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Dynamic Asset Allocation Funds – For When You Need To Sit On Your Hands


wealthymatters

I’ve had my financial habits called “inertia”. So for most of the time I must be doing somethings right. There is nothing like hyperactivity and  thrill-seeking to destroy your wealth or the capacity for wealth. Read more of this post

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Volatility and the Indian Stock Markets


wealthymatters.comThe volatility of the Indian market which is above 26% is one of the highest in the world. So though the long-term CAGR of the Indian market is 15.60%, there have been specific points in time when the market returned 1.25% pa for a 10-year period as well as 19.98% pa for another 10-year period.

One of the biggest impacts of this volatility is that it increases the entry-point and exit-point risks in investing. The simplest way of tackling this risk is to invest in the market at regular periods of time, irrespective of its levels to achieve cost averaging and also participate in the long term upward trend of the Indian markets. Also it is better to stick to the stable large-cap blue-chip companies. Read more of this post

CAGR Calculator


wealthymatters.comCompound Annual Growth Rate (CAGR) is a measure that can tell us just how well any of our investments have done.We just need to know the price at which we bought the investment,the current market price of the investment and the number of years that we have invested in it to calculate CAGR.

We could of course key in this data into the compound interest formula and solve for the rate to get CAGR but here is a readymade calculator to figure  out CAGR.http://www.investopedia.com/calculator/CAGR.aspx.

CAGR can be used for all types of assets :bullion,real estate ,securities and even businesses.We can use CAGR to compare individual investments against some benchmark,or two investments within the same asset class and even investments across asset classes.We can calculate CAGR of incomes, profits etc.too.This should help us figure out how profitable it is to invest in our own businesses so that we can decide whether we can accumulate more wealth as business people or investors.Also we could treat our own lives as businesses.Of our many  income producing activities, CAGR can help us figure out out which activities produce the highest return.CAGR is thus a great productivity enhancing tool.

There is only one danger in using CAGR figures,it masks extreme volatility and periods of negative returns.So, for example, before we abandon some income producing avenue just because its CAGR is lower than another we need to check if the  volatility in the higher CAGR line is something we can live with.So, if doing something produces returns in fits and starts or even forces us to live with losses for a while we need to figure out a way to sustain ourselves and the activity in the low or negative return phase.

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