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Home, life insurance is not 'wealth'
Tinesh Bhasin | October 03, 2008 09:19 IST
Sanjay Kumar (name changed) was on top of the world a few months ago. He had bought his house last November for Rs 50 lakh (Rs 5 million). Within months, he was being offered Rs 75 lakh (Rs 7.5 million) for the same property.
Today, the scene has changed. Recently, a buyer approached him with an offer of only Rs 65 lakh (Rs 6.5 million). "The value of my house has fallen drastically in the last one month," he said.
For Kumar, the loss does not really matter because he will stay in the flat, irrespective of the gain or loss in its market value. Unless he is willing to move to a cheaper area and change his lifestyle, the going rate of the flat is simply "paper money".
As Kartik Jhaveri, director of wealth management firm Transcend India, puts it, "There are lot of assets that we do not count as wealth. Such assets include primary residence, jewellery that is being used by family members, sum assured of life insurance and place of work (if you have your own office)."
The reason: the jewellery and house are being used by the family. And the sum assured in the life insurance policy will come to your family only when you expire. Construing that as a part of your wealth is wrong.
Similarly, for long-term investors in stocks or mutual funds, a rising or falling market should mean little. However, many make the mistake of moving money from equities because they are scared. In the process, they incur losses. But it is completely a wrong strategy, because long-term investment implies putting money for at least five to seven years.
For those who get ulcers by simply seeing the market, it's better if they have two portfolios - a trading portfolio and a strategic or core portfolio. According to Sriram Venkatasubramanian, head, wealth management services, FCH Centrum Wealth Managers, such a move will help in dividing the money in a way where a part of the portfolio helps you actively trade to make quick gains/losses.
The strategic portfolio should be tinkered with only once in two or three years. Ideally, the trading part should not be more than 5-10 per cent of your total portfolio.
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