Dear Reader,

Stock prices were on rise till Jan'18 with significant increase in retail investors participation during last couple of years. As many new investors get into stock market during such times, its always important for an individual investor to understand what is his/her investment profile and risk tolerance.

In 2018, with lot of pessimism building around equity market due to global factors, deteriorating of domestic macros with rise in crude oil prices, weakening rupee and liquidity crisis with IL&FS default, we have seen severe correction in broader market with Mid & Small Cap Index falling by more than 24% and 33% respectively from all times high made in January this year. Stock prices of many mid and small cap companies have seen a steep fall in the range of 30% to 60% or even more from highs made in beginning of this year. In such situation every investor looking to create wealth is confused whether to exit, hold or enter the stocks and at what levels to enter or exit.

We always suggest our members not to time the market and follow a disciplinary approach while investing in equities with medium to long term perspective. Its important to know, whether you would be able to hold on your positions in case stock market tanks? However, such severe corrections do not come very often and hence must be considered as buying opportunity to aggressively add on good quality stocks at discounted prices keeping a long term view. If you are a long term investor, its wise to be greedy when others are fearful.

Historical data indicates that most of the new investors get fascinated towards stock market to make quick bucks and finally end up loosing their capital as they cant hold on their stocks in case market corrects and sell out their stocks in a panic. Stock market is not a money making machine, you need not to be greedy on rising market or fearful when stock market falls, simply buy right and sit tight having sufficient patience with you to see your investment growing over a period of time.

We strongly recommend our members (who are new to stock market) to kindly go through our Asset Allocation Questionnaire to understand your investment profile and risk tolerance.

By answering 15 questions about your risk preferences, you can find out your investment profile and risk tolerance. This score will determine the asset allocation that best suits your risk preferences, you can use our simple excel workbook - Saral Gyan Asset Allocation Questionnaire which suggests the optimum split between cash, bonds and stocks.

The questions are simple to answer, with options provided to select answers using drop-down list, check boxes and radio buttons. They are designed to determine your tolerance to investment volatility, the size of your existing financial cushion, your time horizon, and what you want your investment to achieve.

1.What is your total annual income before tax (including investment dividends but not including employment bonuses)?

2.How many sources of income do you have?

3.What is the value of your liquid (or investable assets)? This includes cash plus any easily sold investments like Gold, Bonds and Stocks.

4.What yearly income do you want from this investment portfolio?

5.How long do you intend to hold this investment portfolio?

6.What would you do if your investment portfolio fell in value by one-fifth (20%) over the course of 12 months?

7.What characteristics would you prefer your investments to have?

8.Do you prefer investments which have low volatility and low return, or investments which have high volatility and high returns?

9.What do you want this investment portfolio to do? Preserve capital, generate income, generate income with some capital appreciation etc.

10.What volatility (or risk) are you prepared to tolerate?

11.In the next five years, what percentage (if any) of the portfolio do you plant to sell to realize cash?

12.What kind of investments do you currently own, or would prefer to own? Domestic, international, aggressive, fixed income etc.

13.Assuming a time horizon of ten years, what annual return do you want?

14.Who do you normally get investment advice from?

15.How would you rate your current skill in managing investments?

Your answer to each question is rated with a score. The total score is used to suggest an asset allocation that is appropriate to your risk preferences; the workbook suggests a split between:

■ Cash

■ Bonds (high-yield, long-term, intermediate and international)

■ Stocks (large cap, mid cap, small cap and micro cap stocks)

By answering 15 questions about your risk preferences, you can find out your investment profile and risk tolerance. This score will determine the asset allocation that best suits your risk preferences, you can use our simple excel workbook - Saral Gyan Asset Allocation Questionnaire which suggests the optimum split between cash, bonds and stocks.

The questions are simple to answer, with options provided to select answers using drop-down list, check boxes and radio buttons. They are designed to determine your tolerance to investment volatility, the size of your existing financial cushion, your time horizon, and what you want your investment to achieve.

1.What is your total annual income before tax (including investment dividends but not including employment bonuses)?

2.How many sources of income do you have?

3.What is the value of your liquid (or investable assets)? This includes cash plus any easily sold investments like Gold, Bonds and Stocks.

4.What yearly income do you want from this investment portfolio?

5.How long do you intend to hold this investment portfolio?

6.What would you do if your investment portfolio fell in value by one-fifth (20%) over the course of 12 months?

7.What characteristics would you prefer your investments to have?

8.Do you prefer investments which have low volatility and low return, or investments which have high volatility and high returns?

9.What do you want this investment portfolio to do? Preserve capital, generate income, generate income with some capital appreciation etc.

10.What volatility (or risk) are you prepared to tolerate?

11.In the next five years, what percentage (if any) of the portfolio do you plant to sell to realize cash?

12.What kind of investments do you currently own, or would prefer to own? Domestic, international, aggressive, fixed income etc.

13.Assuming a time horizon of ten years, what annual return do you want?

14.Who do you normally get investment advice from?

15.How would you rate your current skill in managing investments?

