#Risk and its Future

I surprised many times when I came across special situations. It’s not about the events but about its unexpected time.

In this blog, I have psychologically calculated risks of future and more importantly actions and motions about that uncertain time. This could be easily understood.. if you rewind your memory and look into the rear view mirror.

When I was in a high school, I used to hate study and book the most. At that times my mommy used to say, if you’ll not grab decent grades you wouldn’t get admission in graduation and later on you might find hard time to find a decent job.  I understood why it was very important to score well, even if you don’t like. It is because the world has become very competitive.   It’s a simple logic, if everyone is working hard and creating competition, you must – at any cost – need to work hard to survive. Now the situation is not created by you, but by the people.

Same way if you are a computer engineer, and you don’t argue on buying a new computer, you do probably slowdown than your peer group. In this case no matter where the technology moved or knowledge about latest technology, but you need to understand the competition and should support with its balance. The logic is same; urgency of compute may not be created by you, but by the people and competition.

In near future same situation would be there in an investment.  If everyone around you is exposed to higher risks, you should not afford to take less risk. If people are taking more risk by investing in equities, no matter your risk attitude level, you would also be forced to take higher risks. I know it’s quite difficult to understand the situation..  But the situation is not created by you, but by the people.

Something is already in motion, it’s is difficult to understand. But, the future we are talking could be anytime. And it’s human mentality not to act till the very last moment – Change It.

This race is never going to finish, we are bound to flow – heard behavior.

At the present moment you have an option to change you future, at very next moment it would not be.

Put a reminder.  Read this after 10 years and you’ll surprise. 

Nothing Else Matters

No matter how much you are earning, you going to find it difficult. Because, Bcos! You are not putting that earned income at the right place.

Now, what this right place could be?

First, decide your need. What are your goals for future? And then, according to that decide the right place to park your money. There are lots of financial vehicles where you can invest your money, like Mutual Funds – Debt, Equity, Balanced, Bank Fixed Deposits, Direct equities, Bonds etc.

 One thing you need to care more than all these financial products is INFLATION. If you will fail to beat inflation then it doesn’t matter what you are earning, anyhow it is going to fail in long term. Let’s take a small and simple example; In India on average inflation rate is 8 to 10 per cent. Return from bank saving account is only 4 per cent, which simple mean your real rate of return is in negative 4 to 6 per cent.

You decide to put 1 Lac in bank FD at rate 9 per cent and in the same year Inflation index CPI was around 10 per cent. What progress you hard earned income made? Nothing. Negative. Really! After 1 year, original value of 1 Lac becomes around 99 K (inflation adjusted), Loss of 1000. Now after 30 years same 1 Lac would be around 74 L (inflation adjusted), Loss of 26,000.

My Friends, it is your hard earned income, not mine. This is a right time to start. You afraid of equity, Okay.  Chooses financial vehicles – at least which are able to beat inflation. If you will fail to do so, You would be intelligent Monkey. Don’t fool yourself, we are human. 

Nothing Else Matters – if you are able to beat inflation. Not even your small monthly incomes, which might counts in few thousands. Only things you need to do it is by choosing right investment vehicle.

So close no matter how far

Couldn't be much more from the Heart

Forever trusting who we are

And nothing else matters

                                                        _Metallica 

We All are Owners

I am a computer engineer. I was rejected by Infosys on the interview day. Yes, of course I thought there is no life ahead or maybe it’s going to be very tough. Life actually becomes tough when we have expectations.

Few days back I bought Infosys shares and I became its owner. Yes, my ownership is small but I can proudly say that I am a shareholder in Infosys.

Why I took this move?

Simple reason, I lives in India. Now why that makes sense? I live in Emerging countries. Okay. Are experiencing change in our living standards and spending – Every Sunday Cinema and McD, Yeah. Here in India Inflation would be high, let’s say around 6 to 8 per cent.  To beat this inflation Bank savings and your piggy bag is not at all good choice. To stay ahead you must look towards equity, like Mutual Funds and Shares.

Now I know it would not come easily, why should I put my money in share market where all losses it’s money. Let me tell you one secret, Nobody losses money in equity, intraday traders and greedy people loses money, Not Investors. But I also aware you that not to choose random funds or stocks, before choosing your investment, sit with your financial planner or advisor.

Let me share one more example to enter in Equity.

Almost all of us have bank account, Right? Now, in that we all are having our saving and Fixed Deposits etc. Why you put it in the bank? For safety of course! My Bank is not going to default on my savings.

My friends, if you know and you are confident on your bank, then why not to buy same bank’s equity which gives far better returns.

Even let’s assume that you have 6 Lacs in your bank account. And somehow bank collapse. Then you will receive only 1 Lacs on those 6 Lacs. NOT entire fixed amount of 6 Lacs.   

