Behavioral pitfalls every investor must guard against

Humans are creatures of emotion. As much as emotions make us more human, they may also cloud our judgment at crucial junctures; to our utter detriment. This is particularly true in the world of investing. Investment performance is not a function of just risk and return. The investor, nay, his temperament, is an equally important input to the final investment outcome. So much so, that legendary investor Warren Buffet once quipped: The chief enemy of the investor is the investor himself!

We list some key behavioral pitfalls every invest should guard against:

Loss Aversion

Out grief at losing something is far greater than our happiness at getting the same thing. A loss of Rs. 10,000 hurts more than a goin of Rs. 10,000 make us happy. Insurance companies always knew this and therefore sell by evoking images of possible losses. Loss aversion kicks right in during bear markets. Investor tend to panic and sell otherwise solid stocks when these are falling sharply. Loss aversion also manifests itself in holding onto confirmed losers hoping for a rebound. Often, realization dawns much later that these were bad calls. If only one could hold one's nerves and not sell unduly for fear of losses! Being aware of loss aversion bias may help you take a more objective buy/sell/hold decision. 

Confirmation bias

Who doesn't like to be told how great one's decision was or how clear one is to have invested in XYZ. We feel better when our choices are corroborated by others. But we all do that, I know you say YES, and that's no a problem. However, problems arises when we turn a blind eyes to counterpoints in our quest for approval. 

Sample this: You have invested in a mutual fund scheme after weeks of careful research. They you come across solid arguments and facts cast reasonable doubt on the scheme's potential. But you ignore, and instead, hit the internet looking for pages eulogizing the scheme. This behavior is akin to seeking evidence after the conclusion has been made; and may prove a fatal investment folly. Remember we all make investment misjudgments. Keep an open mind about your decisions and do not identify yourself with your investments. Shun your ego as it misleads you into believing you cannot go wrong. Course correct if necessary. 

Regency Bias

Studies have shown that in may instances, the entry/exit decision of investor are determined by relatively recent outperformance/underperformance. We tend to project the most recent past into the future. This bias may be particularly damaging if you exit quality stocks in volatile times just because they fell recently. To immunize yourself front eh consequences of this bias, hold back and try looking at the big picture whenever recent trends make you edgy or excited. Avoid checking your portfolio every so often. Refer back to why you had selected an investment and whether the logic still holds. 

The demons in our mind are may more - Overconfidence, availability heuristic, mental accounting, anchoring bias, etc. Being mindful of these behavioral patterns is the first step towards keeping you portfolio out of harms way. Unfortunately, no one else knows you better than yourself. But you can definitely help yourself by acknowledging which biases you are predisposed to. After all, the investor is his friend too, isn't it?

Select your Debt Fund Investment carefully

Invest in top quality instrument in the PSU bonds and AAA rated bonds of blue chip firms to preserve your capital. 

The COVID-19 followed by a series of lockdowns has impacted the economy. This has impacted the revenue of firms, households, individuals etc. Due to this, investors wish to play safe and invest in relatively safe instruments, especially in debt funds. Let us discuss in detail what are the issues in the debt markets and how investors should determine where to invest in debt funds. 

Mixed Trend

The fall of a popular leasing company in 2018 surprised and upset debt mutual fund investors. Again, during April 2020 another popular international mutual fund closed its half a dozen debt schemes due to significantly lower liquidity in the India bond markets. This led to an unprecedented volume of redemption. Many fund houses started side pocketing, thus separating the stressed assets from other investments and cash holdings of a particular scheme. At the same time, retail investors started looking at products considered less risky such as banking and PSU funds. This is evident from the latest issue of Bharat bond ETF which got oversubscribed by 3 times and mopped around Rs. 100 billion. 

COVID-19 impact on debt markets

Owing to COVID-19 and various measures taken by the government to contain the same, there are unexpected challenges facing the government and the private sector. The government and Reserve bank of India announced various schemes as a stimulus to revive the economic activities, but the impact of these is yet to be seen.

Many global rating agencies have predicted negative GDP growth for the current fiscal. This will definitely affect companies with weak balance sheets and inadequate working capital. Investors could witness in the foreseeable future steeper yield curve and higher credit spreads between highly rated (AAA) and not so highly rated bonds. In order to ease monetary policy, RBI reduces interest rates and infuses surplus liquidity. This encourages investors to look at other financial products in the market and not just savings in the form of fixed deposits in the banks. 

What investors can do?

Given the current context, investors should stay invested only in AAA rated instruments. Investors should invest in top quality instruments in the debt market such as government of India bonds, AAA rated blue-chip companies and PSU bonds to preserve their capital. In the current economic scenario, following the above strategy will definitely lower volatility in their portfolio. 

Further, investors should choose funds with a portfolio duration that is longer than their investment horizon in the current timings of interest rate easing. This will help to manage the interest rate decline in favor of return on risk-return matrix. Further, they should stay invested in highly rated short term funds with a holding period of 2-3 years. If your holding period is less than 1 year, it is better to look at instruments in the money market rather than the debt market. 

To conclude, investors must understand that the current investment landscape is novel coronavirus induced as as of now the prudent move is to preserve and protect your capital instead of focusing on returns. 

Knowing how much risk is too much risk for you

Assessment of risk tolerance is a crucial part of the asset allocation process and helps the investor in constructing optimal portfolios. Take the help of financial planner to know how much risk you can handle. 

It is important to understand the concept of risk tolerance and assess the same. Every investor needs to understand how much risk he is willing to take and what type of risks he is more  concerned about. Risk tolerance is a function of various factors such as age of the investor, investment goals, horizon of holding period, other financial commitments etc. It is often misunderstood by the investors and there exist some difficulties in measuring the same.

Risk Tolerance

From the investment science perspective, risk tolerance is nothing but the amount of risk that an investor is comfortably taking or the degree of uncertainty that an investor is able to handle.  In other words, it is the point at which you can no longer take a stock market downturn and move your money into cash. We all have a tipping point and it is important to find it. Often this term is confused with the risk capacity. Risk Capacity is the magnitude of risk that an investor should take to achieve the desired financial goals. It can be measured examining the holding period and income requirements. For instances, if you are a high net-worth individual then you would have a high capacity for risk during a market downturn. You would have enough assets to live off on during this time period. 

Measurement of Risk Tolerance

Measuring risk tolerance accurately is slightly tricky. There are two common methods to estimate an investor's tolerance for risk. The first method is a clear understanding of the investor and his history with investment securities. The second method is to use a questionnaire designed to elicit feelings about risky assets and the comfort level of the investor given certain changes in the portfolio. 

