Born between 1997 to 2012, oldest Gen Z today would be 24 years old, read carefully, what we are going to tell you may decide your financial future in years to come.
If you have just started to earn or going to be soon, and you might have some plans for life, well, you may know by now, life doesn’t go as planned, always. Covid 19 and the stock market crash of 2020 is the most recent and vivid memory with many of us.
So, How should we take care of our Finances? What should we do to avoid black swan events like Covid from affecting our finances in future? How can we make sure that we are self sufficient!
Well the short answer is INVEST, Invest now!
Note- how early you invest matters more than the amount you Invest, because Compounding works best later down the time.
Lets discuss how to Invest when you are in your 20s:
Divide your Income into 3 Brackets, Save, Invest and Spend. A rule of thumb to start with is Save 20 bucks, Invest 30 bucks and Spend 50 bucks of your monthly income (more better approach would be 50, 20, 30; but consistency matter more than the amount you Invest)
Spend low, live below your means, or expand your means. Yes I get that you may be fresh out of college and in your prime youth, thinking to party like crazy. While no body is saying, don’t party at all, but limit it as much as you can, the earlier you get into saving and investing rather than spending the better your quality of life will be. so shush the Party Animal within or just tone it down a bit. I know its hard to digest, But think do you want to live like king as you grow or you want to cut on your expenses and go take some huge loan to maintain all that family expenses that are inevitable at an older age. Somewhere down the line, I assume you would like to have your own house, a car and what not, so better you start investing now & be frugal, for more peace later in life.
Do Invest in Stocks, own them as your own Business! Don’t stress too much on getting it right, everybody makes mistake and so will you.
Do you need to be conservative or do you need to go wild, all in?
I would suggest a balance approach, now that you have 30% of your Monthly Income to Invest, I would suggest you to divide it further into different assets like Crypto, Gold and Stocks (now if the money is very less to even divide you can alternate the asset class every month).
10% (of Investing Income) -> Cryptocurrency, where in further you should divide in Bitcoin & Etherum or at least a few coins to be safe and not miss the opportunity at the same time. What I would do would be to have 50% of my Money (of this 10%) in Bitcoin, 40% in Ethereum and 10% in Others (like Zcash, Dash, etc). You may like to read more about Cryptocurrency here.
5% (of Income) -> In Sovereign Gold Bond or some form of Gold at least, if the amount is too small you may consider something like ‘ICICIGOLD’ ETF which is currently priced at 44 rupees a share.
Left with 85% of your Investing Income, you can go into Stocks directly. (In case that 85% of your income is exceptional, you are richie rich, I am glad you came here, you can further divide the amount into real estate and stocks!)
10 – 50% in Broad Market ETF that tracks the index like ICICINIFTY, HDFC Sensex Plan for India or VTI, VOO for US Markets. You can make your portfolio 50% of this in case you not at all care about markets and don’t have time even look at your portfolio once a month. As a matter of fact, the legendary Investor Warren Buffet himself suggest a low cost ETF for all Passive Investor. Read more about Index fund here.
0 – 40% in Direct Stock picks, now seriously I want you to take some risk, look around buy stocks of brands you own, you consume like that ITC cookies you eat, or Hindustan Uniliver Soap you use orBajaj Bike you Vroom vroom… (Disclaimer – we are not suggesting / advising any pick). Now this can be most volatile part of whole portfolio, but it can be most rewarding if the research is done right, also with time you get better in this. Always always avoid buying on someone’s advice do your own due diligence. If you are someone who believes more in the promise of blockchain & cryptocurrency than you may like to flip the percentages 10% here and 40% there 😉
To Recap, put numbers in to perspective, lets say you have 30,000 as the salary than 30% would be 9000, Put 900 of it in Crypto (450 BTC, 360 ETH, 90 other Coins), 450 in Gold, 7650 in Stocks!
Remember– If you can’t achieve the percentages listed above, let it be, a bit up or down here and there won’t matter.
The Idea is to Diversify, Invest Early and Be consistent. Time is your best friend.
