What Return Can I Expect From Equity Over the Long term? Part 1

How much can I expect from equity as an asset class for long-term goals?. This is a question one often hears from first-time investors, especially those who are migrating from the comfort of fixed deposits or real estate.

Unfortunately, answers from experienced equity investors are steeped in hindsight bias. They often extrapolate their own good fortune into the future.  Answers from salespersons cannot be vague. I have seen advisors state, “invest and after X years you will definitely get Y returns”!

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Mutual Fund Analysis with the Information Ratio

Understanding the notion of a risk adjusted return requires some maturity to think beyond mere returns. While comparing funds, a fund that offers a lower return with lower risk is better than one with higher return with higher risk.

There are many risk adjusted measures and one of them is the information ratio.  The information ratio has always been part of the mutual fund risk-return analyzer. I started to pay more attention to it when Dr. Uma Shashikant remarked at FB group, Asan Ideas for Wealth in a thread on star ratings:

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Year on Year Mutual Fund Risk Return Analyzer

Analyse mutual fund performance on year on year basis for the last 8 years with this tool. This is a modified version of the risk return analyzer where investments durations of 1 to 8 years were considered.

In this version the duration is fixed at 1 year but it is rolled over. That is risk adjusted performance in the

  • last year (from last NAV date to 1Y back) Say April 2015 to April 2014
  • a year before that, April 2014 to April 2013
  • a year before that, April 2013 to April 2012 and so on for 8 durations.

The advantage here is each investment duration is independent of the other. Unfortunately, this is quite a strict method of evaluating funds. It will tell you if the performance has sharply dropped in the recent past (see below), but should you act on it and exit the fund is something that is quite difficult to say. You will need to evaluate the position of the fund in your folio, market conditions, and your own faith in the fund.

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Looking for books on personal finance? Know what to look for first!

“I am beginner. What books should I read to learn the basics of personal finance and money management?”, is a standard question asked in most forums.

The answer is not a list of books! The answer is not ‘Rich Grandma. Poor Grandma!’

I love books. I love buying them, collecting them, being among them, smelling them, shelving them. Pretty much everything except reading them! Many who interact with me assume that I am well read and find it strange when I tell them I simply can’t focus hard enough to read. So how did I manage? (assuming I do!).

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Money Can’t Buy Happiness. Or Can it?

When you can spare the time, go to Google, and type, ‘Money Can’t Buy Happiness’ and click on images. You will find a host of interesting memes and quotes. Please don’t do that now, for your presence here is valued, and your response is requested.

The title should remind those  familiar with the Beatles of the unforgettable lines

I’ll give you all I’ve got to give
If you say you love me too
I may not have a lot to give
But what I’ve got I’ll give to you
I don’t care too much for money
For money can’t buy me love

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