The various questions capture the investor's attitudes, current behavior, feelings, age, life stage, portfolio size, personal comfort level, income, financial goals etc. Risk tolerance of an investor also changes over a period of time with changes in market shifts, life events, etc. Generally, risk tolerance can be assessed by a professional financial planner who could use any one of the above methods or combine more than one method. 

Why Risk Tolerance is important

Assessment of risk tolerance is part and parcel of appropriate asset allocation and help in constructing optimal portfolios. Investing without considering risk tolerance is like sleep walking to the edge of a cliff. Assume that your are investing in shares without thinking about how you will react if their value drops. A big danger then is freaking out and fleeing the market. Then you are falling into the common investing mistake of selling low. Another danger is playing it too safe if you don't take a reasonable amount of risk to reach goals. Taking a slightly more aggressive position to get better returns can make a huge difference over the long haul. Investor in consultations with financial planner must assess their risk tolerance for the best asset allocation strategies. Assessing your risk tolerance may not guarantee you will sleep better but will provide you a basis of what you can withstand. 

Take Part in market rally or sit it out, it all depends on emotions

The Volatility in the markets has posed more questions than answer. The BSE SENSEX from levels of 42,000 in January this year went down below the levels of 26,000 in March and then moved up to 43,708 as November 11, 2020. In September 1.3 million demat accounts were opened, which is the highest in the year so far, indicating increased retail participation in the equity market since the lockdown to contain the coronavirus pandemic began. 

So, will the markets continue to go up? This is anyone's guess. "Irrational exuberance" is being noticed and at some point it has to stop. One needs to have the processes both in thought and action and act swiftly. Alternatively, one can sit out-Just as a few of the largest investors across the globe doing- and wait for this rally to change course. As an investor, check your asset allocation, cash flow needs and not succumb to the feeling of FOMO (Fear of Missing out). 

Remember, in the year 2000 just as the markets were going up, based on the dotcom boom, one of the largest investors sat on the sidelines for the entire period. And when the markets fell drastically in the subsequent year, he picked up some good stocks at throwaway prices. Central banks across the globe have pumped in liquidity into the markets. In countries such as the United states, the government has directly credited money to its citizens more than once since the outbreak of COVID-19 pandemic. In India, too the government has come out with stimulus packages to drive consumption and boost the economy. 

What should investor do now?

The answer is never simple. If you like the momentum, take part in the rally and be swift to take the profits/losses. If the fundamentals of the economy i.e. the stock market rally is causing discomfort, stay on the sidelines for whatever time it takes and invest when you believe the market prices are more justified. One of the sectors which will hold on for in the next few months are pharma and consumer staples. Also, if one is looking at stock market volatility, having gold in the portfolio is highly recommended, besides the allocation in liquid mutual funds. Any money you need for the next 18-30 months should be invested in fixed-income instruments, which has ease of liquidity and also in cash.

The PE ratio of NIFTY is now close to 33, which is more than the level it was early in March 2020 (25.34) and at its lows in March 2020 it was 17.15. The economy is slowly opening up for production and consumption and work from home can lead to a totally different approach towards work, which has an impact over multiple levels. However, both domestic and international travel may not be the same for quite some time. 

Investing need not be a zero sum game. Each one of use can be winner in investments, provided we do not fall prey to irrational exuberance or doomsday messages. There is going to be a shift in the Indian economy and growth will fall as compared with last financial year. But we can retain the belief that this too shall pass. We tend to underestimate what can be achieved over a longer period of time (5-10 years) and overestimate, what can be done in a shorter period of time (say 0-2 years). The investors best friend and worst enemy is the investor himself. Investing is more of an EQ (Emotional Quotient) matter as compared to IQ (Intelligent quotient).

Towards Engaged Pedagogy

"Tell me and I forget, show me and I remember, involve me and I understand." These words by Bejamin Franklin, are an  excellent way in which to understand the value of an engaged pedagogy in inquiry based learning. It is the dynamic relationship between learning, teaching and culture that underlies meaningful pedagogy. 

Pedagogy ranges from teacher-centered pedagogy and learner centered one. Effective pedagogy involved using the ideal pedagogy in different contexts to support learning outcomes. In a learner-center pedagogy, the teacher is a facilitator. Within the principles of pedagogy, a shift from teaching to learning can be discerned that focuses on learner engagement with meaningful class interaction, building on prior learning through an innovative designing of curriculum, alignment of assessment with both the curriculum and learner needs, and alignment of new pedagogical practices that taxes into account existing cultural contexts. 

While the success of any learning environment is determined by the degree of alignment amongst goals, content, pedagogical design, learner tasks, technological needs and assessment, the most misaligned factor is assessment. Simply put, educators may have lofty goals, high quality content and even advanced instructional designs, but most tend to focus their assessment strategies on what is easy to measure rather than on what is important. Credible evaluation and assessment should test the application of knowledge and encompass all learning domains: cognitive, affective and psychomotor. 

Making learning trajectories explicit for students can help promote reflation and potentially enhance the quality of their learning processes. When teaching an academic skill, it is important to facilitate the learning processes of students by stimulating them to recall prior knowledge, and relate it to new knowledge. 

An educator can easily gather materials that can demonstrate real-worlds tasks, such as creating models, giving examples and preparing presentations. However, the greatest learning occurs when the students know that the knowledge is critically important to obtain, an it is for this reason that the most meaningful learning occurs within real world tasks. 

Pedagogy and COVID-19

Opportunities for self-directed and non-formal online learning are likely to play an important role in learning, especially in the post COVID-19 economy. The crisis has highlighted the need for training educators and employing new methods of education delivery. It is important to ensure that educators work with differentiated learning strategies and suitably adapt pedagogical and assessment skills. 

Now there is a much closer integration of classroom and online teaching under blended or hybrid learning as a flexible style, through a mix of pedagogies and approaches where classroom time is reduced but not eliminated, with substantial time being used for online learning. A successful integrated model of blended teaching and learning entails a rethinking of teaching and learning practice as well as classroom layouts, as more interaction takes place, involving students, educators and outside experts who participate in person or virtually. 

It is important to safeguard linkages between formal and non-formal learning as students access diverse content, free of charge, from multiple sources via the internet and freely choose between alternative interpretation, areas of interest, and even sources of accreditation. Strictly managing a set curriculum in terms of limited content becomes less meaningful as the emphasis shifts to deciding what is important or relevant within a subject domain by the students themselves.

As a result, within the framework of learning objectives, more flexible approaches to content choice, presentation and assessment are emerging. 