Stock Market – While we are in good Bull rally so far in terms of Market in US, India and most of the parts of the world, we may see some rotation or correction going forward. By Rotation I mean we may see a flip or the Investments flowing more into the sectors of the market like Metals, Auto, Banks that was ignored in 2020 away from the stars IT, Pharma. Also there is nevertheless a chance of double digit correction in 2021, and this is where we need to be cautious and hold for long, not panic sell like most of us did in 2020. (If you are new to stock market you can open an account with Zerodha here)
Bitcoin/Cryptocurrency – Cryptocurrency specifically Bitcoin may see a slight correction going into 2021, but nevertheless the concept of Cryptocurrency is promising and it looks like it is here to stay for long at least unless an alternative is found. So I would like to be Vigilant here and Invest in dips. Remember always do your own due diligence before investing. To know more about Crypto click here.
Gold/Precious metal – I think Gold still holds value, and can surpass its 2020 high by 2021 end. Given the volatility in Market, and monetary policies of Govt., Bitcoin & Gold both can shine together for most part of this decade. Also this looks like the asset where Smart money will keep on flowing for most part of 2021. (Sovereign Gold Bonds is one good option if you are looking to invest in Gold in India, and best place to buy SGB is in open market using demat account like zerodha as the prices there are usually lower than current market price).
Real Estate – Now this is something I am totally unsure of, while Commercial real estate looks to be in decline, residentials and real estate in general may see some positive growth in 2021. I am expecting more growth in tier 2 & 3 cities compared to tier 1 in India.
Note – While above is my Outlook for 2021, By No Means I am here to encourage or influence you to make your Investment. Always do your own due diligence before Investing.
Hello Riters, hope you are well, hope you are doing great, & hope we together reach new financial height this year. Thank you for all the support fueling me to write yet another time.
Today, lets discuss what are somethings that 2020 taught us. So lets dive in.
You might be wondering seriously was there anything Good?, lets not disappoint ourselves yet and follow along.
Legendry Investor Warren Buffett once said ‘Be Greedy when Market is Fearful and Be Fearful when Market is Greedy’. Now what do I mean by that is, 2020 gave us all the existing long term stock market investors a chance to buy great companies share at a discounted price, and it gave a golden opportunity for new Investors to put a lump sum, off-course after doing all necessary due diligence for the firm. Also not to forget the new highs that Stock Market reached in 2020 end.
Time to slow down and reflect. Yes, 2020 gave us plenty of time to slow down and reflect back on the necessities in our life. When we (Indians) were locked in for couple of months that was an opportunity for us all to slow down and re assess our priorities. Sometimes in this mad rush for fame, money we forget what we truly want, and I suppose for many of us 2020 gave us that golden opportunity to rethink our lives.
A respect for healthcare workers. Especially in a developing country like India we often times neglect the importance of health care. 2020 taught us the importance of healthcare, and I am sure it also helped increased Govt. budget allocation towards health care for near future.
Time to rejoice with family. Sure lets admit it, it was not all roses when we had to spend time with everyone under the roof, but nevertheless for many of us it led to better understanding and importance of family.
Need for luxuries. You might be wondering what? we are talking of luxury, hold on one sec, hear me out. Now not everyone would agree on this point, But 2020 taught some of us the need to have our own little private beach house or a hill side mansion where we can retreat if another such calamity re-appears. Now, this does not mean we should not help fellow beings, in fact one thing that 2020 taught us was what is enough and what should we do for the society as a whole.
Refinance, not to forget with Interest rates at all time low, 2020 gave us an opportunity to refinance our loans, and mortgages.
The easy part, I am sure the list can go on & on for many of us here. But let me say it I want to rewind 2020 with more positivity & hence I have already given the positive angle, covering most of the Bad in the Good by flipping the lens, the perspective or whatever you call it. And if you are still with me than hang on, we are going to discuss the most important lesson that 2020 taught us, below.
‘Hey Rahul, Give me some cash man, I am broke, please help’, ‘Sahaab kuch kaam nhi hai, khane ko kuch nhi hora, thodi madad kariye na plz’ (Sir, we don’t have any work, nothing to eat, please help). These were some words I am sure many of us would have heard who would have tried to reach out to their cook, maid or even friends during lockdown. While we were busy living paycheck to paycheck, Pandemic happened! And we were never prepared, never learned the importance of Emergency fund and savings.If there is just one thing I want you to learn from this Pandemic it is the importance of Emergency Cash. Read more about Emergency fund here.
