Are you covered to live past 90 years

Financial Independence, Uncategorized

I had gone to Lucknow ( capital of the state of UP in India) last week for celebrating the Golden Anniversary of one of my in-laws.  In their house they have a decent size lawn and also a lot of pots and trees in the garden.

While sitting in the garden, having my coffee I noticed an old man mowing the lawn with a manual lawn mower.  Since you don’t get to see a manual lawn mower too often these days I got talking with my in-laws about it.

That’s when my in-laws mentioned that the gardener was in his 90s and peddled down on a bicycle about 17 km everyday to come to their house and do the gardening. He does gardening in about 5 lawns in the vicinity and spends an hour at each location. He earns about 5000-7000 INR every month- about USD 900 /annum.

The positives from the interaction were that he was so healthy and fit even at 90.  He was able to move large pots around even though I would never be able to lift those plots.  I felt extremely happy to see a 90 year old, so healthy and independent.   I did not get an opportunity to talk to him because I got caught up in some other engagements there.

However it got me thinking, would he want to do this activity if he had the financial freedom. Was he working because he had to earn his daily bread or what were his circumstances at home which pushed him to travel 365 days on a bicycle to earn such a meagre amount.

When I visited Canada in 2017 in one of the department store I saw ladies at the cash counters who in my opinion were more than 70 years working on the basic minimum wage only because they did not have any savings to last them their remaining life. Yesterday I met one of my old colleagues who is now settled in the USA and he mentioned that the official retirement age in the US is now 67.5 years.  So as countries are ageing they are trying to increase the official working age.  But for countries like India where the population is still very young, the increase in retirement age from 58-60 in most cases is still afar cry.

Globally the average age of the people is increasing with better nutrition and medical support. If Dr. Peter Diamandis is to be believed in the next decade the breakthroughs in science will help people live well over a hundred years.  However the working life of an individual is only about 30-40 years while they will have to support themselves without an active income for the next 30 odd years.

Just with pure saving instruments its not feasible to beat inflation and grow your money.  You need to be investing money on a regular basis from a very young age so that the you can get the benefits of compounding.  If you will notice Warren Buffet’s dramatic growth in wealth has been after he crossed the age of 60 because the compounding equation is an exponential equation and as the number of years goes up the impact on your investment is dramatic.  He started investing in his early teens, so close to 70 years of compounding has made one of the richest men on the planet.  At around the same age our gardener is still trying to earn USD 900/- per annum because he did not make investments.

Compounding is such a simple equation that grade 7 students are taught in school mathematics.  However our teachers are not able to show the implications of that equation because what is simple is not always easy to comprehend and most people inspite of knowing it don’t apply it ever.

I would strongly recommend everyone to read the book “The Compoound Effect” by Darren Hardy to see the benefits of compounding in all walks of life.

Use this simple equation to make your life easy for the long run and be secure to live well beyond 90 years.

Carpe Diem!!!

 

How a 15 year old can aspire to be a billionaire

Financial Independence, Uncategorized

Last weekend I was at one of my relatives place.  She has two young kids.  One of them is around 19 years and the younger one might be around 14-15 years of age

I was very glad to notice that they had an interest in making investments at such a young age.  I also loved the idea that their father was actually instilling in them a habit of trying to evaluate different avenues in investing.  This means that in India the efforts of channels like ETNow and  CNBC TV18 & the efforts of the mutual fund industry and stock exchanges like NSE are starting to bear fruit.  If kids and parents start discussing financial products then the future is definitely bright for the Indian middle class.

When they came to know that I write a blog on achieving financial freedom, they thought of asking me for some recommendations on stocks and other investments, which I denied. I prefer not to give advice on any specific type of instruments or stocks, because a) I am not qualified and b) because everyone has a different risk appetite.

Since I like to look at just the basics and compounding and the rule of 72 are simple things that anyone can do at the back of an napkin, I just spent time with them on that.

Using the above I just explained to them without any use of even a calculator how wealthy he could grow.

If the younger son invests today Rs10000/- at the age of 15.  India’s long term growth rate has been about 15% average.  Even the indices therefore will grow at a long term average of 15%.

