- I had a reasonably stable job and income.
- I had sufficient surplus to invest in markets & mutual funds.
- I had a habit of Saving. And it was not new and had its origin in times, much before I came to Gulf.
- Combined with this habit, I also had the Discipline to stick with it.
- Though I really started ‘planned process of investing’ quite late, I still had age on my side….and this always helps in allowing ‘Compounding’ to create its magic.
- Because of above point, I had a reasonable amount of time to achieve my targets.
- Since I had a decent regular income, I had a decent risk taking ability.
- I was lucky to be part of markets which became extremely volatile at times. I was lucky to witness quite a few market crashes. Why? Because SIP works best if the markets are volatile and present the investors with many opportunities to invest ‘more’ at lower levels.
- This was a big advantage. I had no personal loan or housing loan to worry about.
- Another big one. I had already bought a home prior to investing even a Rupee…and luckily, I did it much before the real estate boom started.
Things I did Wrong:
- I was late to start investing. And I have seen people repent…and I mean really repent…when they realise that just because they were late to start investing by a few year, their final corpus was nowhere near where it could actually have been.
- I put most of my early savings into products which actually reduced purchasing power (read Insurance products).
- I was very late in creating a plan for investing. I should have done it almost a decade earlier than when I actually did it.
- I invested randomly without any goals, during the early part of my career.
- I started getting into direct stock investing, without having the proper knowledge of stock markets or valuations.
- At times, I went over board with my direct stock investing.
- I saved and invested as much as possible. And when markets were down, I invested more.
- Even though I questioned my own beliefs every now and then, I followed Systematic Investing diligently.
- I identified my mistakes pretty soon (in a few years!!) and started focusing on Mutual Fund investing…as this helped reduce chances of committing errors in direct stock investing.
- I got myself a financial plan and invested as per the plan (and with a purpose).
- I took adequate Term Insurance plan. And this in itself is a big factor, when you want to sleep peacefully at night, without having to worry about what will happen to your loved ones when you are not around.
- I realized and more importantly acted towards separating Insurance from Investment.
- I said no to ULIPs.
- I learnt the importance of Asset Allocation and acted upon it.
- Even though I had so many period where I could have panicked (and at times did) in last 8 years, I did not quit midway. I continued with my plans.
- I concentrated on investing the set investment amount (Monthly SIP x No of Months as per original plan)…sooner than bothering about the target amount.
- I cut my losses in direct stocks and re-invested the money in equity fund or debt as per the required asset allocation.
- I remained invested through out the period of 10 years.
- I invested only in well diversified Mutual Funds (max. 7) across fund houses.
- I chose Direct Plans as soon as it was introduced.
- I used Liquid Funds to park money when I had to transfer money to equity funds through STP (Systematic Transfer Plan).
- I made mistakes and learnt from those mistakes..and took the experience.
- I managed not to invest in real estate in the crazy boom of 2006 – 2009. But only time will tell whether I was correct or not.
Save as much as possible and start investing as soon as possible. And ideally, you should start investing from the very first day you get your first salary.
If you are afraid of stocks and mutual funds, start by investing small amounts to gain practical experience of positive and negative portfolio returns. You might end up losing money, but experience gained will help you a lot when you plan for the big amount you want to end up with eventually.
Have a plan. Even if you think it is difficult to achieve it. Having it is almost half the battle won. And if you cant make your own plan, get in touch with good financial planners. They will charge you money for their planning services. Don’t worry. You are ready to pay your doctors. Why not be ready to pay those who are looking after your financial health? Think about it.
Invest whatever is possible towards your goals. And it seriously doesn’t matter initially whether its small or big amount. Just go and do it.
Are you a regular person who goes to office and does not know much about stock markets? Stick to investing in mutual funds via SIP. End of Discussion.
Inflation can kill you. Seriously. Always include a realistic inflation figure while making your financial plans. Its always safe to be on the higher side.
High returns expectation can also kill you. And that is because you will start making buy/sell decisions in line with your expectations. Always keep reasonable returns expectations and accordingly, have your financial plans. Its always safe to be on the lower side.