‘I lost my Job, I have consumed all the Stimulus check (applies to United States specifically), Can I borrow some money dad?‘. In Early 2020, when Pandemic knocked our doors, stores were shut down and it was a sight all around the global, with consumer spending at all time low and unemployment all time high, we were left with barely food on our plate. Now most of this was out of our hands, but still there was something we could have done about it, ‘Invest’, Invest, Invest! Yes, you heard correct, Invest and let the asset grows, Invest in yourself and let the most important asset your brain grows, so that when you are out of one opportunity you have something to fall back to. I know it is easier said than done, but things like side hustle and Investment can help us better cope with difficult times. Especially when the future Jobs are changing it becomes even more important to re skill ourselves by teaching ourselves a new skill in demand like video editing, data science etc.
I wish their was a skip button and I could just skip this part of 2020.
Death, Desperation and Misery. Yes, lets admit it, It send shivers in our spine when I saw coffins lined up in places like Italy, and people were not even allowed to have the rituals performed for their loved ones. While the worst is over, is behind us, nevertheless we should not forget the importance of life.Money is good but its not the end in itself, we must realize its worth. We must understand the importance of Happiness and why it matters more than the riches & luxuries in our lives. Nor should we forget the importance of donation, charity, philanthropy and the need to uplift the other half, and at times the better half of our society.
If you have made it this far or if you have skipped through most of the article, so here I urge you to stop for a minute.
Importance of Emergency Fund.2020 taught us the importance of having some cash set aside, specifically 3 to 6 months worth of your expenses in a liquid, high yield savings account.
Happiness > Money, while Money is important it is not the end in itself, realizing its place in society and realizing the need to help the poor & needy is a great lesson to take away from 2020 and well on to rest of our lives.
Importance of Personal Finance. Often neglected & hardly taught in schools, Money management, personal financing is important skill to master. Paying heed to your finances, tracking expenses and saving some extra cash will be the good place to start.
With this and without further making this blogpost any long, I wish you loads of Happiness, Health & Wealth in 2021. Happy New Year!
Hello Riters, its been a long time out there, getting ready for Winter in Northern Hemisphere?
Today lets discuss why Invest in Index ETF and why avoid Mutual fund, lets dive in.
In long Market always rise, thats not me saying, the likes of legendary investor Warren Buffet himself believe so. So, lets say if market always rise what is the best way to be on winning side?, of course buy into overall market low cost index fund like VTI
If your Mutual fund have 2% of fees (expense ratio, portfolio fees, handling charges and other hidden fees), than that can eat 61% of your portfolio growth in long run. Shocked? No?, let me explain, suppose you have invested $10,000 and kept it for 50 years in Stock market just assuming a return of 7% (ideally returns are above 9%), your portfolio will grow to a lump sum of $294,600 by end of 50 years, now if it was a Mutual Fund with charges of 2%, then you only avail benefit of 5% CAGR, leaving your portfolio to grow to $114,700 (61% lesser or 39% of $294,600 market returns) read more here.
Still not convinced? Lets say recession hits you in that case your portfolio will likely decrease in value but at the same time you will be charged the fees (the so called Active fund managers will still win this game).
Expense ratio of Index fund is very low and there is no hidden charges, for example – VTI has an expense ratio of around 0.03% and If you are in India checkout ICICINIFTY with expense ratio of just 0.05% (let me know if you find something better in comments below, the likes of VTI is missing in Indian market)
Don’t take my words for it, always do your due diligence before investing. If you want to read more grab your copy of ‘Common Sense Investing’ the book by the founder of Vanguard Group.
Bonus Content – what to do in current stock market scenario? (for retail investors)
Stay Invested, don’t sell value stocks so as to be able to avail the benefit of further highs
Sell the stocks that lacks value & strong fundamentals and are up just in the Bull due to investor sentiment.
Don’t invest a lump sum new investment amount, as the market is still prone to volatility due to Covid.
Lets look at a list of Investment available to you globally.
Direct Equity (Stocks / Shares) – High risk Investment with greater return in long run and volatility in short, Equity today is one of the easiest to invest in terms of accessibility with just a few clicks you can own a piece of Tech giants like Amazon, Apple etc. (not suggesting/recommending). A good thing for a beginner to Invest when starting with Equity is to invest in broader market indices like Nifty, Sensex (in India) and VTI, S&P 500 in US. By Investing in S&P 500 you can own a piece of 500 of the significant publicly traded companies in US. (Link to Open a Demat account with Zerodha to start Investing today)
Mutual Funds – A mutual fund is made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. But be aware of the Expense ratio and hidden fees, they can eat a big chunk of your portfolio in long run.
