As kids we would have read the famous story of Alice in wonderland. In the story, she once reaches a crossroads and was not sure which road to take. A passing cat asked her where she wanted to go to which Alice replied

"I don't know!". The cat then smilingly replied "Then it doesn't matter which road you take".

The classic moment in the story is true to each of us in our daily lives. In our lives too we are often at crossroads like Alice and unknowingly we choose our roads without knowing where we want to reach in our life. When it comes to investments, this is in fact the reality for most of us. Since we don't know what we want to achieve from our investments, any investment decision helps us achieve it.

The need for setting goals can never be undermined, be it business, personal life or your personal finance. Every wise investor would know the purpose or objective behind his/her investments and more often than not, the same would be geared towards achievement of some goal in life. The goal can be any personal or financial goal like retirement or a fixed amount at any time in future, with the condition that it can be monetised or spoken in terms of money.

Advantage of setting goals:
The following are some of the benefits of setting financial goals in your life...

• Goals make you think & prioritise: When you actually start planning for your goals, you are forced to evaluate the need, intensity and priority for each of your goal in life. This gives you a lot of clarity on which goals to pursue and in what priority. Often important goals which are not on the top of your mind, crop up and make you think.
• Goals make you take action: After identifying goals, one becomes more inclined to take actions for achieving the goals. We often neglect or delay the action because the goals are not very clear in our minds. Defining goals would help you realise the urgency for taking appropriate actions
• Goals tells you where you: Unless the goals are defined, we would not be able to comprehend our current situation with regards to the future. Defining goals also clarify their feasibility and practicality for achievement and accordingly, depending of our current situation, we may either change the maturity period or the returns expectations or the targets of the goals.
• Goals helps you to keep focus: Understanding your goals would help us keep focus on achieving them. This helps us on a daily basis and you may start making a choice between making small expenditures or saving for the goals. Also, we would be more discipled and regular in making our investments and at the same time, not withdrawing from the kitty saved towards the goal.
• Goals lead to success: With goals in mind, you will make optimum use of your financial resources when while planning for them. You would eliminate wastefull expenditure, invest in productive asset classes and tend to maintain discipline in your investments. All these factors ensure that you are much closer to your goals then they mature.

Risks of not setting goals:
Just like we discussed the benefits of goal-setting, there are similarly down-side risks to not setting and planning for goals.

• Compromise on goals: Not identifying or delaying planning for your goals for too long would ultimately lead to situations wherein you would need to either compromise on your goals, in terms of value or by pushing our goals into future. However, more often than not, goals like child marriage, education, retirement, cannot be postponed and it is best left unsaid as to how you would plan when they actually arise. You may even loose out on smaller goals & moments of happiness like say vacations, which would be very much possible if you are planning in advance for them.
• Failure to make optimum use of finances: Not setting goals and planning for same will lead to misdirected investments and spendings. Chances are that there would be unwarranted spending which would had been invested had planning been done. There is also high chances that you would save in asset classes or product which are not in line with your goals. For e.g., While planning for retirement after say 15-20 years, you will probably identify equity as ideal asset class for you to invest. However, in absence of same, you may avoid equity investing as a risky asset since your goal & time horizon is not clear.
• Compromising on Long-term financial well-being: In long term, better management of your resources would enable you to achieve same while also creating and protecting your wealth at the same time. Needless to say, you are more likely to be credit-free, while having appropriate wealth at disposal for a better life, especially post retirement. By avoiding goal setting & planning, you may well be inviting financial in-stability or insecurity in long-run since you may be forced to take credit or dilute your unplanned investments when your goals mature.

Setting financial goals is something that we are not completely unaware of. It is like basic common-sense. We all know its importance but rarely do we plan and act accordingly. We have discussed in detail the benefits and risks of not setting your goals and planning for them. Very clearly, they have potentially very far-reaching & defining consequences to your financial well-being in future. Those who are wise would understand its criticality and start taking appropriate actions towards it in immediate future. And for those who fail to do would leave matters increasingly to luck and chance for as long as they continue delaying same.

Asset Class is a often used word in finance, especially investment & portfolio management. We also used the term many times in our articles. In this article a take a academic look at the various asset classes.