Emergency Fund

 An emergency fund is a readily available source of assets to help people navigate financial dilemmas, such as the loss of a job, a debilitating illness, a major repair to home or car—not to mention the kind of major national crisis the coronavirus pandemic has created. The purpose of the fund is to improve financial security by creating a safety net of cash or other highly liquid assets that can be used to meet emergency expenses. It also reduces the need to either draw from high-interest debt options—such as credit cards or unsecured loans—or undermine your future security by tapping retirement funds. 

An emergency fund may be required for a variety of reasons. Some of them are:

⦁ natural disasters like typhoons, floods and earthquakes can cause harm to both life and property. In such a case, to get back to a semblance of normalcy, an emergency fund may be required till such time regular income commences and for asset reconstruction or medical expense. 

⦁ In todays situation, man made disasters like riots and civil disturbances can also disrupt life and funding may be required for the victims of such events. 

⦁ Though, medical science has made rapid strides, medical emergencies like operations or major diseases require funding at short notice. 

⦁ Marriage of children may require liquid funds at short notice even though such events are anticipated and savings may have been made for them.

⦁ Similarly, when children are dependant and studying, emergency funding may be required for additional courses like tutions or computer skills etc. 

⦁ When a house is being constructed, emergency funding may be required for unplanned additions or costs overruns. 

⦁ A client may like to keep a small fund aside for lucrative investment that may come his way.

⦁ Involvement of litigation may require emergency funding during the course of the litigation and then at the time of settlement. 

How does one keep an Emergency Fund?

There is no benchmark figure available or around 6 months of total family income should be kept in liquid assets. Examples of some measures that could be taken are as follows:

⦁ Traditionally, gold and silver have been used for storing wealth. This wealth can then be realized in the case of extreme emergencies. 

⦁ saving accounts have been specially designed for liquidity. The money in a savings bank account though earning only around 4% interest, is readily available on demand during banking hours. 

⦁ even fixed deposits in banks are liquid to the extent that premature withdrawals can be made at a discount to the negotiated rate of interest at the discretion of the bank manager. 

⦁ Similarly, life insurance policies have a cash or surrender value which can be utilized in case of emergencies. 

⦁ Shares which are actively traded on the stock exchanges are also liquid, specially with the dematilisation of major shares. 

⦁ While liquid fund schemes of mutual funds are realizable with a day, open ended schemes can  be redeemed in a week or so. 

⦁ Withdrawal/loans are permitted from the public Provident Fund account of an individual after 5 years respectively. 

⦁ Loan against shares schemes of mainly foreign banks are another source of liquidity for individuals. There is stiff margin imposed by these banks against specific shares and the interest rate is quite high. 

⦁ Loan is also available against specified insurance policies of LIC. 

⦁ With the advent of credit cards, advances are available albeit at a stiff interest rate, going up to 36% p.a. The money can be withdrawn from ATM counters at all times and from bank counters during banking hours.

 Two Strategies to Set Up an Emergency Fund

Starting early is key to setting up an emergency fund, because it helps you build up a comfortable cushion against unexpected emergencies later in life. Getting a start on emergency funds is relatively easy. Here are two simple ways to begin saving for one:

    1. Set aside a comfortable amount from your salary each month. Calculate your living expenses for at least three months and make that your target for an emergency fund. You can then divert a portion of your paycheck—perhaps by setting up an electronic withdrawal—to that account each month. Once the fund is built up to the level you need, invest extra savings for the long term or for other goals, such as the down payment on a mortgage. Once you’ve maxed out your retirement savings, that money could go into an investment account with higher risks and rewards.

    2. When you get your tax refund, save it. The tendency for most of us is to consider a tax refund as “extra” cash, which consumers may be tempted to use for discretionary purchases. Instead of spending the tax refund, save it as a contribution toward your emergency fund.

Risk & Return

Investment, which at times can produce extremely good results, can at other times produce extremely poor results. Responsible investment advisers and financial planners spend much of their time in evaluating the risk element associated with a  particular investment. However, the question of risk is often not discussed or is quickly brushed aside in investment publications by most of the promoters of certain financial products. Often investors are persuaded to make an investment because they are told that it does not face the risks associated with other investments. 

Another very important factor to consider is the risk of not being in the market. This may be termed Opportunity cost. By investing in one asset class that achieves poor returns you have passed up the opportunity of investing in another asset class that achieves very good returns. This is one of the major reasons for constructing diversified portfolios. Over the long term, not having some investments in the higher performing assets can significantly affect the investor's wealth creation, as the effect of compounding at a lower rate results in a lower total portfolio value. 

Market timing is also important when considering risk. What is the best time to buy or sell? Generally assets such as quality shares and property show sound, consistent performance over long periods of time. However, if investors expect strong growth in a short period then they may be disappointed. Where the client has available funds, the best strategy is probably to just purchase the appropriate investments. If the client does not have a sizeable amount of free cash, they can begin a savings program. Benefit of using a savings program is that over a period of time the volatility of prices will mean that the client will have purchased their portfolio at average prices (Rupee cost averaging). 

Risk

Risk may be defined as the deviation of actual return from expected return. Risk is a measure of uncertainty that is the basic reason that one investment will pay a greater return than another. In a business, a greater return may arise from one factor or a combination of factors such as good management, sensible borrowing, and careful assessment of market and economic conditions. Economic conditions, including supply and demand, affect return and increases or decreases in return of various markets. For instance, interest rate variations affect return. 

There are two types of risk:

a. The first is where there is some probability of a negative outcome that will have financial implications, This is usually a risk to property or person and can be covered to some extent by insurance. 

b. The second type of financial risk is associated with investment. This is where there is a risk of flat, low, no returns or a loss of capital. 

Return

Investment is a current commitment of rupees for a time period to derive benefits in future. The future benefits derived from investment are know as returns. There are many factors that determine the level of the returns. The investors who sacrifice their current income would like to get compensated for 

⦁ Loss of liquidity for the time period of sacrifice

⦁ the expected rate of inflation;

⦁ the uncertainty associated with the investment. 

Investment involves the purchase of financial assets that are expected to produce a return or series of returns over time. In the broader economic sense, funds invested in securities (a term encompassing shares, debentures, bonds and other financial instruments) are redeployed and put to productive use by issuer of these securities. 

Return on investment is likely to be investor's main concern. Return may be in the form of income alone or a combination of income and capital growth gain (increase in value). Investment may also be structured in such a way as to produce returns for the investors in the form of capital growth alone.  