Real Estate – Own a house and rent it, while you wait for the upside. Real Estate is the physical asset that you can own and feel unlike the Stocks. But you need to research before investing, and you may need to learn something called house hacking to start with, where in you own a Duplex and rent one portion while you continue to live in other. And if you like Stock Market and hate the extra work to put in for the physical asset you may be better of owning the REIT (real estate investment trust), a company that owns, operates, or finances income-generating real estate. Modeled like mutual funds, REITs pool the capital of numerous investors.
Commodities – A commodity is a basic good used in commerce that is interchangeable with other goods of the same type. For investors, commodities can be an important way to diversify their portfolio beyond traditional securities. Because the prices of commodities tend to move opposite to stocks, some investors rely on commodities during periods of market volatility. Commodities that are traded are typically sorted into four broad categories: metal, energy, livestock, and agricultural. When it comes to Commodity it is good to own a small portion of your portfolio in precious Yellow Metal – Gold to hedge against the paper money.
Bonds – Bond is a debt security, borrower issue bonds to raise money from investors willing to lend for a particular period of time. Bond is a fixed Income Investments. There are wide variety of Bonds such as Agencies, Treasuries, Corporate, Municipal etc. A T-Bond, Treasury Bonds issue by U.S. Federal Government is considered to be safest of all, regarded as risk-free since they are backed by the U.S. government’s ability to tax its citizens. One good Investment in India is SGB (Souvenir Gold Bonds) issued by GOI (Govt. of India), and it can be bought via Zerodha (Link to Open a Demat account with Zerodha to start Investing today)
Whatever you Invest in remember to diversify well, and also remember no matter what there will be a time where your investments may lose 50-70% of its value. The key to avoid huge downside especially with volatile investment like Stocks is Asset Allocation. Diversify not just across different investments but also within one investment.
Further to the list above, below are some great articles published by us to refer before Investment-
Hello Riters, Hope you are doing great. We are back to help you do the personal finance. Today lets take you through some don’ts of a Investor. Lets discuss 7 ways to lose money in stock market and how to avoid them.
Buy at Bull and Sell at Bear – Yes, you got it. Now get a Beer & chill. Hold on, its not weekend, never mind. Buying at Bull Market (all time high) and selling at Bear (all time low) can cause you to lose money, a lot at times. But how do you avoid that, don’t be emotional and be patient. Hold on to your investment when market is low, and sell when its high. As Warren Buffet once said, “Be fearful when others are greedy, and greedy when others are fearful.”
Prediction – Can you predict the next Market Crash? Actually, No one can! No one can time the Market. Instead if calculated in a right way, investing early and consistently without worrying about crash, a bear or a bull can give far more returns than trying to time the market and missing out on those occasion or holding on to your cash for that perfect time.
Listen to Random guy – I mean avoid listening to a random guy on Youtube or a close friend. Do your own due diligence, don’t just buy that hot stock just because Minky told you to do so! Avoid looking for confirmation on Youtube.
Hope for a Miracle – Hoping for a miracle, chasing that next multibagger ain’t gonna do the trick. There is no guarantee you are ever gonna find a multibagger more so if you are after a penny stock. Instead invest in companies that are fundamentally strong!
Greed – Getting greedy, fearing that you will be left behind, speculating, always looking for the next big thing, or impatiently dumping all your money on Get Rich Quick Scheme.
Fees – Overlooking those hefty fees that are hidden under the blanket of complex finance terminology, and blindly investing in that mutual fund can gradually be a big hole in your pocket. For example – If you own a mutual fund with an expense ratio of 1%, you will be losing $1000 per year on $100,000 invested in the mutual fund, by just holding on to that investment.
Others – Poor monetary & fiscal policy, Geo political instability, currency devaluation are some other factors that can affect the Stock Market valuation.
As Benjamin Graham, once said, “In the short run, the market is like a voting machine. But in the long run, the market is like a weighing machine.”
