Last 2 posts I have been talking about being relentless with respect to Marketing and sales of various kinds
Today I will be talking about how I realised that the systematic investment plans or SIPS are a different kind of relentless activity.
I have mentioned multiple times that you should give a mandate to your your ETF or mutual fund to deduct the amount directly from your account and invest.
On one level this becomes a passive activity because you are no longer involving your brain to make a decision.
However we have also noted that being relentless is a habit which is needed if you want to succeed systematically rather than episodically.
So where’s the paradox.
If you have to become wealthy then you have to invest relentlessly on a regular basis. A systematic investment plan is also a regular, consistent activity a.k.a relentless. The only difference being that you don’t need to tax your brain. You are automating the process of being relentless for your investment.
To that extent it’s an ideal opportunity….you have outsourced your relentless activity to a system….and you can become wealthy on the way
Think about it…..small amounts of money invested relentlessly…taking advantage of the magic of compounding…can get you financial freedom.
Outsourcing in a lot of contexts is looked down upon. However by outsourcing the routine tasks that you tax your brain with can help you improve your decision making capabilities.
In addition by ensuring that you don’t use your brain, you can actually grow wealthy
Today I am going to be talking about forcing functions which take action irrespective of of your intentions – which the brain can sabotage.
Once you have outsourced the mechanism to invest systematically by giving your mutual fund the authority to automatically deduct money on a given date from your bank account, your brain no longer has to take any decision and you can just relax
We already have so many decisions to make every day that if we load one more , about investing the money, then the brain will fall back to default mode to take the decision some other day. Which if you had not guessed, doesn’t come any day. And life happens. And it happens to all of us.
We then feel bad and think we are procastinators.
Instead just take one decision with the help of your financial advisor and let your investments get done automatically and you will see your wealth grow. First it will not be appreciable but the longer you keep it, the exponential power of compounding will make its presence felt. And literary you don’t have to think about it. It will work whether you are sleeping or traveling
You can utilize this power of outsourcing brain functions in other areas also. I have asked my bank to pay my telephone and gas bills. So now my brain does not have to bother about the bills, their due dates etc. My bank automatically monitors the service providers and makes the payments and informs me. Since it makes the payment only on the due date, that money earns interest, till the payment is made.
This gives me more time and energy to do more high value tasks while I can be lazy about reaching my financial freedom targets.
As kids all of us were told the story of the rabbit and the hare. While I don’t intend to tell the story here, the implication of the story are more important to investing than all the “gyaan” and financial numbo jumbo needed for becoming wealthier.
The basic premise of the story is that consistency even if you take very small steps is more critical than large irregular bursts.
The hare takes short bursts and then stops to rest while the rabbit keeps nudging small steps on a continuous basis.
For compounding to work, it is the consistency which is critical. That is why a systematic investment on a regular – weekly/monthly basis is more critical than investing a large sum at irregular intervals. Over here I am assuming that you are not a person who already has a large amount of money. (If you already had a large amount of money you would not be reading my blog anyway.)
There are 2 psychological issues which you need to keep in mind.
When small amounts of money keep getting deducted from your account on a monthly basis, it does not hurt and your spending patterns adjust with the little less money that you have in your account. But because compounding has less to do with the amount and more to do with the tenure and rate of interest, it works perfectly – like the rabbit – in building your wealth.
However I often hear people tell me that they would invest the money that they get in their annual bonus or sales incentive. While its a very good idea to invest the money that you get as a bonus(and not spend it), generally humans discount the bonus that is expected. So by the time the bonus actually arrives, there is a new microwave to be bought or their is a holiday to be taken or there is a relative’s wedding for which new dresses have to be purchased or there is a medical emergency for which the amount needs to be spent and then you never end up doing the investment.
I was part of this story for most of my life till 2013. I always intended to put the next major increment or bonus for buying my own house or making investments. But it never happened. Life just passes by and some new emergency, urgent expense etc. kept propping up and I did not have any major assets.
By starting very small investments on a regular basis from 2013 I was able to build consistency in my investment plan. The ups and downs of the market don’t bother me because I am getting to do averaging of my costs of the investments. Due to this I am able to build a core to help me work on ticking out items from my bucket list.
Whether you do any other new year resolution in 2020, take one step to carve out 3% of your monthly income and make automatic deductions for some investments. Slowly as you grow used to having 3% less income, raise the amount to 5% of your income and then to 10%. Check out your bank if they have any mechanisms to make this kind of deduction for investments. Today is just the 8th day of 2020….take action for a better, wealthier life.
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.