Your answer to each question is rated with a score. The total score is used to suggest an asset allocation that is appropriate to your risk preferences; the workbook suggests a split between:

■ Cash

■ Bonds (high-yield, long-term, intermediate and international)

■ Stocks (large cap, mid cap, small cap and micro cap stocks)

By answering 15 questions about your risk preferences, you can find out your investment profile and risk tolerance. This score will determine the asset allocation that best suits your risk preferences, you can use our simple excel workbook - Saral Gyan Asset Allocation Questionnaire which suggests the optimum split between cash, bonds and stocks.

The questions are simple to answer, with options provided to select answers using drop-down list, check boxes and radio buttons. They are designed to determine your tolerance to investment volatility, the size of your existing financial cushion, your time horizon, and what you want your investment to achieve.

1.What is your total annual income before tax (including investment dividends but not including employment bonuses)?

2.How many sources of income do you have?

3.What is the value of your liquid (or investable assets)? This includes cash plus any easily sold investments like Gold, Bonds and Stocks.

4.What yearly income do you want from this investment portfolio?

5.How long do you intend to hold this investment portfolio?

6.What would you do if your investment portfolio fell in value by one-fifth (20%) over the course of 12 months?

7.What characteristics would you prefer your investments to have?

8.Do you prefer investments which have low volatility and low return, or investments which have high volatility and high returns?

9.What do you want this investment portfolio to do? Preserve capital, generate income, generate income with some capital appreciation etc.

10.What volatility (or risk) are you prepared to tolerate?

11.In the next five years, what percentage (if any) of the portfolio do you plant to sell to realize cash?

12.What kind of investments do you currently own, or would prefer to own? Domestic, international, aggressive, fixed income etc.

13.Assuming a time horizon of ten years, what annual return do you want?

14.Who do you normally get investment advice from?

15.How would you rate your current skill in managing investments?

Your answer to each question is rated with a score. The total score is used to suggest an asset allocation that is appropriate to your risk preferences; the workbook suggests a split between:

■ Cash

■ Bonds (high-yield, long-term, intermediate and international)

■ Stocks (large cap, mid cap, small cap and micro cap stocks)

Managing your own expectations is a big part of your investment planning process, and it starts with figuring out exactly what kind of investor you are. Once you know that, the rest of your investment planning will fall into place much more easily. Though there are many subtle variations in investor profiles, the two main types are buy-and-hold and market timing. Where you are along the time horizon, your risk tolerance, and your personal style all factor into the type of investor you will be.

Here are some good questions to ask yourself to determine your investor profile:

• Do market fluctuations keep me awake at night?

• Am I unfamiliar with investing?

• Do I consider myself more a saver than an investor?

• Am I fearful of losing 25 percent of my assets in a few days or weeks?

• Am I comfortable with the ups and downs of the securities markets?

• Am I knowledgeable about investing and the securities markets?

• Am I investing for a long-term goal?

• Can I withstand considerable short-term losses?

Market timing in funds used to be viewed as a nuisance, an arcane practice by a handful of cunning investors. But timing is now under the microscope of regulators, who say the practice is unfair to individual investors — and illegal, in some cases.

If you answered yes to the first four questions, you are most likely a conservative investor. If you answered yes to the last four questions, you are more likely an aggressive investor. If you fall somewhere in between, you could call yourself a moderate investor. Conservative investors typically follow the buy-and hold strategy, where aggressive investors are often market timers. As you might expect, moderate investors tend to mix the two types into one blended profile.

Buy-and-Hold Investing

When it comes to buy-and-hold investing, you may have heard that it doesn't really matter what the market is doing when you get in, as long as you stay in. There's a great deal of truth in that line of thinking. Studies show that stocks can grow on average up to 10 to 12 percent annually, and long-term treasury instruments can grow at a rate of up to 6 to 8 percent per year. Combined with the miracle of compounding, a long-term outlook coupled with a solid, disciplined investment strategy can yield big bucks over twenty, thirty, and especially forty-plus years.

The trick is in staying in the markets and not missing its sharp upturns. People who engage in market timing — market timers, those Dalal Street daredevils who try to get in and out of the stock market at the most optimal moments — risk missing those market spikes. And that money is hard to make back.

The Downside of Market Timing

Market timers also generally experience higher transaction costs compared to those of a buy-and-hold strategy. Every time an investor sells or buys securities, a transaction fee is incurred. Even if the market timer achieves above-average returns, the transaction costs could negate the superior performance. Plus, trying to time the market can create additional risk.

Consider the time period from 1962 to 1991 of US stock market. An investor who bought common stocks in 1962 would have realized a return of 10.3 percent with a buy-and-hold strategy. If that same investor tried to time the market and missed just twelve of the best-performing months (out of a total of 348 months), the return would have been only 5.4 percent. It must be admitted that there's a flip side to this theory. If the investor had jumped out of the market during its worst periods (like the 1987 crash and several subsequent bear markets), returns would have been even higher than if he'd stayed invested during the downturns.

One additional negative aspect of using market-timing techniques is tax reporting complications. Going in and out of the market several times in one tax year (sometimes several times in a month) generates numerous taxable gain and loss transactions, all of which must be accounted for on your income tax return.