Today Let me ask some questions to you which you can answer to see how much you understand things in investing . This small quiz will help you and me know where you belong to . How much have you learned ?
Request : I request you to give answers of the questions as a comment back to this article . I will announce the winners after some days . Also please mention your reasoning about the answer .
Information : I have started a chatbox on this blog , please see the right hand side to see it , you can post your questions or queries to it and i would try to answer them as soon as i see them .
Q1. Ajay and Priya are married and both of them earn 40,000 each . They earn total of 80,000 and there monthly expenses are around 20000-30000 per month . In case they have to opt for a Insurance plan . which one they should go for ?
a) Term Insurance
b) Endowment or Money back plans
c) ULIPS
d) No Need to take Insurance
Choose one option among these and give the reason .
Q2. Ajay lends 1,00,000 to Manish on following conditions.
- He will get 7,000 per year for next 30 years.
- He will receive whole 1,00,000 back after 30 years.
What is the best way Manish to utilize this money and make some profits for him too if possible .
No options here , you should give a detailed description of step he should take .
Q3. Your friend wants to enter magic world of Stock markets. He/She is determined and very confident that he/she can make huge profits . What will be 3 things you would say to him/her .
For an example : the first thing i would say to him/her is “Don’t concentrate much on making profits , rather concentrate on avoiding losses” .
What are the 3 things you would say to him/her .
Q4. There are two strategies of investing in Stocks of blue chip companies in Stock markets. Time Frame : 2-3 months
Strategy 1 : Can give profits upto 50% , or loss upto 50% with equal profits. (Assume the stock is very volatile)
Strategy 2 : Can give profits upto 10% , or loss upto 10% with equal profits.
(Assume the stock is very less volatile)
Which Strategy will you choose ? You are free to make your assumption .
Note : Please answer these question to help yourself and see if you actually deal with these situation . What kind of thinking you have? What kind of advice can you give to someone ? And more than that , to learn .
I will review all the answers and reply them . Also i would choose the best answer in some days .
{ 3 comments… read them below or add one }
Answer 1: They should go for term insurance. The plan should not be for high value because earning of Ajay/Priya is good enough. But in unfortunate situation that amount will help either one of them to stabalize their life/future in that situation.
Answer 2: Ajay should opt for 7,000 per year option.
It depends on Ajay's age, if he is young < 35 the ratio of Equity/Debt should be 70:30 or else it should be 50:50.
If <35, 3000 should be invested in direct stocks(only large-capcs), 2000 should be Diversified MF and 2000 should be Debt (PPF).
If >35, 3500 should be invested Diversified MF and 3500 should be Debt (PPF)
Answer 3:
a) Always maintain a ratio of LargeCaps to MidCaps depending on your risk taking ablity. Too much of mid/small-cap is not good for a portfolio. It should be a right mix so that growth/stability goes hand in hand.
b) Phase wise buying is very important (and even Selling on Rise) which will ensure that your Investment approach is somewhat strategised & done Mechanical, to some extent atleast. This will ensure that your investment decisions (buying & selling both) are not based on "EMOTIONS". This is easier said than done.
Answer 4: The answer for this will depend from individual risk taking capablities.
Here i see 2 situations as soon as you buy the scrip is up with profit or it down with loss. If its at profit, I will opt the phase wise selling Strategy, if at loss I will use the phase wise buying strategy. But i would do the buying only becaue its a good blue-chip company.
More details about Phase-wise buying:
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Example, investible amount is 20000/-. We will divide Rs.20,000/- into 4 parts (since we're in bearish scenario). In bullish times you can go for 2-3 parts only instead of 3-4 parts.
Part 1 – Rs.6000/- (30% of Rs.20,000)
Part 2 – Rs.4000/- (20% of Rs.20,000)
Part 3 – Rs.7000/- (35% of Rs.20,000)
Part 4 – Rs.3000/- (15% of Rs.20,000)
Note: We have kept 3rd Phase buying as most Aggressive as during this levels the stock is valued very reasonably & you must be invested to the extent of 85% of your funds-on-hand until 3rd Phase. This strategy can be modified depending upon stock to stock & its volatility history.
Manish, answer to first 2 Q are sheer learning from your comments to my mail and reading this blog.
This is an awesome post because with this we can pick brains/ideas of many people and will add to our knowledge. I hope we get many replies to this post would be really good learning.
Thanks
Nitin Pillai
Thanks Nitin
I will read your answers in detail later and reply soon .
Manish, Waiting for your feedback!
Thanks
NItin