We all aim for success in our investments. But success in any investment is a play between returns & risks. You may not have any control on the returns or risks that your investment portfolio actually generates but you definitely have control on making a smart allocation that maximises returns and minimises risks. While planning your investments, 'risks' is often not properly understood and even less planned. This article introduces you to this aspect of planning in your investments.

Planning for investment risks or “Risk Management” is nothing but the identification and assessment of risks followed by smart allocation of money in such a manner that the chances of an unfavourable outcome and/or the losses because of same is minimised. Risk management also involves regular monitoring and rebalancing your portfolio to control such risks.

The steps in any risk management exercise, including investments, would be as follows:

• Know the risks faced - identify, characterize and assess threats
• Understand the risk involved – determining the extent of risks & probability of occurrence
• Identify ways to reduce risks
• Prioritize & act on risk reduction measures
• Regularly monitor & control risk

The third step involves identifying different ways to reduce risk. A smart person knows that 'not taking any risk' is also risky and that deciding to not take any action is also an action in itself. Risks management strategies can be broadly classified in the following 4 ways:

• Avoidance - eliminate or withdraw the source of risk or in other words, do not take exposure to risks
• Reduction - mitigate the risks faced by smart strategies
• Sharing - transfer or share the risks, i.e., insure yourself from same, if possible
• Retention - accept and budget for risks

An investor can adopt any combination of the the risk management strategies while managing his investments. While strategies of Avoidance, Sharing & Retention are largely self explanatory, we take a closer look at the strategy of Reduction, which we believe is much more relevant and meaningful to investors. Risk Reduction would entail strategies whereby you can reduce the overall risks in your portfolio while not compromising on your returns potential. A few of the smart strategies for the same are listed below for your consideration...

• Diversification: Even as a child we learnt that we should not keep all our eggs in one basket. This same principle also applies to investments. To reduce risks, we must diversify our portfolio / investments into appropriate mixture of different asset classes, products and companies / sectors, etc. To begin with, we must take a complete picture of our entire portfolio before we start with diversification. As earlier said, diversification can be in various types and ways. For example you may well diversify your portfolio into equity / debt / commodities / real estate, etc. at the higher level then say within equities, you may diversify into direct equities, mutual fund equity schemes, etc. and further even diversify into large-cap or mid-cap, sectoral or theme companies or funds. Diversification must be such that the portfolio is easy to manage and monitor. One of the good ways to diversify, if you are investing directly into equities or debt products, is to invest in mutual fund schemes which may be equity, debt or cash oriented.

• Asset Allocation: While the diversification principle tells you to spread your investments into different asset classes, products, etc., Asset Allocation provides the tool which you can use to properly balance your portfolio to get the best risk-return trade-off suited to your risk appetite. Every asset class has a peculiar returns expectation, risk in terms of volatility of returns and an ideal time horizon for investment. Further, different types of investment instruments respond differently to the changing market conditions, varying political and economic scenario.
  Asset allocation is allocating your investment into different class of assets which usually have no correlation with one another. One can thus be assured, upto an extent, that even if one type of investment doesn't perform, the portfolio will he hedged due to the investment in another type of instrument which may fare well.
  For example, in a booming market, one can increase allocation to the stocks as the strong corporate earnings and relative stability will increase the value of stock holdings. On the contrary, in a rising interest rate scenario; investors would wish to increase their allocation in bonds, reduce allocation in equities and keep a crtain position in cash. Hence, modifying one's asset allocation from time to time will help minimize losses in different economic situations depending on which asset class looks favourable or otherwise.

• Rupee Cost Averaging: The Guru of value investing, Benjamin Graham, trusted dollar (or rupee) cost averaging as the most effective way for investors to reduce the risk of fluctuation in asset prices. More relevant to investing in equities, rupee cost averaging is nothing but the practice of investing a fixed amount every period (month, quarter, or any period) in an asset. This strategy ensures that you are investing small amounts at all prices reducing the price risk involved to a large extend. Further, as studies show, the periodic investment averages the purchase price of the asset such that the average purchase price is often lower than the market price. SIP or Systematic Investment Plan in a mutual fund equity scheme is one very popular way of investing based on this strategy of risk reduction.

