5 Funds, in IKEA DIY style, may save you from financial disaster.

Last week we contemplated a world where the certainty of rising prices and uncertainty of how governments globally can solve the many challenges facing us could result in a decline in stock prices of 20% to 30%. These past few days could be viewed as a reminder of how fragile share prices are in relation to the underlying expectation of on-the-ground realities and the bleak outlook for the immediate future.

The universe of investors, as a species, have - and must continue to - believe that things can only get better in the long-term and the that the future is bright.

However, a belief in the future should not stop us from contemplating a situation of near-term pain - of declining share prices and wealth erosion. At an extreme, we all know we will face death - but that does not mean we do nothing from the day we are born till the day we die. And while many believe in karma - our paths are chosen - we still need to dress up for our anointed part in the One Act Play of Life. Just as there are ways to live life without taunting death at every phase or surrendering to the reality of a limited lifespan, investing requires a balance between what we are willing to risk with the returns we would like to see from our investments.

Intuitively, I have followed a balanced path of investing for an optimistic future outcome - while ensuring I have built in a safety belt for the sudden twists and turns of life and markets which come hurtling at you unexpectedly from any direction.

I started posting a suggested asset allocation for any investor as far back as 2008 - before the Lehman Bankruptcy which exposed the Great Financial Swindle of the branded financial firms.

And then, with Quantum Mutual Fund and PersonalFN, we started building products that could create the solutions to solve the problem of balancing the need for investing for growth of capital for the future v/s the need to ensure that shocks to the system - which may last for many months or years - do not destabilise the financials and lifestyle of any household.

5 Funds, built with methodical diligence and care: IKEA-style.

The journey of PersonalFN began in 1999 with a desire to build a platform, a repository of information and knowledge, to guide investors as they allocate their savings to various investments.

Our objectives were - and still are:

1. Be good at what we do by building processes, and

2. The interests of the investors and subscribers must be the sole driving force: we must never place our financial interest (in the form of commissions or incentives received by PersonalFN) ahead of your interests.

The journey of Quantum Mutual Fund began in 2006 with the launch of the Quantum Long Term Value Fund. We were the only fund house that did not pay distributors any hidden commissions. This meant that Quantum Mutual Funds had to be bought by investors, rather than be sold to investors by aggressive and compromised distribution channels. (SEBI changed the law 12 years after we adopted the best practice and forced fund houses to disclose the hidden fees they paid distributors.) The Value Fund follows a very specific style of investing - the 'value with values' style - which requires a higher focus on ensuring that capital which is invested is preserved rather than focusing on maximising return. Moreover, companies with suspect business practices or founders are avoided. Very few investors - maybe 1 in 20 - are truly 'value with values' investors. A true 'value with values' investor (as I am) does not look at returns compared to any Index. The Index is selected on many criteria - and the ethical behaviour of companies is not a criterion. With a view to ensuring we have a solution for all investors and long recognising that investors must have a basket of different funds sprinkled over many asset classes, Quantum Mutual Fund launched a limited but focused set of funds (see Table 1) over the past 16 years.

By July 2022 the building blocks for a Do-It-Yourself solution - where every underlying Fund had a minimum 3-year track record for an investor to study and analyse how each underlying fund had behaved during various bull and bear market cycles. A past track record is important to see how a Fund behaves under different market conditions - but note that a past track record is not a predictor of future performance. The future is unknown, and no one can guarantee an outcome.

(A 'market cycle' is defined as an upturn, a downturn and then an upturn again. Financial markets were in a 'bull' or 'upward' phase until February 2020. The catastrophe of the China virus of Covid shocked world markets in March 2020 and we went into a 'downturn'. Then we had a recovery in stock prices as the vaccines limited the loss of life and governments scrambled to support society. Now we have a dual fear of inflation due to supply chain bottlenecks and the financial support governments had to hand out which is compounded by the Russian invasion of Ukraine. The Russian invasion has added fuel to the fire by a surge in two key components of inflation: what we pay for food and what we pay for energy.)

