of long term investing-Buy and hold).

We are sure that when the unforeseen time does come (God forbid), you can reach for the vault instantaneously.  

Halleluiah!

But for now, its time to pop up the Champaign, celebrate our existence and pray for people who laid lives defending our country so that we may live another day. And yes, hope that almost definitely 2009 will be much better year as compared with 2008. Let’s start this year by thinking forward, learning from our mistakes and remember that the collective forces that drive the markets can make the most seasoned of fund manager/investor a very humble / helpless of persons within a short span of time.

Until then. Keep the faith.