Yes, you heard it right, there are things that you should avoid, no matter what its a Big No. Like Trespassing Area 51, or buying the stock of your favorite Pizza Chain. Just Kidding, there is more to it, today lets talk Stocks.
When it comes to Stock Market Investing you should do your due diligence before Investing and never listen to any random guy online, but trust me you can listen this random guy (me) on this one.
Below are the 5 mistakes every Investors should be avoid –
FOMO (Fear of Missing Out) – As the name suggest it refers to the Fear of missing out on the Opportunity. It is one of most common mistake that a new Investor makes. Basically when you see a stock rally you worry that you might miss the boat and hence try to invest as much as you can to get your share of the pie. But often times it leads to unnecessary investment, and at times you end up buying stock way too higher than its intrinsic value.
Panic Selling – Selling a stock when its price is low i.e. in a Bear Market. When a stock is undergoing correction or has been the victim of some bad speculations, we as an Investor turn on our Panic mode and again let the emotions rule our judgement resulting into selling of the stock when it is undervalued.
Trying to Time the Market – The common mistake every Investor make is trying hard to time the Market and failing to do so (which almost everybody do). Rather a good Investment strategy is to invest consistently for the long terms and be patient about your Investments. Remember nobody can accurately time the Market, not even Warren Buffet.
Sunk Cost Fallacy – Tendency to Invest in the fallen stock in order to recover the money invested. For example – I bought xyz corp share for INR 100 and the price fell to INR 50 in few weeks, without rethinking my strategy, doing research/analysis, I kept on buying more and more shares in order to average out the cost to be able to reap the benefits of future rise, But the future rise may never come.
Failing to Diversify – One mistake every investor should avoid in long run is to invest only in a single sector or a very few stocks. One should diversify his/her portfolio in order to reduce the risk by investing in multiple sector so that if there is a Crisis or the Investment value goes down across one sector the other is there to back it up, hedging against the risk.
Greed, Fear, lack of Patience and often the lack of Understanding of the Investment is something we all should avoid as an Investor. A Investment should be done with all due diligence and rationality. Emotions, get rich quick schemes and lack of understanding is not good for any Investment. It is something I learnt the hard way, I too have committed to a few of the above mistakes. One thing you should always remember in the long run Market always tend to go up and hence by all means one should avoid emotions rule the decision making process. And if you are new to Investment, it is always a better idea to start with some sort of Index fund in order to lower the risk from Market fluctuations.
Bonus Content – One good Investment Strategy to follow during crisis like Covid is to be a Nibbler i.e. to keep buying small bites of a great company slowly as its share price fall, given it has enough cash reserve to survive the pandemic.
That’s all folks. Until next time, stay healthy, stay happy and keep Investing!
And if you are new to Investment you can consider opening a Demat Account at a brokerage firm like Zerodha.
Money affects every aspect of our Life. But oftentimes we forget that it is just a tool. A tool to help us live better, not the sole purpose of life. It is not the only thing that should matter, but yes its a major thing in Life.
If you are broke, no one will shelter you. If you are broke, sure your life becomes a hell. That is why we need to understand how to not let Money destroy our Happiness, how to not let Money stress us, how to not let us be consumed and work tirelessly for Money without caring about health or stuff that matters,“how to be financially free”!
One Important aspect to Financial Freedom is INVESTING. ‘To Let Money grow Money’. But before you Invest, you need to know
5 To Dos of INVESTING
1. Only INVEST in things you understand. Not just listen to any random advice, Do your own due diligence before Investing. Because Investing comes with risk and you are never guaranteed to make Money, you may lose all.
2. INVEST for the Long term. By Investing for long term you can stay away from seasonal risk and short term market fluctuations, hence reducing the risk and letting your capital grow over the time. This is the way to reap all the benefits of Compounding.
3. Diversify your Investments. Like the saying goes don’t put all your eggs in one basket. The same is true for Investment, one should not put all their Money on a single asset.
4. Only INVEST the Money you don’t need for the next 1 to 3 years at-least. Well apart from Investing you need to make sure you have a saving cushion, and some cash to be used in case of emergency.
5. INVEST on Self. Now this is the thing many of us forget, well its equally important if not more to Invest back on self i.e. education, learning, personal grooming, health etc in order to reap all the benefits and even further grow your Investments.