Sensex being at 15000, we know that we went to a low of 7800 from a high of 21000. We recovered smartly in a short span.

We realized by now that, anything which grows suddenly can come down suddenly. However, it would not be right to say that we are again growing suddenly. Instead, we can say that we are ‘recovering’ smartly.

Let us understand, how this market grows. Though it’s difficult to explain precisely, we will give it a try.

Market is driven by investors who are investing in companies that contributes to an index like Sensex. These investors does great research on various parameters like past performance, projected performance etc. And this performance is linked to customers/consumers of that company’s product/services. So if the consumer confidence index (CSI) is good then market tends to grow better.

These consumers will consume the products or services only if they have enough money to spend. So, as long as he have a job and handsome salary and most importantly if there are products or services that he/she is interested in, then he/she spends.

Now consider a case where a product is priced very expensive. Let’s take an example. Any guess what example we are going to take? Real Estate..!!

When real estate prices increase due to greed of Builders or due to increase in demand etc, at one stage, prices will reach such a level that most of the investors will feel it’s very expensive so these consumers will stop investing in real estate. And the problem starts here.

Though he is earning handsome salary, he reduces spending thus affecting all dependents of Real Estate market. We also need to understand that sectors are depend on each other. To make our example simple, let us also consider that such consumers reduces spending on few other sectors. This results in decrease in demand and thus all the affected companies will have to cut costs by cutting salaries or cutting jobs which in turn will only worsen the situation as consumers have less money to spend. This will turn to a deadlock where one is expecting other to act first.

This is the time when investors will even stop investing in equity markets and will start investing in Gold or prefers to put their cash in Debt instruments like Fixed Deposits. This is the how market goes down. And when the deadlock that we discussed starts getting relaxed then slowly the market will recover and this is the state that we are currently in.

When people saw market at 8000/9000 levels, they though it may further go down to even 6000 levels but they lately realized that it was only going up. So what should they understand from the market? Never time the market.

If we are somewhere near market lows, invest more and if we are at market high, invest less. And if we are some where in middle, then invest consistently some amount so that you would be averaging your investment cost and most likely you wouldn’t regret for not investing or for investing.

Good Luck..!

During our life, we will be needing huge chunks of money for various purposes like home, vehicle, foreign trip, children’s education, daughter’s marriage, retirement and last but not least for maintaining health.

Your investment portfolio should be a right mix of  insurance, equity, debt, gold and real estate and the allocation will be based on individual’s risk taking capability, goals and the period. We have included insurance under investment as it’s an investment to safe guard your family during your ‘absence’.

When a particular asset class has appreciated, it’s important to rebalance so that your investment objectives are intact. This is very important to realize or safe guard profits.

Every instrument which has the potential to earn has the potential to loose and we need to understand this.  So equity should be in our portfolio as they outperform all other asset class over long term.

We need to invest in debt so that we can meet our short term goals and can guard against financial turmoil during which the value of your equity investments might have eroded.

Gold is considered to be a safe heaven for it’s stability of it’s value internationally. You might have noticed Gold prices soaring when the markets crash.

Real estate is another asset class where your investments can exponentially increase or decrease. Normally, they perform better than equity and are less volatile but when you invest during an upswing just like the recent real estate bubble, you tend to book losses.

So, you may ask why can’t I play safe with Debt and Gold? You can. But the question is, are your investments giving you returns (after tax) more than the inflation rate? Are your returns growing better than GDP of your country? Ideally your investment should generate returns at least 15% per annum to be considered as good investment.

So your allocation to high return/risk assets can be more when you are young and have less liabilities and should be less when you are nearing to retirement or when you wanted to utilize that money for a purpose in short term. For example, you can have debt to equity ratio as 30:70 when you are at the age of 30, 50:50 at the age of 40 and 70:30 at the age of 50. These ratios should be planned carefully with your financial planner based on your liabilities, risk taking capacity and goals.

Some of you may already have bought a house/property and many of you are still waiting for the prices to drop. But will it happen in 2009?

We strongly feel, real estate will still go in for a major correction because we know anything which goes up has to come down and anything which comes down has to go up of course this has terms and conditions which is not of our importance here.

We see lot of attractive advertisements by real estate developers assuring buyers with buy back guarantees, free luxury cars, buy one get one free, houses at cost price, house at the price of 2005, apartments starting at 10 lakhs etc.

How is it possible? The clear reason is sudden fall in demand. How? Sub prime crisis in US caused large organizations to fail resulting in cascading affect to all industries across globe which resulted in stock market crash, job cuts across Globe etc.

Let’s understand. Who are the property buyers? 1. Investors and 2. Genuine buyers who buy house to live in it. While investors lost money in stock market, home buyers who are salaried are facing heat due to firing, lack of hiring and pay cuts where as home buyers from business background are fighting for their survival due to reduced consumer spending resulting in revenue and profitability drop.

So, these real estate players have marginally compromised on the profits and are trying by all means to hold the price drop.

One thing we should understand is, it is difficult for any body to accept loss and that too if they have seen huge profits till then. So, these builders are trying by all means to convince consumers that they are selling properties at throw away prices. But the catch is these builders are not transparent in the offers.

How long and how many consumers can they attract with these offers? Not long and not many..! They are exploring all routes to some how hold these prices thinking that the consumers will get back to them. They don’t understand the meaning of healthy growth. Once all the routes are closed, they will have no option but to really reduce the prices by at least 30-40%. So when will it happen? It will happen slowly say by end of 2009 as the government and financial institutions are trying by all means to help this important sector.

Though many home buyers feel cheated for buying these homes at higher prices, they can have a sigh of relief due to interest rates cooling off thus easing their EMIs.

Investors have to keep in mind that if the rental income from that property they have invested is giving more returns than other investments then they can go for it.

What you need to check? Whether you are getting the same property you wanted for reduced price? This includes the over all build, finishing, basic infrastructure for your apartment/house, location of the property, amenities, free parking lot, inclusive of registration costs, hidden costs, and last but not least carpet area of your apartment or villa.