Have an asset allocation plan and follow it religiously. And unless the valuations become extremely compelling (like PE<14), keep 20% in debt.
Any money which is not required for next 10 years or more, should be invested in well diversified equity or balanced fund. Remember this as this is very important.
Any money which is required within next 5 years should be invested in debt instruments. If you have money which you need in next 5 years, please switch from equity to debt instruments as soon as possible.
Always be ready to face short term notional losses. And remember that your returns could be Zero or Negative, even after 5 years (Remember 2009-2014). But over a period of more than 10 years, the general trend is Up. But even this is not guaranteed.
Invest some money whenever there is negative news all around and during panic selling to boost return.
Always keep track of market valuations & your asset allocation. Set your own rules for asset allocation that suits you.
For choosing Mutual Fund schemes, always stick to reputed process oriented fund houses and evaluate funds based on all parameters.
Watch business channels. But only for entertainment. Most advise being given, is for short term and not for you. Market experts are paid by channels for their opinions. Don’t invest your money to test their opinions. 🙂
Don’t invest because your friend or relative is investing. Your risk and expectations will almost always be different.
Direct equity investing requires a lot of additional efforts. And these range from evaluating a company to regularly tracking it to finally, exiting it.
Do not panic during bad times / bad news. And don’t get too excited in bull markets. Always stay calm.
Another Three Interesting Lessons (But With Proof This Time)…
Going forward, lets have a look at 3 (or rather 4) interesting lessons which I will try to make you understand using proofs:
This shows that the first hint of a coming market crash was published on 15th May 2006. But as highlighted above, the expert opinion was that there was ‘Nothing To Worry.’
A few days later, the markets crashed as depicted in the next image:
It only proves that there is no one who can predict what is going to happen in markets with 100% accuracy. So don’t waste your time in listening to these so called market experts who claim to have the power to predicts the market movements.
There will be sudden market crashes in future as well. And fund NAVs will go down. And down to almost any level. Accept this fact and move on.
Below is a broad compilation of the BIGGEST falls in the Indian stock market history (upto 2008)
March 17, 2008: Sensex falls 951 points.
March 3, 2008: Sensex falls 901 points.
January 21, 2008: Sensex falls 1408 points.
January 22, 2008: Sensex falls 875 points after intra-day fall of 2273 points.
May 18, 2006: Sensex falls 826 points.
December 17, 2007: Sensex falls 769 points.
October 10, 2008: Sensex falls 801 points.
January 18, 2008: Sensex falls 687 points.
November 21, 2007: Sensex falls 678 points.
August 16, 2007: Sensex falls 643 points.
April 2, 2007: Sensex falls 617 points.
August 1, 2007: Sensex falls 615 points.
Lets fast forward to end of 2010…
So…after all the corrections in between 2008-2010, the markets recovered back to the same peak index level nearly after 2 years and 10 months. And even if you had invested at the peak valuations (of index) in HDFC Equity fund in Jan 2008 in lump sum mode, the fund would still have provided you with Rs 76 (300-224) gain per unit – and that is when index did not move anywhere at all.
So what does it prove?
Index value on 1st Jan 2014 was 6301 and NAV of HDFC Equity fund was 304. Again after corrections, the market recovered back to the same peak index level after nearly 3 years and 2 months.
So after 4 years, the Index was up by 2.5% and NAV of the fund also gave similar returns of around 1%
So what does it prove?
- The above post and Part 1 of the same post-series should not be considered as any sort of recommendation or investment advise.
- These posts are not to be considered as advise to invest in HDFC Funds or any other funds named in both parts of these posts.
- HDFC equity fund was one of the core fund of my portfolio along with several other funds. However for simplicity of the post, all investments have been shown as invested in HDFC Equity. There were some funds performing better than HDFC Equity in my portfolio and some were lagging the performance also. The fund in general was used as an example.
- I thank Dev for guiding and encouraging me to write a post on Stable Investor.