Power of Alpha

Why do we invest? Many do to achieve financial goals like buying a house or higher education of daughter, etc. Some want to create as much wealth as possible. Many others invest for creating a retirement kitty.

Eventually, achieving all these objectives depend on two factors:
  • Compounded rate of returns achieved by the investment portfolio 
  • Duration of investments

 

The best way to create wealth is to invest regularly in various asset classes. Advisors are focusing on goal-based investing and many clients are on the right track to achieve their goals. Lot of investors start too late & the portfolio does not get enough time to grow. Some investors want to remain risk-averse & not expose their portfolio to high-risk products like equity or real estate. Few choose to prefer convenience over growth – choosing fixed deposits in a neighbourhood bank over an unknown broker/depositary.

 

Irrespective of any of these scenarios & preferences, it is still possible to generate ALPHA in all cases. Alpha, in the world of finance, refers to the excess returns generated by a portfolio over the market/benchmark. In simple terms, Alpha is the extra returns you earn above what you would get otherwise.

 

By earning that extra returns – Alpha – one can create more wealth in same investment duration or reduce the number of years needed to achieve their financial goals. The numbers may shock you!

Investors try out multiple ways of creating Alpha – by selecting higher risk products like mid-cap funds or Portfolio Management Scheme (PMS), by indulging in short-term trading based on technical analysis, by using derivatives to take leveraged bets on stocks for short term. However, we believe the most effective way of creating alpha is not to take higher risk but to increase your exposure to whatever risk level you can tolerate.

This can be done by using margin limits that brokers give on your existing portfolio. Thus, an investment of Rs.100 effectively becomes more than Rs.100 due to the additional margins you obtain. 8% on Rs. 180 is more than 14% on Rs. 100! We work on this simple math!

 

A simple task well executed is much better than a complex task that may get messed up. Scale Up – Wealth Enhancement Plan (WEP) is that simple technique we use to help our clients generate ALPHA!