- 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.
- 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:
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 3, 2008: Sensex falls 901 points.
December 17, 2007: Sensex falls 769 points.
October 10, 2008: Sensex falls 801 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 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.
With the kind of returns my fund’s portfolio was showing, and the dividend I was getting from these funds, I came to the conclusion that, making money in stock markets was very easy. Even at this juncture, I was completely unaware of the Dotcom crash or the No-Return periods after 1995 or the Asian crisis of 1998. The 5 years annualized return of mutual funds looked good, only because of the 2003-2004 Bull Run. However, because of my excitement at seeing the profits and because I was getting dividends, I had already invested close to Rs 3 Lacs in mutual funds.
I simply thought that all stocks will make money for me.
How foolish of me?
But due to losses in these unknown companies (although small), I realized that I should only buy shares of large companies. But I still didn’t know which stocks to buy and why to buy them. It was still very random for me, even though I was ready to hold for the long term. And the money I made in TCS, ONGC and ICICI gave me this foolish confidence, that I could not lose money if I stick with large caps.
I realized that despite working for more than 15 years (with 10 spent in Gulf), and also being a good saver, I did not have any plan for the future and was goal-less. All I was doing was to buy some insurance products and some random Mutual Fund and stocks.
I approached PersonalFN to prepare a financial plan and got in touch with a very capable and honest financial planner. During the planning part, I set my goals and the financial plan was ready for investment in line with my risk appetite and the asset allocation.
To cut the long story short, I set a goal of Rs 3 Crores by 2025 for retirement corpus and Rs 1 Crore by 2021 for my child’s education and marriage.
A monthly SIP target of Rs 60,000 was worked out for me. This amount had to be invested in Mutual Funds for my future goals. Though it’s true that I missed out on a good part of my younger age before I started proper investing, I would say that I was still lucky enough not to have any loans at that time when I eventually did start.
Read the title of this post again.This post will not help you to retire in 2 minutes. But in less than 2 minutes, it will tell you how long will it take for you to retire. And that too without having to make any big and complex calculations.
And you can do it yourself!
But for you to do it, you need to be familiar with TheRule of 72
What is Rule of 72?
|Rule of 72 | Calculate Time Required To Double Your Money|
For example, if you want to know how long will it take to double your money at 12% interest, divide 72 by 12. The result is 6. And this 6 is the number of years required to double your money. It is as simple as that.
Lets take another example: At 8% interest, which is the average rate offered by banks for keeping your money in recurring deposits and fixed deposits, your money would double in 9 years. (How: 72 / 8 = 9 Years)
Note – This rule is applicable only for compound interests and not simple interests. Also it works better for smaller numbers.
Lets go further..
How to Use This Rule of 72 for Retirement-Years Calculation?
Please note that this post does not tell you about the amount required for your retirement. But this neat little number trick will tell you the (approximate) number of years required to reach that amount.
Let us suppose that you need Rs 2 crore as your retirement corpus. And as on date, you have a saving of Rs 6.25 lacs.
Note – I have chosen this strange figure of 6.25 to make further calculations easy.
The assumption here is that you are a rational human being, who doesn’t want to take too many risks with his retirement kitty. And neither do you want to earn comparatively lower returns offered by bank deposits.
So you decide to take a middle path of 10%.
Now lets back calculate…i.e., starting from the final retirement requirement of Rs 2 Crore.
Mathematically, 72 divided by 10 is 7.20
Now if we get 10% per year for our investments, it will take 7.2 years to double our money. (Using Rule of 72, we know that 72 divided by 10 equals 7.2 years)
Now to double your money from an amount X to Rs 2 Crore, it will require the amount X to be 1 Crore. And using the Rule of 72, we have that Rs 1 Cr doubles to Rs 2 Cr in 7.2 years, i.e
1 Cr to 2 Cr = 7.2 years
50 Lacs to 1 Cr = 7.2 years (Total: 14.4 years)
And so on..
And the calculation continues as follows:
This simply means that starting from Rs 6.25 Lacs, it will take you 36 years to convert it into Rs 2 Cr, which is the target amount.
But you did not put in any new money in these 36 years!!
Yes. You need to understand that it takes 36 years to convert Rs 6.25 Lacs to Rs 2 Crore without any additional investment and without doing anything in stock markets. 🙂
That is the power of starting early, when it comes to investing.
The above example is a very simple and basic usage of this Rule of 72.
So in case you decide to make additional investments every year, you can reach the target of Rs 2 Cr much earlier than 36 years.
For example, if you additionally invest Rs 1 Lac every year, then you can reach the goal by 27th Year.
And if you somehow manage to save Rs 2 Lac every year, then you can reach your goal in less than 23 years!!
Try doing 3 Lacs an year and you will retire in less than 20 years. Doing 3 lacs an year means doing 25,000 every month. And if you earn decently, then saving this amount every month towards your retirement should not be very tough.
Warning: This exercise to calculate these numbers for your own retirement can be a scary one. But it clearly illustrates that if you decide that instead of going for one time investment, you are ready to contribute regularly to your retirement fund, then you can drastically reduce the time required to reach your retirement target amount.
So how much are you targeting to save for your retirement? And how much time will it take?
- Win a Lottery
- Marry a Rich Girl
- Inherit from your rich aunt
- Get lucky with your stock market predictions
- Become the ‘Perfect’ Market Timer
- Join Politics
- Become a Criminal
- Start with 2 crores ;p (It is far easier to lose money and come back to 1 crore)
- Assuming 8% returns (per annum), if you invest Rs 15,000 every month for next 22 years, you would reach your target of 1 crore. At 12% & 15% returns, it would be achieved in 18 and 15 years respectively.
- Similarly, for monthly investment of Rs 30,000, years required are 15, 13 & 12 at returns of 8%, 12% & 15% p.a. respectively.
- For Rs 50,000 per month, a crore can be achieved in 11, 10 & 9 years.
|Calculation Table for 8% Returns|
|Calculation Table for 12% Returns|
|Calculation Table for 15% Returns|