Income returns are dividends in case of shares, rent in case of property, and interest in the case of loan debt securities such as bonds. Property and shares may increase (or decrease) in value over time, but the capital value of a loan will remain unchanged if there is no movement in the general level of interest rates. Bonds too can appreciation in value on account of general interest rate declines.

The choice of an investment instrument for an individual will depend on his or her need for capital growth and income. 

Value Averaging Investment Plan (VAIP)

Value averaging is a technique of adding to an investment portfolio to provide greater return than similar methods such as dollar cost averaging and random investment. It was developed by former Harvard University professor Michael E. Edleson.

Value averaging is a formula based investment technique whereas mathematical formula is used to guide the investment of money into a portfolio over time. With the method, investors contribute to their portfolios in such a way that the portfolio balance increases by a set amount, regardless of market fluctuations. 

As a result, in periods of market declines, the investors contributes more, while in periods of market climbs, the investor contributes less. In contract of dollar cost average which mandates that a fixed amount of money be invested at each period, the value averaging formula to identify periods of investment over-performance and under-performance vs. expectations. 

After the investment has over performed, the investor will be required to buy less or sell. After the investment has underperformed, the investor will be required to buy more (buying low).  Some research suggests that the method results in higher returns at a similar risks, especially for high market variability and long time horizons. 

The first step of any investment program is always the hardest, and individual investors taking their first steps in an investment program must also confront a sea of stock market uncertainty. Some plunge headlong into the market with all their savings. Others barely wet their feet before heading back to the safe shores of their fixed income deposits and money mutual funds. The problem with these two approaches is one of timing - the risk of entering the market is at a high point in the market cycle. 

Discipline is the Key

In the book, "What works on Wall Street", author James O'shaughnessy found that one of the reason why academics adopted the flawed "random walk" hypothesis of the stock movements is because of inconsistent methodologies used by fund manages themselves. Fund managers do not adopt a well-defined strategy and stick to it, they tend to go with the flavor of the month stocks, to adopt new paradigms when they see fit, to rebalance portfolios constantly and generally move about in a random manner. By analyzing the returns of fund managers academics were unable to find any managers who had consistently been able to get far above average results in a statistically significant manner. They erroneously concluded that it is the market that is rando. In reality the market does reward certain approaches over time, but none of the market professionals studied ever stuck to any of these approaches. Rather than random stocks, it is clear that it is the investors who are random. 

The one factor that unites all of the great investors is that they have a simple formula that is applied consistently over time and can be easily stated in a book. As complicated as Warren Buffett's methods are, you could write a book about him and state with great precision how he goes to work analyzing stocks, in fact many books about him have indeed been produced. Buffet states that, to be a successful investor does not require one to have a high IQ but rather it requires two things:

A. A strong intellectual framework on which to base your decisions;

B. Not letting your emotions corrode the framework. 

The 80% of managed funds that fail to beat the market do so because of complicated and ever changing strategies, or lack of strategies as may be the case. To paraphrase James, "If you can't write down and explain your technique on a piece of paper, you don't have a technique."

There are approaches that consistently beat the Market!

It is important to adopt an approach that works, and stick to it. The reason why most investors fail is that they go chasing better results elsewhere and tend to move out of sectors just when they are about ready to start making big gains. 

Today's equities markets change fast. Factors are influencing stock and bond prices today that we could not even have conceived of just a few years ago. Yet investing concepts and resources that we have been taught to use for decades have not changes, and they no longer work. This leaves investors, stuck using increasingly obsolete methods and tools to cope with new market dynamics and challenges. This sad state of affairs was evident as tends of millions of investors lost nearly half of their life savings in late 2008 and early 2009 by heeding "conventional investing wisdom" or relying on advisers. 

Identify Market Trends

Stock market is known to be brutal to investors who invest unscientifically or based on hearsay. While no one can predict stock price movements with certainty, it helps to take an educated guess or informed decision before investing. Technical analysis of stock prices enables investors to do just that. Trend analysis of stock price movements using some useful technical indicators can help gauge the overall direction in which prices are moving, and how they may behave in future. Let us look at some simple but powerful technical indicators:

1. Simple Moving Average (SMA):

A single price point contains almost no information useful for investing. On the other hand, when you take a series of consecutive price points and take their average, you get a composite data point. This is called a Simple Average. For example, the average of a stocks price points on 10 consecutive trading days is a 10 day simple average of the stock price. When you successively determine the simple average by including the most recent price point and excluding the oldest price point, you get a Moving Average (MA). For Example, you can calculate the 10-day simple average of stock prices on Day 1 to Day 10, followed by the 10 day simple average of Day 2 to Day 11, and so on. This gives you a series of 10 day simple averages, which when jointed together, gives you a 10 day simple moving average (SMA) trend line of the stock price. As daily stock prices are usually volatile, SMA help to smoothen the curve and determine the overall trend or direction of the stock price movement. 

2. Exponential Moving Average (EMA):

The Exponential Moving Average (EMA)is similar to the SMA but allocates weightages to each price point, with more recent price points getting higher weightage, unlike the SMA which allocates equal weightage to all price points. 

Formula: EMA = Current Stock Price x Multiplier + EMA of previous day x (1 - Multiplier)

Multiplier can be calculated as: Multiplier = 2/(No. of Price points + 1)

EMA will be more sensitive to recent price movements than earlier ones. Due to this, an EMA will "hug" the price movements more closely than an SMA. Some of the popular MAs are 10-Day, 12-Day, 20-Day and 26-Day for short term trends, and the 50-Day, 100-Day and 200-Day for long term trends. 

Support Levels & Resistance Levels

Both SMA & EMA can be used as "Support" or "resistance" trend lines. When the stock price is on an uptrend, it tends to "bounce" off certain price levels that coincide with an MA trend line. That is, the price refuses to drop below the MA. This is called a Support level. This can be an interim entry point for buying into the stock, assuming the uptrend will sustain over your investment horizon. However, if price movements start breaking through the support level, it can indicate a trend reversal and investors can consider exiting the market. 

The MA indicators are lagging indicators and should be used only to confirm a trend or trend reversal. However, entry or exit point for the investor into or from the market usually precedes a trend confirmation or reversal as indicated by Moving Average.

Hunting for Gains from Investing in Undervalued Sectors/stocks

A financial security or other types of investment that is selling for a price presumed to be below the investment's true intrinsic value. A undervalued stock can be evaluated by looking at the underlying company's financial statements and analyzing its fundamentals, such as cash flow, return on assets, profit retention an capital management, to determine said stock's intrinsic value.  Buying stocks when they are undervalued is a key component of Warren Buffet's value investing strategy. There is no guarantee as to when or whether a stock that appears undervalued will appreciate. There is also no single correct way to determine a stock's intrinsic value - it is basically an educated guessing game. 

