Choosing your investment based on your aspirations

Financial Independence, Goals, investment, money

I have written earlier in most of my posts on your financial freedom that you should choose to use the investment to get life experiences.

Today I was watching ETNow Swadesh. Its a business channel in India. I am always looking out for pieces of wisdom from people who are much smarter than me. So there was an interview going on with Sunil Subramaniam. He is the CEO of one the Sundaram Asset Management (Mutual Fund)company which runs mutual funds.

While everyone talks about creating buckets for different life goals while making the investments and choosing the type of investments. He came up with a unique logic which is more attributable to people who live in developing countries like India. Our currency on an average depreciates by about 5% every year with respect to the US dollar.

So in case your aspiration list is about visiting multiple countries, like mine is, his logic is, to invest in global funds where the depreciation of your local currency will not have an impact. Otherwise your buying power falls by that amount compared to the USD.

If you are in the US/Canada/Eurozone/UK then this logic will not be of too much benefit to you because your currencies are typically pegged to the USD. But if you are from a developing nation and if its legal in your country, then you should look at this logic.

Since I practice what I preach, most of my investments happen as SIPs (Systematic Investment Plan) I need to figure out how this logic would work because as the currency depreciates, my ability to buy US stocks becomes weaker, so how are my returns going to be protected.

Till I figure that out.

Carpe Diem!!!

Every education has a price to be paid

coaching, education, training

In ancient times in India there was a concept of paying fees (dakshina) to the teacher (guru) after the education was over. It could be in terms of whatever the teacher wanted. Money as medium of exchange was not so prevalent in my opinion hence it was generally in kind and typically what the “guru” wanted. The teachers were reverred more than God because it was thought that the route to reach God would not be feasible without a good teacher.

Yesterday while I was listening to a show on ETNow a finance TV channel in India, there was one a very mature fund manager Samir Arora who was getting interviewed.

Through the interview he made a statement which suddenly caught my attention. While he was talking in terms of the financial markets in India, the statement is true for every field. Every education that you get has a price to be paid. In the financial markets, while I have read a lot of books and heard a lot of lectures, what you learn when you start playing the “game” is invaluable. I for example have learnt that I don’t have the psychology to trade even though I know most of the rules.

While there’s nothing better than getting a real life education, it can take a lot of time even though you may not be paying money but you will end up paying with your time.

That’s where experienced coaches can help, if they are in the field you’re wanting to take. That’s why I pay to join programs from Joe Polish and Jay Abraham and others. These kind of coaches can help speed up your learning process, so you save on time.

If you want to save time to get the experience faster, pay the fees to a coach, because you will have to pay for the education either in terms of money or in terms of time.

Till next time then.

Carpe Diem!!!

Habits

Financial Independence, Uncategorized

I just finished reading the book The Power of Habits by Charles Duhigg. I had bought this book long back but it was lying on my Kindle… forgotten.

It has been my habit, that whenever I saw a new recommendation, I ended up buying the book. Especially so when it was available on Kindle because then there was the instantaneous gratification of having the book in my possession. This was not a good habit because I always had a huge backlog of books to be read. Now I have taken a sabbatical from buying any more new books, till I finish the complete set lying on my bookshelf as well on my Kindle. I haven’t bought a book in 3 months and I have a feeling that I may not need to buy for another 6 months because of the backlog.

This book is a very interesting read and Charles shows with very interesting examples of how it’s very difficult to break a Habit He talks about the loop – “Cue – Habit – Reward”. If you are not cognisant of this loop you cannot change behaviour.

Recently on ETNow there was a news item which mentioned that the amount of SIP flows had not changed dramatically even-though the stock market had been faltering over the last 12-18 months. {If you have been following my posts then you would know that a SIP is a Systematic Investment Plan where money is directly debited from your bank account every month automatically}

This news item came as I was finishing this book and it got me thinking – is it that the flows have not reduced because of a habit as Charles Duhigg says or because of inertia or because the investing population in India has become so mature that they realise that in equity investment the short term rise and fall of markets have little significance.

Only one of my friends asked me, if she should change the scheme in which she had the SIP to another scheme for the SIP. She did not mention about stopping her SIP.

I doubt if the population investing in Mutual Funds has become more mature. This could be pure conjecture but the SIP culture in India is not more than 5 years old. So a population maturing in 5 years becomes doubtful.

What could play is that people have inertia. So they do not go to the mutual fund agent or to the mutual fund site to stop the SIP. My wife I think is from this constituency and the fact that I keep telling her that equity is for long term.

After reading the book I realised that there could be a third play here. The media and the association of mutual funds has made SIP investing more like a movement. Now as Charles points out, once something becomes a movement then it creates leaders from individuals at the community level and the movement keeps going from strength-to-strength.

He gives a clear example of Rosa Park and Martin Luther King and how that one incidence in the bus and the links that Rosa Park had propelled the civil rights movement in the USA.

I have a feeling something similar is happening here with the SIP movement. Since people in offices and homes are now all talking about SIPs there will be a lot of peer pressure on a person if she thinks of shutting – off their SIPs.

Another thing which I think could be happening is that since the individuals have got into the Habit of living on a smaller amount in the bank, they do not feel a pinch if the amount they have out into a SIP does not appreciate for a few months.

Due to the amount of SIPs continuing the amount of money coming into the stock market has not fallen dramatically. Due to this the market has not fallen because when the foreign institutional investors take money out the domestic institutional investors keep buying.

the AMFI and channels like ETNow need to be congratulated on creating this movement with their sustained initiatives in India.

Do you know of any such movements for creating a better financial future in your country…I would like to hear.

Till next time….

Systematic Investment Plans

Financial Independence, Uncategorized

Recently I was watching a program on television channel ETNow ….it was programming related to Systematic Investment Plans. I am generally not very interested in watching content based on SIPs. It’s a well understood concept to me about how time and price averaging over long periods gives amazing results because of the discipline of continuous investing with small sums and the magic of compounding.

What however got me interested was the concept the speakers were talking about “Sahi SIP”. “Sahi” is a word in Hindi which means the right thing. So what got me interested was the idea that not all SIPs are the same. You could search for this episode on the Youtube channel of ETNow.

SIPs have to be decided based on your goals.So not every SIP can be applicable to everyone

While the basic concept of SIP is that you automate your investments and pay yourself before you pay others.

If regular investments are left to decisions of human beings then they will every month find some reason why they are not able to invest.

However with SiPs because the money goes outfrom your bank account before you even know, you learn to adjust your expenses according to what is left. The first few months are a little tough but eventually you figure out ways to get your expenses into control. i am a ready example of that.

Now coming to the”sahi or right” SIP….. what the speaker mentioned was that based on your goals you need to decide on the investment vehicle or mutual fund scheme and the amount that you will be willing to invest.

One other aspect was how inflation eats into your goals. However because of inflation you also get salary increases. If you can increase the amount of SIPs based on a certain percentage of increase in your salary, then you can control the inflation monster from hurting your goals.

So there is no one size fits all. You need to identify the goals at different stages of your life and accordingly decide on the type of schemes you want to invest.

However the one thing which I have been mentioning for a long time in all my posts still stands….. you need to start early in life. The longer your runway the bigger is the magic of compounding.

Till next time….