Investment strategies for young working women – Part 1

Financial Independence

Last week we had Women’s day. There were a lot of articles on women empowerment, how women have broken glass ceilings etc. While a lot of women today have become very capable leaders with very high education, we still don’t teach our daughters, sisters, lady colleagues on the simple concepts of creating wealth for themselves.

While general principal’s of compounding remain constant for everyone, for women there are certain nuances which women face depending on the stage of life they are in.

However the biggest mind-block I have seen with women is that they think investments, finance are related to maths and a lot of them think they are not capable of doing financial planning. It could be because they were not good in maths and therefore cannot understand the nuances of investments. They would rather leave it to their father or husband.

In this post I will talk about a girl who’s just finished her education and has decided to go for a job and she thinks marriage is 5-7 years away. She may have taken a loan for her education or has done her basic education and wants to fund her higher education on her own so that she does not need to take a large loan.

Now inspite of whatever I write, the first thing to keep in mind is don’t do anything which causes you to lose your sleep. Having said that however be a little open to trying new things. Maybe just that one new thing that you try may change your life dramatically.

So I will talk of just 3 simple concepts to keep in mind

1. Rule of 72 – everyone of you has a calculator. All you have to do is remember that this magic number can tell you everything about doubling your money.

If you know the amount of interest that an investment is giving then you know the approximate time it will take to double your money.

a. Your savings bank deposit gets about 3% annual interest. So if you have 100 in your account and you don’t touch it for one year then at the beginning of the next year you will have 103. At this rate of interest if you want to find how long it will take to double and make the amount 200 you just take your calculator and divide 72 by 3 to get 24. So if you don’t withdraw the money from your bank for 24 years you will have 200 in your bank.

b. Banks also have fixed term deposits where they give 6-7% annual rate of interest…suppose you were to put the same 100 in such a deposit you would need to divide 72 again by 6 and in 12 years you get 200

2. Rate of interest – which brings us to the second important item which is rate of interest. The bigger is the number by which you divide 72, the lesser is the amount of time to get to double your money. Which means higher the interest rate you will take less time to double your money. Generally speaking you need to keep one thing in mind….as the interest rate starts climbing higher the amount of risk that you take with your money is also higher.

3. Identify your goal – if you don’t have your goals defined you are not be able to define what is the right amount of distribution of investments that you need to make. Then use the following graph to map to your goal.

So if you are this young girl who wants to say go for her MBA after getting a work experience of 4-5 years and you need USD 50000/- as an example. The brown line on the map is the number of years you have for your goal and the blue line shows the kind of interest you need. So on the yellow line plot the 5 years and on the blue line straight above the 5 corresponds to about 15% interest. So if you need to get USD 50000/- in 5 years from now and you get an investment which is giving you 15% interest then USD 25000/- invested today will give you USD 50000/-, 5 years from now.

Now lets use the same picture and see what happens if you are only getting interest rate of 10%, then on the blue line check for 10 and then put a pencil on the brown line right below 10 and it will show you it could take you seven and half years. So now you may need to save more than 38000/- dollars so that 5 years from now you will have close to USD50000/-.

You will see that in the picture while the blue line goes as a straight line, the brown line is non-linear. This is something we will explore in a later post.

Till next time …. Carpe Diem!!!!

Photo by Anastasiya Gepp on Pexels.com

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 women in India can change the destiny of the country – part 2

Financial Independence, Uncategorized

Continuing where I left last, when more women come into the workforce there is money in more hands.
First this money goes to ensuring that the basic necessities of life are taken care of.

The good thing about basic necessities however is that once they are taken care off, there is not too much more that needs to be done , so once you have had three meals you can’t have one more meal during the day.

Once people have more money than they need to take care of their basic necessities they do 2 things – one they try to save and two they like to move up in life by doing discretionary spending.
When discretionary spending starts to happen the GDP growth starts to multiply. In India from the time the per capita rose from $1000 to $1700 one major trend that is seen – last year the growth of Air Traffic has been faster than the growth in rail traffic. The per capita is expected to in the next 7-8 years hit $3000/-.  That is considered the poverty line in countries like the US& Canada for a family of 5.  But adding $1300 per capita into more than 1 billion people can mean such a huge uplift for India.
Just with the addition of $700 per capita (from $1000) even though the Indian economy does not seem to be doing very well, still you have most Metro airports and all the Planes and flights which I have taken recently completely full. Whether it is low cost Airlines like Indigo and Go air or full service Airlines like Air Vistara or Air India you don’t see empty seats. There is a waiting list for cars and 2 wheelers.  People are wanting to move up in life.  They have aspirations to be better than what their parents were.

So what does this have to do with financial freedom….

If more women come into the workforce they will add to the per capita income. Once they take care of the part of the burden of the basic necessities of the house, then they will end up spending on better education and health of their children and better quality products for themselves.

If you see trends like these and you invest in countries like India, which have a such a young demographic, you can be picking gems which can make you rich many times over.  Invest through SIPs in mutual funds or invest in Emerging Market funds, but systematically go about investing in growth stories and the growth momentum can propel your finances into a different orbit…

Till next time

Keep identifying trends