By this blog my motive is not to make you chase towards equity or share market.  My goal is that we must consider equity while investment. This is going to be a game changer. But I also aware you that not to choose random funds or stocks, before choosing your investment sit with your financial planner or advisor.

A letter to my Friend

I understand that it is too expensive to live in 21st century. These are about those few things which I learnt from my experiences and observations, things keeps on changing, you plan for something and when you reach near to that goal, actually that goal might have been shifted. But, I do sincerely understand that it doesn't mean we should stop planning.

As we do day to day planning – the time we wake up till we go to bed, why shouldn’t we plan for our future expenses?

I am very risk averse person. And I am not looking for very high returns in small periods. But Yes, I believe that we can built big corpus by small savings – Like it’s said that the journey on thousand miles starts with a single step.

I have drawn my own portfolio with small investments. I am in Personal Financial Planning and advising spectrum, it is imperative that the first experiment should be on me. That is how I can become confident in advising my investors and my clients.

This is how my first portfolio looks like,

I am going to start SIP (Systematic Investment Plan) with

ICICI Pru Banking and Financial services fund – Rs. 1000 with tenure of 3 or 5 years.

HDFC Midcap – Rs. 2000 for 5 years.

Axis Long Term Equity (ELSS) – Rs. 1000 for 5 years

Tata Ethical Plan A – Rs. 1000 for 5 years

Apart from this I would also invest in National Saving Certificate – Rs. 3000 in 5 year scheme.

I would also put my surplus in Birla Sun Life Floating Liquid scheme – Rs.  5000. Liquid funds have been considered as emergency funds. After six months I would divert strategy for liquid funds.

I will also keep on looking these funds performance in periods. If it doesn’t perform well on certain parameters I would prefer to change it too. Including this I would strongly follow to do rebalancing in a year. All the four funds are Equity funds, which would be eligible for tax benefit after 1 year under Long Term Capital Gain (LTCG).

I am not investing in Public Provident Fund (PPF) at this point. I do have account.  

As per my bank balance I am not eligible for big investment like real estate or gold.

Now the journey of thousand miles which was started with single step let us see where we are after five years.

After five years the corpus would be 1.7 L more than if you have just put in your bank savings account.

Now, If I use same strategy for the same next 20 years – till age of 50 – the corpus would be 2.4 crore, where I have not calculated real estate investment and other bonuses and commissions.

Simple conclusion is that if I start small investments like Rs. 8000 per month, we would end at 2.4 crore after 25 years.

This is the power of compounding and benefits of starting investment early.

Investment advice from an Artist

In Finance there are more than one sub sections under one word, like Banking finance, corporate finance, Accountancy, Investment finance and so on.

Since the beginning of my professional finance course at PG class, I was passionate to choose Investment finance over other finance fields. It is not only about numbers and profits; it’s beyond numbers - more I dig in more treasure I earn.  

The most difficult hurdles in investment profession are NOT technical knowledge, or valuations, or inflation & tax adjusted returns from particular instruments. The most difficult hurdle for an investment advisor is, How to convert her understanding about financial markets and related products into very simple language so that client can understand about her next investment move.

In today’s investment market I have seen, investment advisors are not very much trustworthy for only one reason. And the reason is that they have failed to communicate with their existing or prospectus clients in layman language.

How can a professional advisor expect, a client having three to four timber factories would understand that when the interest rate goes up and market finds hard times in liquidity positions, ultra liquid funds are going to fall – which could be used for working capital etc. Or how can a professional advisor expect, a retired school teacher would understand that falling rupee is good sign to add export oriented funds into a portfolio – which could be used as monthly income from high dividends.  

I sincerely believe that if we as professionals would not adapt new ways – especially creative ways to make our clients understand what they are investing in and why it is important. We need to remove technical jargons and fancy talks covered with finance phrases.

I tried to come up with a story in my blog [Why my batchmate should know this money management secret?] and tried to explain retirement concept of Personal Finance. In one of my other blog [India needs second wind phenomena] I tried to explain inflation and debt issues with my personal experience examples.  

Talk to your client in its language. Put it very straight and simple.

And above all, it’s time to use our right brain. Investment is an Art. 

High- 5 Steps for ‘Young’ Investor

I have orbited around sun 25 times. Most of my young friends are in the same age spectrum. Most of them are earning more than 700% of their parents’ first salary three decade back. India’s young generation is dynamic and full of passion, and is earning plenty of money. Now, most of you would not agree on this logic. But it’s true.  Every time we feel insufficient money in our accounts because of our high expenditures and constant increase in prices.

I met n number of young people, and most of them are confused in their own investments. They have questions like, when to start? Where to put earned income? And How to initiate?

When to start? You can start at any time, but starting early will give you advantage of compounding. In blog [Why my batchmate should know this money management secret?], I have explained why one should start investing as early as possible.

Where to put earned income? If you think you can build large corpus by just putting your income in banks savings account, my friend you are doing ‘big mistake’. It would give you negative real rate of return in high inflation. [India is an emerging country and inflation would be high.] 