• Portfolio Management: The strategy simply requires that your portfolio must be very professionally managed and monitored at regular intervals and that investment decisions must be driven by proper research and analysis. This would keep risks controlled on your portfolio. However, doing this on a sustained basis is not easy for common investors. The investors can however take assistance of experts and professionals like 'wealth managers', 'financial planners' or 'portfolio managers' for managing their portfolios and guiding investment decisions. Often such professionals/ experts have relevant experience in the field and have more knowledge and resources dedicated to this work which cannot be matched by common investors. Investors would be advised to even pay fees such professionals / experts for services in order to get unbiased and high quality services. Over time, one can surely reap many times profits in terms of better investment decisions and reduced risks through professional portfolio management services.

• Hedging: Hedging is another strategy of reducing risks suited and used by more advanced investors. Under this strategy, the investor exposed to risk in one asset class or product would take an opposition position or exposure in say future & option contracts. The idea is that if the investor suffers losses in one investment, it will be offset by a profit in the other. Hedging is very commonly done with derivative products of futures & options.

Risk and return is inseparable so to earn a good return, having a proper risk management system in place is very crucial. Therefore, assessing one’s risk tolerance and time horizon is the starting point to following a proper investment plan and supporting it with risk management techniques. As investors, we must also understand that the risk that we seek to control is similar to everyone but the impact of same on us is subjective in nature and will be unique to our own peculiar situation. In other words, the 'risk' tolerance level for each of us is different and is dependent on one's age, income levels, assets, investment dependency, risk attitude, life-stage, etc. Risk attitude is something that shows how much comfortable are you in investing in products of different risk-return levels. You may like investing in equities and commodities for higher return while others may be interested in minimizing risk and earning a satisfactory return at the same time. In the end, the person who best understands and controls risks will never be on a loosing side. After all, successful investing is more about not making big mistakes rather than choosing winners...

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It may just take luck for a person to acquire or make wealth. However, it would take a lot more to keep holding on to that wealth. At the bottom of the things we do and the way we live life is money. Protecting wealth over a period of time, especially across generations is not easy. There are just too many factors that pose a risk to your wealth and one must be very well protected from all sides. In this article we take a birds eye view at picture of protecting wealth and explore a few strategies or ideas that you can apply in your lives.

Wealth Protection: The True Meaning
Wealth Protection may come with the question: What is wealth? The dictionary definition says it is an abundance of worldly possessions. With the uncertainties prevailing in our lives, it is very important to protect your wealth. Most people focus on growing their wealth but protecting your wealth is just as important. While you can’t always predict life’s changes, you can plan ahead to help protect your finances from being diminished. Without adequate protection, you will be vulnerable to the nasty effects of a chance misfortune which may cause financial losses. Hence protecting wealth must assume a very critical part. Below of the few simple connotations that we can derive for term 'protection':

Types of protection:

• Protection of ownership:
• Protection of value:

Risks to Wealth:

• Protection from risks / uncertainty:
• Protection from usage:

Protection of ownership:
Ownership protection means ensuring that you and/or your loved ones continue to own the wealth that belongs to you. Often protection of ownership is required to protect against the following risks:

• risks that arise on ownership issues specially in case of property transfers and inheritance
• risks to ownership of business assets and capital if legal fool-proof work is not done
• risks to unattached / personal wealth in case you are suffering from huge losses or claims

The following are few ideas by which we can protect the ownership of our wealth & assets

1. Legal Documentation: Proper legal documentation and ownership records of all family / personal assets. All the records / documents must be safeguarded and stored at a place which is known & accessible to you and your lawyers/ spouse, etc. in case of any eventuality. Due diligence and audit of title / ownership documents must be done in case of any purchase of assets or business stakes, especially property.
2. Estate Planning: It is about declaring successors to your wealth and the proportion of distribution through proper estate planning and making your 'will'. One may also look at formation of trusts to oversee large properties or businesses. A non-existent or outdated will may mean passage of assets to unwanted persons and undue financial burdens to loved ones.
3. Court Attachments: One might do well to keeping business entity distinct from self. This means protecting personal assets safe from payments due to creditors and other claims on business. One idea is limiting your civil liability through formation of Private Limited Company, subject to extant laws. In proprietorship & partnership firms, the personal wealth is not treated distinct from that of the owners or partners. Also from an individual's perspective, retirement benefits like pension, PPF, EPF and gratuity cannot be attached by authorities or under any decree of court.

