In a world where financial markets can be unpredictable, Sandeep Jethwani, co-founder of Dezerv, offers a refreshing perspective on wealth management. His approach is simple yet powerful, and it's all about embracing volatility and the magic of compounding.
The Price of Compounding
"Volatility is the price you pay for compounding," Jethwani boldly states. And he's right. When we invest, we often overlook the potential swings in the market, but it's precisely these ups and downs that can lead to significant returns over time.
But here's where it gets controversial... Jethwani argues that extreme volatility is where bad decisions happen. Whether it's during market euphoria, leading to overinvestment, or during downturns, causing premature exits, these moments of volatility test our investment strategies.
And this is the part most people miss... The recent phase of flat returns has been a real test of investor patience. It's easy to get discouraged when returns aren't as high as expected, but Jethwani cautions against overdiversification and relying solely on past performance.
The Power of Staying Invested
"Staying invested is important," Jethwani emphasizes. It's a simple yet powerful mantra. When we invest, we often don't know which day the markets will be up, so missing out on those crucial days can significantly impact our returns.
Jethwani believes that disciplined asset allocation and long-term thinking are key to wealth creation, regardless of market cycles. It's about creating a balanced portfolio that can weather the storms and take advantage of the ups.
Navigating Volatility
When it comes to volatility, Jethwani encourages a different perspective. Instead of fearing it, he suggests embracing it as a necessary part of the investment journey. After all, it's through volatility that we can achieve compounding returns.
"When you think about the compounding formula, it's about the amount invested, the return, and the time horizon. And the time horizon is something we have control over," Jethwani explains.
The Role of Wealth Managers
In times of flat returns and extended periods of no growth, wealth managers play a crucial role in guiding investors. Jethwani believes in hand-holding clients, reminding them of the importance of long-term investing, and helping them understand that missing a few days in the market can mean missing out on most of the returns.
Asset Allocation and Diversification
While equities are an important asset class, Jethwani highlights the performance of fixed income, short-term rates, and gold and silver in India. He suggests allocating up to 10% of a portfolio to these assets, along with some international assets, to create a well-rounded portfolio.
The Pitfalls of Overdiversification
One of the common pitfalls Jethwani identifies is overdiversification. As investors gain more experience and hear about different investment opportunities, they tend to spread their investments too thin. This can lead to a lack of focus and potentially lower returns.
Another issue is the tendency to churn or make frequent changes to the portfolio. Jethwani advises against this, emphasizing the importance of a disciplined approach.
The Problem of Choice
For those with significant wealth, choice can become a problem. When you have access to every asset class, there's a tendency to seek novelty and evaluate investments based on their uniqueness. However, Jethwani argues that the real return is often lurking in plain sight, such as mutual funds and simple investments.
Past Performance: A Warning
Despite the warnings, investor behavior hasn't changed when it comes to relying on past performance. Media, rating agencies, and the industry continue to highlight short-term returns, but is this practice really beneficial?
Jethwani believes that while banning such practices might draw more attention, it's about educating investors on alternative data points. He suggests using rolling returns, such as the three-year rolling return, as a more reliable indicator.
Data-Led Investing
At Dezerv, the focus is on data-led investing. Jethwani believes that by relying on data, they can eliminate biases and make more informed investment decisions. While human insight is valuable, having robust frameworks in place can help ensure a more objective approach.
Sandeep Jethwani's Money Mantra
Jethwani's personal money mantra is all about simplicity. He believes in keeping things simple and allocating most of his investments to mutual funds. While he has access to exotic investments, he knows that the real return is often found in the basics.
When it comes to index versus active managers, Jethwani takes an objective approach. He believes in choosing the right strategy based on market conditions and the needs of the portfolio.
"Make life as simple as possible," he advises, and it's a mantra that resonates with his investment philosophy.
