GUIDELINES FOR INVESTMENT DECISIONS

OUTLINE Basic Guidelines The Ten Commandments

Guidelines for Aggressive Equity Investors

Guidelines for Conservative Equity Investors

NEED FOR LIFE INSURANCE

PHASE FINANCIAL AVAILABLE REQUIREMENT RESOURCES OF DEPENDENTS NEED FOR INSURANCE

YOUNG ADULTHOOD (0-25)

FAMILY FORMATION AND DEVELOPMENT (25-50) PRE-RETIREMENT (50-60)

NONE

NEGLIGIBLE

ABSENT

HIGH

MEAGRE TO MODEST

HIGH

MODEST

SUBSTANTIAL

DIMINISHED

RETIREMENT

SMALL

SUBSTANTIAL

ABSENT

TEN COMMANDMENTS
1. ACCORD TOP PRIORITY TO A RESIDENTIAL HOUSE
2. INTEGRATE INSURANCE IN YOUR INVESTMENT PLAN 3. CHOOSE A RISK POSTURE IN LINE WITH YOUR STAGE IN INVESTOR LIFE CYCLE 4. TIPTOE THROUGH THE WORLD OF PRECIOUS OBJECTS 5. AVAIL OF TAX SHELTERS

6. ADOPT A SUITABLE FORMULA PLAN

7. SELECT FIXED INCOME INSTRUMENTS JUDICIOUSLY 8. FOCUS ON FUNDAMENTALS, BUT KEEP AN EYE ON TECHNICALS 9. DIVERSIFY MODERATELY 10. PERIODICALLY REVIEW AND REVISE THE PORTFOLIO

RISK - RETURN PREFERENCES OVER INVESTOR LIFE CYCLE

RETURN

EARLY CAREER

MID CAREER

LATE CAREER

RETIREMENT

RISK

INVESTMENT HORIZON VERSUS

LIVING HORIZON
The general recommendation that a person should gradually tilt his portfolio in favour of bonds as he advances in age implicitly assumes that a persons

investment horizon is more or less the same as his living

horizon. This may often not be true because for most people the investment horizon may be longer, indeed much longer, than their living horizon.

CONSTANT RATIO FORMULA PLAN

Market value of stocks Market value of bonds 50,000 52,000 61,000 62,000 56,000 55,000 60,000 Switch from stocks to bonds Switch from bonds to stocks

1.1.20X0 1.7.20X0 1.7.20X0 (After revision) 1.1.20X1 1.1.20X1 (After revision) 1.7.20X1 1.7.20X1 (After revision)

50,000 70,000 61,000 50,000 56,000 65,000 60,000

9,000

6,000

5,000

FUNDAMENTAL ANALYSIS AND

TECHNICAL ANALYSIS

Fundamental Analysis Undervalued Overvalued

Technical
Analysis

Weak
Strong

Wait
Buy

Sell
Wait

GUIDELINES FOR AGGRESSIVE EQUITY INVESTORS 1. Focus on investments you understand and play your own game.

2. Monitor the environment with keenness.

3. Scout for special situations in the secondary market. 4. Pay heed to growth shares. 5. Beware of the games operators play. 6. Anticipate earnings ahead of the market. 7. Leverage your portfolio when you are bullish. 8. Take swift corrective action.

INVESTMENT SWEET SPOT

Zone of comfort

Sweet Spot

Zone of competence

GUDELINES FOR CONSERVATIVE EQUITY INVESTORS 1. Avoid certain kinds of shares. 2. Apply stiff screening criteria. 3. Look for relatively safe opportunities in the parimary market. 4. Participate in the schemes of mutual funds. 5. Join a suitable portfolio management scheme. 6. Consult an investment advisor. 7. Refrain from short-term switch hitting.

SUMMING UP There are ten commandments of investing which should serve as basic guidelines for all investors.

Aggressive equity investors play the equity game actively and vigorously. In addition to general guidelines, there are some special guidelines relevant for them.
Conservative equity investors seek to minimise the investment risk as well as the time and effort devoted to portfolio management. In additional to general guidelines, there are some special guidelines relevant for them.