Protection of value:
Protection of value means the protection of the purchasing value or worth of money. Due to inflation or price rise, the value of money decreases over time and the thus, in order to retain its purchasing power, the amount money has to rise. Thus, one must always keep in mind the 'real returns' or value of money while committing to any investment or other avenue. In addition to this, the following points should also be kept in mind.

• Post Tax Real Returns: After having appreciated the concept of real returns, the next step is to look at post tax real returns, i.e., looking at the returns after tax, and then adjusting for inflation effect. Thus, if an instrument giving 8% returns, taxable at say 30%, the post tax returns will be (8%-2.4%) 5.6%. In an environment with an average inflation of say 7%, the real post tax returns would then be a negative of 1.4%.
• Idle Money: In the above above case, if your money is kept idle, you will be depreciating your money at the rate of inflation. One should minimise idle money and put aside money into avenues that preserve capital. Though savings bank accounts with deregulated interest rates are a bit attractive, mutual fund liquid funds and other debt products are options that one should explore.

Protection from usage:
This is a very broader & general idea that highlights the need to have proper management and usage of wealth, especially the business ventures and investments.

1. Avoiding Personal assets as collateral: Taking up business or other loans by putting your home or other personal property as collateral must be avoided as far as possible. A basic minimum wealth should be kept intact at all times and should strictly be used only as the last resort after exploiting every other opportunity.
2. Unprofitable expenditures: Unwarranted spending on assets, businesses which is not required. Further spending money on assets that depreciate rather than appreciate over time or incur expenses to maintain rather than generate income are to be avoided. Excess spending on shopping, life-style, etc. is highly undesirable and further, buying unrequired assets on loan is a strict no.
3. Avoiding aggressive risks, fictitious business venture, get-rich-quick schemes: There are no free lunches and never an easy money. It would be better if we can avoid shortcuts to creating wealth as almost certainly they can be disastrous. Never invest if you do not fully understand how the scheme/business works or if you are not sure of the management's credibility and expertise.
4. Diversification of risks: The idea is to optimally spread your business risks and investment risks such that your capital and/or income is not jeopardised. It should work towards having investments in and earnings from multiple sources.
5. Hedging against risks: Business risks or risks of exposure to say commodities, currency, metal prices, etc. can be safeguarded by hedging
6. Investing in right asset classes for right duration: When it comes to investing, selecting the right asset class is a most important. An overexposure or underexposure to say equities can both be harmful for creating wealth. Matching the right asset class with the right desired duration of investment and your risk profile is what is required.

Protection from risks / uncertainties
After having taken all precautions and necessary planning in management of wealth, still life may throw up surprises or situations wherein all planning may come to fail. There are a lot of uncertainties in life and we should best avoid or reduce taking exposure to such risks and at the same time prepare ourselves for the worst, in case anything goes wrong.

1. Risks to life & health: An unfortunate event can happen anytime and anywhere to anyone. Specifically, there can be death, disease or illness, disablement, etc. which can put severe financial pressure at the worst of the times. Taking 'adequate' insurance thus becomes very critical for continued financial security of your family. Life Insurance, Health Insurance, Personal Accident cover for self & family members are few very critical covers that one should take after consulting your advisors.
2. Risks to property / assets: Similarly, protection of business property/ assets, factory, shop, home & home contents, goods in transit, etc. becomes very important and the loss therein may result in liability and financial losses. There are many general insurance products that can be explored. However, as a practice, we should take adequate safe precautions in construction, maintenance & storage of such property.
3. Risks to reputation / profession / : Apart from the tangible risks, there are also other risks that businessmen and professionals or officers are exposed. Again products like Professional Indemnity, Directors & Officer's Liability, Public Liability, Commercial General Liability, Money Insurance, where one is protected against losses, suits, damages, claims, loss to customers, third parties, any many other risks.

Protection of wealth is a very vast subject. The idea cannot be justified in couple of pages, though a fair understanding can be built up. Wealth protection goes beyond protecting your investment and it extends to protection from the happenings in your lives and the risks that you are exposed to. After all, almost everything, directly or indirectly generally ends up in rupee terms. And when we realise this, our approach to life and everything that we may do will have an element of protection somewhere. Wealth protection is not an act or event but an attitude and philosophy to follow.

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