Therefore if he was to put this 10000/- in a Nifty ETF, it would also grow at an average of 15%.  By the rule of 72 if he divides the number 72 by 15% then he will double the money in about 4.5 years.  For simplicity let’s assume 5 years.  which means every ten years it will grow 4 times. So his investment table, if he keeps invested with this 10000/- would look like below.  Just staying invested without doing any hard work (incidentally staying invested could be the hardest thing) he can convert his Rs10000/- into Rs10million or (Rs 1 crore)

Age Amount@15% Amount@25%
25 40000 100000
35 160000 1000000
45 640000 10000000
55 2560000 100000000
65 10200000 1000000000

The second column is if he looks out for investments which can lead him to compound at close to 25%.  then you see the magic.  The amount converts to Rs1 billion (100 crores).  Look at what happens between the ages of 45 and 65.  At 45 he would have Rs 10 million and at 65 Rs 1 Billion.  Even Warren Buffet’s wealth if you Google at age 65 and now at age 85, he is one of the richest men on earth just because of this phenomenon.

Obviously getting 25% on a consistent basis is not going to be easy, over a long period of time.  But the key is going to be about staying invested.  I hope the young guy can.

If you have any young guy you know, just show him this table of what his 10000 today can do for him over  30-40 years.

Till next time….

Carpe Diem!!!

 

 

Investments and Bitcoins

Financial Independence, Uncategorized

I was recently listening to the Berkshire Hathaway annual conference addressed by Warren Buffet and Charlie Munger.  This was being beamed live via Yahoo.

In this Yahoo presentation before the conference began they had some of their correspondents check out the people who had cone and then one of the correspondents also did a small interview with Warren Buffet.  One of the questions he asked was – what Warren thought about Bitcoins and cryptocurrencies.  This question kind of has stayed with me because this was something which I myself was not clear for a long time and then a lot of people have asked me.

As is usual of Warren Buffet he gave a very simple explanation for what is an investment and what is trading.  This is something which I found very useful and I thought of sharing.

For him cryptocurrency is not a investment because the cryptocurrency has value only in the eyes of the next person who wants to buy it so it’s a commodity for trading and if someone is willing to pay higher price you gamble on that.

Unlike trading an investment is an instrument of some kind which earns on its own even if there is no one to come and buy it from you… so if you buy farmland in your village and even if the next person is not willing to buy it from you at a higher price, at the farm you can still grow crops and have cattle etc. …. Same would be the case in terms of investment in equity…or for that matter even buying a cow can be an investment and the milk can be sold

So if you are wanting to do an investment keep this fundamental concept in mind …..will this item earn for you  irrespective of somebody wanting that item or not.….if you buy foodgrains with the thought that somebody will buy it from you at a higher price then that is trading. On its own foodgrains will not grow more foodgrains for you

So your house for your own living is not an investment – which is something I had written earlier also is a bad idea, but a house which you buy to rent out to generate passive income is an investment and therefore a good investment

Equity purchase of a company which manufacturers or makes something is an investment because the company will continue to produce its goods irrespective of whether someone else comes and buys that equity from us or not

People become financially free when they make investments. These investments earn for them and compounding grows the earnings multiple times over. The longer the runway –  as Mohnish Pabrai puts it – for compounding to play its part the more wealth you create.

Till next time….when you are in a dilema…think very simply ….will it earn for me irrespective whether the other person wants it or not.

Carpe Diem!!!

 

 

 

 

Living carefree forever

Financial Independence, Uncategorized

Last week I saw this movie “102 Not Out”.

It stars 2 of the best actors in Indian cinema Mr Amitabh Bachchan and Mr Rishi Kapoor. It’s a very sweet story about a 102 year old father and his 75 year old son.
The son has lost his interest in doing anything in his life while the father is still active over the age of 100. It is an extremely sweet movie which I would recommend everyone to watch.

The movie got me thinking on how this person would have lived his life from retirement, which in India is typically at age 58, for another 40 + years.

For sure he must have had enough Investments that could last him for 40 years of zero regular income.

The average age that an Indian is approaching 70, what that means is for every 38 years of working life the average Indian will now have to survive without the facility of a regular income help him through those next 10-15 years

Given that medical expenses and medical inflation are at such high levels you really need to think how will you survive without asking for any assistance from your children

There are very few things which are inflation proof and especially for an economy which is growing so rapidly and looks to become the third largest economy in the next 15 to 20 years, inflation pressures will always be very high.

So you need to think in terms of what are your investments and what kind of returns will they give you for you to survive for those years when you don’t have a regular stream of income and still have the will to enjoy like Amitabh Bachchan in 102 not out.  You need to celebrate life not live a life of drudgery.

Tell next time
Carpe diem!!