Valuation Measures for Finding Undervalued Sectors/stocks

1. Price-Earning (P/E) Ratio: 

• The price earning ratio is a valuation measure that indicates how much the market values per Rupee or Dollar of earning of a company. 
• It is computed as: (Market Price of Share/ Earning per share)
• PE is represented as a multiple. When one refers to a stock as trading at 12x, it means that stocks is trading at 12 times its earnings. The PEx based on historical earnings is of limit value. The prices change dynamically, while the reported earning is updated every quarter. Therefore, prices tend to move even after the historical earning per share is known, in anticipation of the future earnings. 
• It is common to look at the PE multiple of the index to gauge if the market is overvalued or undervalued. The PE multiple moves high when prices run ahead of the earning numbers and the market is willing to pay more and more per amount of earning.
• Many would consider a market PE of 25x or above as an overvalued zone. When markets correct and uncertainty about future earnings increases, the PE multiple also drops. A value investor, who would like to pick up stocks when they sell at lower valuations, may be interested to purchase when PE is low. 

2. Dividend Yield: 

• Value investors, who look for the opportunity to buy a stock at a price lower than its fundamental or intrinsic value, prefer a combination of law PE, low PBV and high dividend yield. 
• Dividend yield compares the dividend per share to market price per share. 
• A higher dividend yield would mean that the income potential of the share is not yet reflected in the market prices. A lower dividend yield is associated with a higher valuation for a share.  It also used as broad levels with which to measure market cycles. 
• A bull market will be marked by falling dividend yields, as prices move up. A bear market will have a relatively higher and increasing dividend yield as prices tend to fall. 

3. Price to Book Value (PBV): 

• The PBV ratio compares the market price of the stock with its book value. It is computed as market price per share upon book value per share. The book value is the accounting value per share, in the books of the company. 
• It represents the net worth per share. An important limitation of this number is that most assets on the books of the company are shown as cost less depreciation, and not inflation adjusted. Therefore the realizable value of the assets is not reflected in the book value. 
• If the market price of the stock were lower than the book value, the stock is deemed to be undervalued and undiscovered. Analysts would concur that the market prices have fallen more than what is justified by the value of the stock, and would consider the price attractive to buy. 
• In a bullish market when prices move up rapidly, the PBV would go up, indicating rich valuation in the market. However, there may be other reasons for a stock being sold for less than its book value such as the poor investments made by the firm in the past which needs to be written down subsequently. 
• Hence investors should not rely only on PBV for their investment decision and should understand that not all stocks that trade at a discount on their book values are bargains (under-valued). 

4. Net Cash Flow: 

• It is the cash flow which is left after all necessary cash outflows have been deducted. These cash outflows include both operating expenses & capital expenditure.  It is a primary determinant of whether a company's stock is undervalued or not. In case, a company possesses net or free cash flow, it has the financial capacity to invest in R&D, paying existing debts, launch new products, provide timely dividends to shareholders etc.  
• Some qualitative fields based on which it is determined whether the stock of a company is undervalued or not are –
• The earning history of a company. 
• A company is not indulged in any financial scam. 
• the products offered by a company and whether such products have the potential to sustain and be profitable in the future. 
• A company's credit rating which denotes its debt-reliance. 
• A company's profit or loss during the previous recession. 

Value investors analyse these fields and other related factors and metrics to determine whether the stock of a company is undervalued or not.

Who should Invest in Undervalued Shares? 

Undervalued stocks have considerable potential to yield substantial returns if investors can properly reckon and analyse the different variables which are related to such stocks. Besides, analyzing companies and its shares to determine whether each organisation’s earning potential shows promise in the future requires significant technical knowledge.

Value investors duly wait for market conditions which will render the market price of a stock below its intrinsic value. These investors follow the principle that if they can purchase a share at a discounted price, where they procure a similar product, why should they purchase it at its face value or higher.

Advantages of Undervalued Stock

⦁ Prices of undervalued stocks automatically return to their original value or intrinsic value, which is why profits are assured.

⦁    It presents an opportunity to purchase shares at low prices from well-established or promising companies.

⦁    These stocks also feature low risk due to the fact that such undervaluation is cyclical and the company has the potential to attain its intrinsic value.

Disadvantages of Undervalued Stock:

⦁ Every investor cannot decide to invest in such funds.

⦁ It is time-consuming.

⦁ Investors run the risk of flawed analysis.

Hence, investors should begin by investing in less risky financial instruments when they initially begin. For investors looking for short term gains these may not prove to be fruitful as undervalued stocks need time to show their true worth. However, if you are a patient investor who has done exhaustive research and believes in the fundamental soundness of the business, then investing in undervalued stocks could be a rewarding experience.

Should Investors bet on beaten down stock?

Beaten down stocks have different risk-reward characteristics compared to trending stocks and have the potential to provide a good rate of return and beat benchmark indices. Of Late, Investing in the stock market has been most confusing for individual investors. In such a scenario what should investors do and is there still scope to participate in the market?

Reasons for the fall

Though the World Health Organisation (WHO) has sounded an alter about a new corona virus during the last week of December 2019, it had not affected Indian then. The magnitude of the pandemic was realized only when it hit our country and the number of cases and deaths started moving upward. Based on the WHO announcement, many countries suspended passenger traffic to stop the spread of corona virus. This threatened smooth functioning of businesses. India also prohibited entry of any international cruise ship, crew or passenger with travel history to corona virus hit countries to its major ports. 

Meanwhile, Foreign Institutional Investors (FII) have continued selling Indian stocks, As per NSE data, FII have been net seller every day since February third week. In March alone, they withdrew a net Rs. 20,831 crore from domestic markets. The carnage in march is also partially attributable to oil related fund based selling as there was a sharp fall in crude oil prices. 

Reasons for the recovery

Various announcements of the Reserve Bank of India on lending and supporting the economy sent positive vibes to the market. Sectors such as MSME, NBFC rural economy, banks etc. were the beneficiaries. The pharma sector regained attention of the investors after 3 years of under performance. Cement, metal and auto are favored sectors in the short to medium term. The smart recovery is also attributable to Foreign Portfolio Investors (FPI) as they like to invest in high beta stocks, especially in emerging markets such as India. 

Can Investors consider beaten down stocks?

Despite such a wonderful recovery, there are many stocks that have not fully recovered. Let us call them beaten down stocks. For our discussion purpose, let use define beaten down stocks as those shares whose prices have fallen by more than 50% from the January level. It is easy to recognize these stocks but difficult to invest as momentum is lacking in such stocks. Essentially, beaten down stocks have a great potential to provide a good rate of return and could beat benchmark indices once investors recognize such stocks. 