Having created building blocks for a portfolio that can withstand market shocks, Quantum Mutual Fund went a step further and built an engine for you to decide how you wish to allocate your savings into an investment portfolio. This is Do-It-Yourself or DIY at its best. Think of IKEA. A visit to IKEA allows you to see products that are related and gives you the flexibility to match the pieces that you believe work best for you. The Quantum Mutual Funds DIY 12-20-80 (baaraa, bees, aur assi) solution is the base suggestion - which you can modify as you see fit. ( Click Here )

DIY - and making it less expensive.

Many investors grumble about the high costs of 'actively managed funds' so we launched the 'passive' version of the 12-20-80 engine. It is true that high management fees of 'active' fund managers do not always result in 'better performance' than an Index. Anticipating this, Quantum launched the Quantum NIFTY ETF in July 2008 (that is correct, 14 years ago) and built the base for creating the 'passive' option of 12-20-80. Personally, I don't like indices and I have already explained that their focus on mathematical criteria and devoid of any 'values' makes them unattractive to me. But this is not about my portfolio. This is for you and gives you choices for your portfolio. If you believe fund houses are paid too much in fees and their 'active style' of seeking better returns is not worth the fees you pay, go ahead with the passive follow-the-Index option embedded in the 12-20-80 (baaraa, beess, aur assi) solution.

IKEA sends the package home and assembles it.

If all this is too much and you really don't want to head to IKEA to hunt for the things you need, stand in a line to pay, then carry the stuff home, and then assemble it on your own - feel free to have a readymade product delivered at your doorstep. It's a good way to start and a good way to better understand the simple and easy-to-mimic world of investments.

Taking shelter from the financial storm.

Every sailor knows that a ship must be seaworthy to protect against a storm. Furthermore, when the storm approaches, the crew should prepare the ship to face the deluge and keep enough energy, food, and water to survive the storm. Storms at sea do not last forever. They may last for a few hours or a few days. A financial storm, on the other hand, can have an impact on our lives for years or even decades.

Investors in mutual funds can use the 5 basic Quantum Mutual Funds (see Table 1 above) or their alternatives (see Tables 2 and 3) to their advantage and prepare for the storm.

The basic tenets of buildings a storm-resistant investment portfolio are:

1. There must be diversification across asset classes (see 12 20 80; baara, beess, aur assi below but the base case suggested allocation is 12 months of your expenses in the safe liquid fund and then the balance is 80% in equity mutual funds and 20% in gold; and you can modify this to levels that make you feel comfortable);

2. Investors must own various kinds of equity mutual funds - investors must invest in a diverse range of investment styles: small cap, mid cap, large cap, blue chip, growth, value, ESG, etc. And though these funds can all be from the same fund house - with different fund managers managing each of these styles. No fund manager should fool you: each of these equity 'styles' needs a different mindset and skill set. A long-term value investor cannot be expected to do satta in small-cap momentum and produce consistent performance over longer periods of time;

3. Having 100 equity mutual funds in your portfolio sounds intuitively silly. It is like having a boat with windows: chances are that in a storm some will break and require all your attention. Having 1 to 3 sounds risky. Maybe the answer is somewhere in the 8 to 12 range?

Enjoy the freedom to choose your path forward by using the easy-to-use calculator 12 20 80 (baaraa, bees, aur assi).

This approximates my holdings and planned investments as of July 2022.

In summary, stay vigilant and be prepared: chances are that the world economy will see some shocks over the next few months and this will have an impact on your investment portfolio. Review the portfolio now and rebalance it. Be Thoughtful and Deliberate. Embark on your journey of protecting your capital and enhancing your wealth with the powerful tool of 12 20 80 (baaraa, bees, aur assi) or the research services of PersonalFN. And tell me what you think about it...

Ajit Dayal is the Founder of the Quantum Group which includes Quantum Mutual Fund and PersonalFn. Ajit has over 35 years of research and investment experience. An avid writer and speaker, Ajit has been profiled and interviewed by many international and local newspapers, magazines, TV channels and radio shows and is never shy of speaking The Honest Truth. Sign up here to get The Honest Truth delivered every week into your mailbox. It will change the way you think about your investments.