How to initiate?

In simple language, one should consider these five steps before investment.

Step 1: Individual’s Risk level

When you visit a doctor they don’t give you medicine immediately, what they do is, they first check up your blood pressure and do few sample tests for particular disease.

In similar manner one should not directly jump to products, like bonds or equity or Fixed deposits etc.

First step should be to know Individual’s Risk level. If your advisor disagrees to do your risk assessment test and continue advising you without it, you better ask her to do so or you can change your financial adviser/financial planner. Risk assessment test should be done every year.

Step 2: Individual must have a Goal

After identifying your Risk level, move to further step. At young age very few astute could consider goals. Goals are like, to meet marriage expenses between the age of 25-30, child’s education expenses, dream Home or a car budget etc.

For example, Education expense for your child could be very high [Rs. 20 L – 75 L normally]. Some may arrange it through loans, and then debt becomes burden to your family. Some may have big bank balance, and it could be wiped out by high tuition fees. But all of us, young, can build education corpus for our child in the meantime.

If you don’t have goals, every one of us share mutual goal, Retirement goal. Everyone is going to retire some point in time, let’s plan for that goal. Retirement is common for working professionals and self-employed people.

Step 3: Identify your Investment vehicle

Now it’s time to choose right medicine. Investment vehicle should be considered according to your Risk level and Goals. Investment vehicles could be Mutual Funds, Bonds, Direct equity, Bank Fixed Deposits, Gold ETF etc.

All these vehicles have risk-return rewards. Through these products investor can make portfolio for a particulate goal.

It is preferable to have different portfolios for different goals. For example, if your age is 26 and you have a portfolio for a car in next 5 years, you must not mix it with your retirement goal portfolio.

Step 4: Re-balancing

Re-balancing is crucial. For example, you have a portfolio for a dream home seven years down the line. For high returns initially you build portfolio with equity products. What if at 6^th year equity crashes? Your portfolio gets affected and reality of your goal gets into trouble.

To avoid this uncertain risk, an investor should re-balance it every year. For example, after 5 years convert portfolio from equity to debt funds [or when equity gives good returns - direct interest into debt funds]. And in 6^th year convert it to ultra-liquid funds or bank RD.

And this is how at 6^th year your dream home portfolio would be less risky.

Step 5: Take advice from professional Financial Planner

If you have right knowledge and understanding about financial products and its flavors, and time to track it then you don’t need professional help.

You have to ask this question to yourself. If answer is ‘no’ then you should prefer professional advice by paying minor fees. You will get free advice also, but quality comes with value, not price.

Money management is not a luxury it’s essential tool for efficiency.

Comment your issues in money management. And How do you overcome it?

India needs second wind phenomena

Last month I resigned from my job. I put resignation 2 months before I shift to Gujarat. In the meantime, I tried to search myself and life beyond numbers.

Since beginning of my PGP course I am passionate about going beyond numbers in finance for better human to human understanding. 

I don’t have big data and complex statistical tools for research, so I decided to do it in my own way.

Every time I visited Select city mall in Saket, New Delhi or Ambiance Mall in Gurgaon I feel my understanding about money is imbalanced. So, to balance this understanding I visited streets of Chandni chowlk and Sarojini Nagar market. And I found my answer. I get this answer from stores like Zara to Shopper Stop, Blue-O to BMW showroom. From a chai wala in Palika Bazaar to Electronic shops in Nehru place. From a fruit shop in Sadar Bazaar to Ansal plaza at Palam Vihar, and many more..

And I came to a conclusion that, India is trapper by Inequality. And I believe that if policy makers will not act in a right direction this gap of inequality will widen.

Currently I am living in Sec-40 in Gurgaon, where I have seen most of the people are living on rent. Areas around Cyber Park and Phase-2 most of the working individuals or families are living on rented apartments.  I discovered very unusual things [due respect to individuals interest - views are personal], where people having sedan car not only one but two cars, without a place to park.  Some of them are having a big car than their home. They have money to pay car loan EMI but do not have money to start a SIP (Systematic Investment Plans) for retirement years. 

I might be wrong in my research, but yes, this is truly inequality, where a person chasing luxury assets at cost of basic necessity. The reasons they are unconsciously driven are, first, high expectations from future value of money. Second, illiteracy in money management, third, herd behavior [my neighbor is risk taker and she is investing in real estate, even I also do better in real estate].  Individual should take risk according to their own risk taking ability.

In the end, to narrow down this inequality gap, India needs second wind phenomena. If India fails to generate second wind  it will further drag down in inequality and an individual will suffer middle income trap. 

I am ready to bet on RaghuRam Rajan’s strategic policies and leaders like Narendra Modi, who has capabilities to create second wind phenomena. When next time game changes and ball falls in your court, take advantage of it. If we'll fail to act in our money management The next crisis will expanse our defaults.