How to choose among beaten down stocks?

Before investing in a beaten stock, investors should study about each stock. Investors need to identify the major problems faced by those companies and identify the possible solution which might trigger recovery. For instance, if the courts have given a favorable verdict to a telecom company on computing its adjusted gross revenue or a reputed group is investing a significant amount of money in it can be interpreted as a good signal. 

To conclude, beaten down stocks have different risk-reward characteristics compared to trending stocks. So, investors should carefully choose beaten down stocks for a higher risk-reward ratio than simply investing only in momentum stocks.

Why we need to talk about wealth Creation

Financial literacy and financial independence will happen when we are open to discussing about it. 

In today's world there are logins, passwords and OTP for literally everything to do with life. The world of finance is becoming more reserved for valid reasons, the most common reason is that wealth is an extremely personal topic. Trusting others is not easy, eventually avoiding discussions on money and wealth. We often reach a stage where we don't even discuss it with our family; talking openly with friends and colleagues is rare these days. Just like personal life, there are different phases in financial life too. Most personal life emotions such as excitement, happiness, anxiety, fear exist in financial life also. In personal life, we discuss these phases with others to express ourselves, get solvable and resolve issues; doing the same in case of personal finance is equally important. There are many who are doing will with their finances and may need the right motivation to take it ahead, again there are those who are fighting the battle of financial stress on their own and appear exhausted. One way to make this perceived complex topic of finance simple is to have relevant discussions. 

Money & Wealth

Let us take the first step here itself. Is it always that people that people with more money are more wealthy. We often use money interchangeable with wealth, but money is different from wealth. As per definition, money is something generally accepted as a medium of exchange, a measure of value, or a means of payment. Wealth on the other hand is a great quantity or store of money or a state of being rich, prosperity, affluence. There is a difference between money and wealth and so is the difference in having money and being wealthy. Money is the starting point and not the final product. It is one of the elements along with others. In the case of wealth creation, right assessment, investment avenues and time horizon play crucial roles along with money. 

Everyone has 24 hours in a day, the differentiating factor is how do we utilize these hours. Similar is the case of personal finance, a few people are successful in the journey of earning money to wealth creation, some put in much effort and progress gradually while there are others who probably need to give more attention to wealth creation. 

One way to build wealth wisely or start thinking in that direction is by sharing knowledge, experiences and progress. Like in every discussion, right knowledge leads to evolution and wrong takes us closer to disaster; hence we must be wise in sharing the right advice and do our homework before accepting any advice. We go for weeks or months of discussion before deciding on which gadget or vehicles or house to buy. Why not discuss similarly when it comes to managing money and wealth. All the buzz around financial freedom cannot progress unless there is financial literacy and financial literacy and financial literacy will only happen where we are open to discussion on it. 

This Independence day take the right steps towards financial independence. 

Personal Finance in COVID-19 (Contingency Planning)

We are already deep inside the Covid-19 crisis but the end of the tunnel isn't yet in sight. It's time to put in extra effort to build a  financial contingency plan.

Focus on boosting your cash reserves
Widespread job losses, pay cuts and diminishing business earnings have defined these uncertain times. If you lose your job or income amid such a situation, getting your income channels back on track could be difficult if not impossible. As such, a standard emergency fund worth three months of your expenses might not be adequate. It's time to increase its size to at least 6-12 months of your expenses if your current finances permit. This fund will be your primary cash reserve if you, unfortunately, lose your income in the coming weeks or months. 

To achieve this target, you must exercise strict cost-cutting measures and minimize non-essential expenditures. The lock down may help you in this to some extent as you no longer have to bother about expenses like daily commutes and shopping. You can also try to carve out a dedicated Covid emergency fund in addition to your regular contingency fund and park your savings in a highly liquid instrument like a FD or a saving bank account.
Top up your income plans
Maintaining adequate insurance cover is of utmost importance during this phase of heightened health risks. Aim for a life insurance cover worth at least 10 times your current annual income so that your dependent family members are not left in the lurch if something untoward were to happen to you. For that, see if you could top up your existing life insurance plans. 

Also, you risk losing your emergency fund if any of your dependent family members require hospitalization. So, buy a health insurance plan for your family if you don't have one already, or top-it up or get a super top up to at least $10,000 cover if your existing plan is of lesser value. This is also relevant for those who are solely dependent on their company  provided group medical plans because those would be of no use if you lose your job in the current crisis. Adequate insurance cover will give you the much needed mental peace, especially if the Covid crisis persists.

Servicing Home Loan
Now, these are also the times of record-low home loan interest rates. So, if you have the necessary out-of-pocket funds and you get a good deal on your preferred property, you may start a home loan at this stage after a careful evaluation of your finances. However, in doing so, ensure your contingency funds and insurance protection do not get impacted. If you're unsure, see whether you could delay your plans until things stabilize. 

Also, it might be a better idea to go for a ready-to-move in property than an under-construction one as the latter may involve a delay in project completion due to the ongoing lock down. Besides, you may also go for smart repayment options where you pay only the home loan interest and not the full EMIs until you get possession. 

Invest Sensibly
Firstly, avoid starting a new investment if you're struggling to repay your EMIs in the current situation. However, if your income channels are intact, you may continue investing strictly in line with your returns expectations, risk appetite, and liquidity requirements. Also, don't completely look away from FD owing to their recent low returns as capital protection has become as important as capital appreciation in the current scenario. 

If your investment horizon is more than 5 years and you are invested in top-rated equity mututal funds, you should ideally continue with your SIPs. If you're planning to start a new investment, you can consider investing in a diversified manner in top-rated mutual funds, FDs, Small saving schemes, an also in digital gold through Sovereign Gold Bonds. You may also want to evaluate your current risk tolerance in light of the volatility recently seen in investment markets.

While you prepare your contingency plans to tackle a prolonged pandemic situation, you should also review your financial health more frequently. This includes checking your credit score at least once a month and also reviewing your investment performance and initiating a portfolio re-balance if required. But your primary focus should be boosting your cash reserves, timely repayment of your debts, and maintaining adequate insurance cover to consolidate your finances in case of the ongoing crisis persists.

Protecting Portfolio Erosion

When market is volatile, investor flock to the perceived security of shorter term investments. While short term investments have a role to play as part of a diversified portfolio, using them incorrectly can undermine your long term financial security. 

