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Making asset allocation work: a real life case study

Vishal Dhawan, Plan Ahead Wealth Advisors, Mumbai

In a nutshell

In our MasterMind series, we discussed the concept of "Best PAD" - the new mantra for asset allocation (Click Here). Drawing up a financial plan is only the beginning - finding the right way to make it work for your client is where the real challenge lies. Vishal Dhawan, one of Mumbai's leading financial planners and one of the most visible advisors across print and television media, shares with us a real life case study of implementing the concept of "Best PAD" - of creating a plan that goes beyond just numbers, and addresses the core concerns and circumstances of the client, to create a solution that actually works for the client. Vishal's firm - Plan Ahead Wealth Advisors, is an RIA, and has an 18 member team serving over 250 Indian and NRI families.

Mrs. And Mr. Kumar (names changed on request), came to meet us in their late 40s, with a set of global ambitions that were aligned to the global roles that each of them held in their respective organisations. As we went through a financial life planning process with them, we realised that their global lifestyles had created a serious challenge - incomes were very healthy but assets/investments were largely held in the retirement benefits that they had. After moving back to India from overseas a few years ago; they had put virtually all their other savings in a stunning piece of real estate that they kept referring to as their dream home. Whilst it clearly seemed to be a dream home, from their passionate description of the home and the pictures that they so enthusiastically shared with us, this home purchase had got them back to the start line with respect to their monies. In addition, considering their global roles and transferable positions, their twin children were in a very expensive global school, and they had their eyes set on sending them overseas for both their under graduation and post graduation. In addition, their global lifestyles came with a combination of global weekend holidays to short haul destinations like Dubai/ Thailand, etc and the longer duration European/ American ones.

The moot question of course was how were they to fund the global goals that they had set out to achieve, and gotten accustomed to - the long term goals of education and their own retirement, combined with the shorter goals of the international holidays. Due to their busy careers and their past experiences of losses in equities during the global financial crisis, there seemed to be a great reluctance on the use of equities to fund these goals. This was in spite of the numbers indicating that their lack of assets currently, was going to create a huge challenge in terms of achieving their financial goals. This lack of willingness to take exposure to risky assets was clearly evident from their risk tolerance reports as well. In addition, as the children were growing up, Mrs. Kumar was keen to take a sabbatical for at least two critical years to support the board examinations of her children. Since the company that she worked for did not have a sabbatical policy, she would probably have no option but to quit her job, and then look for a fresh role after a couple of years. Considering their conservative risk profile, it seemed like we would have to evaluate different options for them. We also evaluated getting them to scale or water down their financial goals, but they were not willing to compromise on that. We therefore presented to them four scenarios that they would need to evaluate:

  1. Scaling down their lifestyle at this stage, to enhance savings rates significantly - This scaling down of lifestyle would initially focus on discretionary expenses like the number and locations of the vacations that they took, entertainment and upgrades of electronic devices in the first phase, followed by a budgeting exercise to keep non discretionary expenses under control as well. Through this scaling down of expenses, it would be possible to enhance savings rates by 50% per annum, thereby enabling them to take a lower level of risk with their investment strategy.

  2. Taking up less demanding work assignments rather than a sabbatical - Considering that Mrs. Kumar was in her late 40s, quitting her job exposed her to the real risk on not being able to go back to a job at all, as age was not on her side. Considering the gaps in terms of the financial goals in case of a conservative portfolio, this was one tradeoff that they needed to be ready to make, whereby a sabbatical would possibly need to be replaced with a job role that was possibly less demanding for a couple of years, if her organization permitted.

  3. Monetising their dream home - With a significant gap in funding their long term goals, the alternative was to look at selling their home at the point of retirement, or doing a reverse mortgage on it, to enable to fund their goals. Considering how proud they were of this home, this was a particularly difficult option for them to consider.

  4. Taking a higher level of risk with their investment portfolio - Using historical data over multiple time frames, we built a case on how appropriate matching of an asset class with the investment horizon could result in a significantly higher chance of success with their investment strategy.

  5. Whilst their past experience was a clear impediment to taking a higher risk, a step up model over three years, was finally the option that we decided to work with. Thus, the investment strategy was that exposure to risk assets would be enhanced over three years, to the optimal level, and this would need to be combined with a lifestyle scaling down to an extent, as well as a giving up of the thought of the sabbatical. If the scaling down of lifestyle (that was tracked every quarter) did not take place, the exposure to risk assets would be accelerated.

Through regular updates on how Mr. and Mrs. Kumar were progressing towards their goal of scaling down lifestyle expenses, they were able to avoid adding exposure to risk assets immediately. These wins in terms of expense control was controllable in their hands, rather than at the mercy of financial markets.

This combination has worked very well for them, and the company agreeing to give Mrs. Kumar a position that allowed her the flexibility to spend much more time with her children as they went to the critical years of their school life, has meant that income flow has not been adversely impacted.

As the years go by, their asset mix would be ramped up to higher risk assets depending on their comfort levels with risk asset investing and the need for such assets to achieve their goals.

Vishal Dhawan is a Certified Financial PlannerCM, and the Founder & CEO of Plan Ahead Wealth Advisors, A SEBI Registered Investment Adviser. He can be reached at

All content in MasterMind is created by Wealth Forum and should not be construed as an opinion of Sundaram Mutual Fund.

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