People often "park" their capital in a safe, low-yielding investment until the market settle down, and then move it to a more appropriate long-term vehicle. Too often, however, they wait too long. The potential costs are high. Keeping your investments in low-risk/ low-return vehicles for too long can prevent you from achieving your long-term goals.

Conservative "no-risk" investments such as money market funds don't  protect a portfolio from the erosion caused by inflation and income tax. Over the long term, inflation is a far more serious risk than market volatility. For example, $300,000 in savings now will be worth only about $200,000 in 10 years if inflation averages 3% annually.

Over 20 years, the same rate of inflation cuts the nest egg to $163,138. Although inflation has been low for the post few years, over the past quarter century the average annual rate of inflation has been more than 5%. Inflation takes a bite over the short term as well. Suppose that our conservative investments pay 5% a year. if inflation average 3%, your real return is just 2% per year. And if that income is subject to a marginal tax rate of 40%, your return drops to 0. 

The most effective way to produce stronger returns and protect against inflation erosion is through equity investment such as growth mutual funds. while equities can be volatile over the short term, in the long term they have historically outperformed fixed income and money market investments and outstripped inflation. Outside a registered plan, equities bring beneficial tax treatment. while interest income is full taxed, capital gains are taxed on only 50% of their value and dividends from Canadian companies qualify of the federal dividend tax credit. 

To protect your portfolio against short term market volatility, you need to diversity. For example, along with equity mutual funds your portfolio should  include some bond and money market funds. Investment should be spread out across a number of geographical regions and encompass more than one investment style. 

Support Family financially without burden

Being there for your parents when they need you financially is the most basic thing you can do, and it doesn't have to strain you anyone in family. Your parents are the two people you should forever be indebted to - not just for bringing you into this world but also for raising you well. All the effort, time, love, money and sacrifices that they put in for you cannot be reciprocated in the same measure, no matter what you do. It's not about paying them back in cash or kind; it's about being there for them in their old age in all the ways you possibly can. But sometimes, providing financial support to your parent can cause argument with spouse. If Your partner perceives it as a financial burden on the family, there are a few things that you can do:

1. Conversation with your spouse:
This is a conversation you and your partner should have early in your marriage. Instead of giving money to your parents secretly, you should sit with your spouse and have an honest conversation. Let them know why it's important for you to make this contribution to your parents and show them how it's going to affect the family budget. 

2. Get your siblings involved:
If supporting your parents is a regular thing and not a one time situation, it's best to get your siblings involved. Usually, one sibling end up financially supporting the parents more than others. This can build necessary financial pressure as well as resentment, often leading to a strain in family dynamics.

3. Have a conversation with your parents:
It's important to have two conversations with your parents. The first one is to understand their financial condition and how they are managing their expenses. It's good to figure out how much help they need. The second conversation should be after you've spoken to your partner and siblings and decided how much you can contribute. It may be a little awkward at first, but its best if everyone involved knows exactly how money matters are going to be dealt with in the long run. This transparency will help you maintain a healthy family bond. When your parents know how much you and your siblings will contribute and how frequently, they can handle their budgeting and expenses better too.

4. Think of other ways to help:
In addition to helping your parents financially, you can help them strategically too. For instance, you could get them a comprehensive health insurance policy with all the necessary add-on. You can also help them with financial planning and investing.  Another way to help is by giving them time. This could mean taking them for regular health check up or picking up groceries for them every month. If you stay nearby, dropping by to have lunch with them once a week could be a great way to show that you care. The intention is just to interact and have a good time.

5. Prioritize your family goals:
When you're married and have children, your priority should be your family. of course, this doesn't mean you should forget your parents. However, you shouldn't be helping your parents by compromising your own family's essential needs. There's a way to manage both, and for that you need to spend some time planning your finances.  
In other words, you ought to set a budget, build a healthy emergency fund, have health insurance as well as insurance for assets such as car, home etc. and know your future financial goals and strategically invest for them.

6. Maintain a level of privacy:
For both you and your spouse, it's healthy to maintain a basic level of privacy - not just when it comes to offering financial support to your parents but in general. Having a joint account for household expenses and common investing goals is important. But having a personal account for personal spending is essential too. As adults, you and your partner need that space and freedom to be able to spend your money from your personal accounts as and when you like without having to justify each expense. There's nothing wrong if you indulge in personal expense from time to time. Nobody can hold you accountable as long as you're meeting all your family and joint obligations first.

Remember that having these conversation and figuring things out will take time and patience. So, maintain your cool and put your personal finance skill to use.

Hedge Your Capital by Investing in Global Market

As an investor, just think about the goods & services that we use in our day-to-day life. It could range from ordering food online, watching movies on Netflix, placing orders for an eBook on Amazon or even searching something on Google. Many of these companies have their base outside the country and are not listed in Indian stock exchanges.

Why Global?
The benefits from international diversification were empirically demonstrated in financial literature. These empiric have shown that by diversifying across nations whose market cycles were not perfectly correlated, investors could lower the risk of their portfolio returns at the given level of expected return. The top performing companies keep on changing every year. Thus, it does not make sense to concentrate to mare all your investments in a particular asset class. Another reason is to take advantage of the depreciating currency. So, it is a good idea to have a globally diversified portfolio.

To invest in the shares of international companies, as an investor you need to open a separate demat and trading account with a recognized and authorized broking house. Directly investing in overseas shares involve significant amount of research and the right mindset. At the same time, one could also go for Exchange Traded Funds (ETF). Such funds normally track an index and there are a few Indian fund houses that already have ETF based on international indices such Nasdaq and S&P 100. For investing in such funds, you can use your existing demat and trading account. This is probably the easiest way for investor to have an international exposure. 

For instance, a popular fund house offers indeed funds which track the US S&P 500 and Nasdaq 100 indices. To invest in such funds, there is no need to have any separate trading account. Investor can invest in these funds like any other typical mutual fund either directly or through distributor. Some investors may have views against global diversification arguing that everything is so interconnected today that overseas investment may simply overlap domestic ones but that is not the case as companies tend to act in ways that means according to the situation in their country of domicile. They tend to respond to local economic and geopolitical events more than events outside their borders. 

To conclude, it is prudent for investor to branch out globally and international diversification definitely helps in managing risk and positioning your portfolio for long-term growth. 

How to forge a new path to your financial goals

          Retail investors have witnessed drastic erosion of their portfolio value accumulated over years for their long term financial goals. They are unnerved by this market volatility. This uncertainty is not limited to investor's community, leader across the globe have to take a tough call- the trade off between protecting health and protecting the economy. Life saving getting eroded in a short span of time can come as a big shock, but investors should not panic as all is not lost unless one exists the asset. 

          Post Covid-19, your priorities should be to try & reinstate your income level to the earlier levels and reassess your risk appetite as per the current situation and make changes to your investments as may be required as per the new risk profile to enable you to reach your financial goals on time. 

Longer Time-Frame
          Investors who have a longer time frame to achieve their financial goals are better off and should not worry too much about this correction. They should continue to follow their investment and asset allocation strategy as markets will rebound over time. Moving overhead on equities to capitalize on the correction to recoup the losses (investment goal amount) by large lump sum investment is also not advisable. A staggered approach over 4-6 months in quality stocks/funds can be followed; but that too will be dependent on the liquidity situation - which needs to be reassessed in such uncertain times. 
          Building on cash reserves/emergency funds is ideal given the known unknown in the current situation. Individuals should bear in mind all possibilities - layoffs, pay cuts, early retirement etc. before redrawing their investment plan. Depending on how many years you have to your  retirement, you may either need to scale down your retirement corpus goal or delay your retirement by a few years in order to achieve the desired corpus. You should also revisit your existing life and disability insurance policies to determines whether they are sufficient to meet your needs. Investors who have immediate needs can consider redeeming their debt portion gradually and then perhaps sell equity holdings. But you have to ensure that debt-equity allocation is not severely damaged. 

Prioritizing investment goals
          Taking a short term loan to meet the immediate investment goal; instead of redeeming investment assets at such low prices should also be considered. Prioritizing one's investment goals and trading off shorter term goals for long term goals also needs to be considered. One important lesson we have learn in this crisis is implementing a gradual exit strategy - investors who needs a corpus in 'X' years should gradually shift from equities to debt (for parking) a few months before their remaining investment time frame; by doing so one would not see massive portfolio drop due to such untimely and unexpected market corrections. Investors can use the tools of systematic withdrawals or systematic transfer more often to their advantage.
          Overall, asset allocation and diversification (within and among asset classes) are the fundamental financial planning tools that you need to follow diligently to ensure some safety net in such downturns. In case their is a large shortfall in any of the goals which are due 3-5 years away, then you can ramp up savings rate for a few quarters and try to make good the shortfall, provided your income sources remain unaffected. 
          Investing over the years, one forgets to adhere to the asset allocation set up initially. If due to run-up in markets, equity allocation has increased from established 70% to 80%, the investor needs to shift the excess 10% to debt or other asset class. The same should be practiced after market crashes; allocating more to equity would be beneficial at that time. Re-balancing and strictly adhering to asset allocation should be practiced once every 6 months. 
          While these are unsettling and challenging times, it is important that we don't react out of fear. The decisions you make today will impact your long-term financial planning goals. Investors could grab better returns in the next few months/quarters if they stay invested during market fall or add equity (via SIP in quality stocks/funds for a few months)/ Investor should in normal times be patient and continue to remain invested. 
          Having said that, they should at regular intervals undertake due diligence and review their portfolio stocks, schemes and now, even debt papers; re balance their portfolio and adhere to their asset allocation strategy. A more cautions investment strategy (capital protection) is warranted in the short term; not only to tackle the Covid-19 shock but also for the second/third round of effects after this storm passes. 

5 Money Arguments that can prove toxic in a relationship

Relationships are constant work, which means they are not easy to maintain. Many a times a money becomes a sore thumb in relationships. Frivolous spending habits, overly miserly behavior secretly stashing money, etc. have been the death of many  relationships. Know the top reasons for money clashes among partners & effective ways of resolving them: 

1. Overspending:
                    Overspending is the root cause of many problems. Recklessly spending on shopping, travel, eating out to the extent that it affects the other partner is the number one reason for finanial stress. According to a survey, 44% respondents shared they fought because of their own or their partner's spending habits. If your partner's spending habits are pushing you into debt and affecting your own savings plan, it is time to bring in change. 

Remedy:
                    Sit down with your partner and create a budget for monthly spends. Allocate funds for food, travel, shopping & any other expenditure they may be addicted to. Ensure they stick to that budget. Create an automated plan to save a large chunk of the money as soon as the salary hits the bank so that there is no temptation. Also, request them to put away their credit card if they cannot trust themselves with it. 

2. Saving too much:
                    An extremely of anything is not good. If any one partners entire focus is on saving, when will you both live a little? Saving at the cost of small gestures that can create happiness is also a big no. If all a person does is work and save, it can induce sadness, depression and frustration in their relations. 

Remedy:
                   Communicate with your partner so they know how their habit is affecting them. Just saving without leaving a comfortable lifestyle is no way to live. Yes, saving is important but that cannot be the sole purpose if there are not too many liabilities. Going out to eat once a month, talking a holiday once a year etc. is important to strike the right balance.

3. Being Stingy:
                   While overspending can result in a never-ending cycyle of debt, frugality can have a major effect on the mental health of the spouse and children. This normally happens with people who have the money but spending it causes them anxiety. So they try to save every penny they can at the cost of even embarrassing their spouse. It could result from having a tough childhood or ingrained from a stingy parent or just a constant fear of going broke.

Remedy:
                   Try to understand their motivations. Run some numbers to pacify their anxiety. If there is enough money saved to ensure smooth sailing for the next 5 years or 10 years, or if money is already saved for goals such as education, wedding etc. bring it to their notice. There is no harm in getting professional health from a financial expert or a counselor to soother their worries.

4. Lending Money:
                   Getting money into the equation with friends and family is never a good idea - whether borrowing or lending. A partner can feel cheated when money is being lent out to one's relatives without consulting first or they are deprived of their needs as a result. It is known to be a major cause of money arguments among couples.

Remedy:
                   While there is nothing wrong with extending a little help, it should not be at the cost of your family's financial health. Lending a small amount never really harmed anyone; however, the amount should not exceed 5-7% of your income. It is important for partners to be on the common ground when it comes to lending - discuss and decide together.

5. Lying about Money:
                   Marriage means being a team. if one partner goes rogue, it can have lasting effects on the marriage. Having a secret stash of money saved is like cheating your spouse. Lying about spending, hiding an addiction such as gambling are other big red flags. These have proven to be deal breakers in relationships.

Remedy:
                   There is no white and black when it comes to having your own personal savings. If telling your partners means they would insist on taking the money to funds their own needs, it is a grey area and OK to lie by omission. But if the reasons are more selfish and about hiding money from them, then there is an issue. The only remedial measure is to come clean with your partner. 

If you or your partner are facing money issues, use these tips to resolve them and come out stronger. After all, a relationship is for better or worse.