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Money Thread

Discussion in 'Hangout' started by Bala, Sep 23, 2010.

  1. J Ravi

    J Ravi Esperto

    Thanks, Bala. I follow Warren Buffet's philosophy: When others sell, you buy. When others buy, you sell!
  2. J Ravi

    J Ravi Esperto

    Yesterday, I bought 10 shares of Axis Bank @ Rs 1150, and today, 100 shares of IRB Infrastructure Developers @ Rs 148.
  3. is this thread stopped??
    no updates???
    guys i need some make some money to cover my fuel bills.
    now that the prices are rising so much my pocket money is not enough
  4. Aanand

    Aanand Amatore

    Here is some food for thought sent to me by a friend:


    The first step in investing is not about money at all.
    It’s about time.
    Specifically, it’s about time management and about making a commitment to ‘invest’ 2/3 hours per week for investing i.e. learning about it and managing it.
    Learning about investing and managing investments is an ongoing process.
    It never ends. As a wise person has said, ‘it’s a journey and not a destination’.

    Why commit 2/3 hours per week of precious time to investments?
    The thinking is that we spend a lot of time and effort for earning money.
    Similarly, we should spend time and effort in managing the money already earned.
    Particularly, in putting that money to work and making it earn more money for us.
    That’s what investment is for.

    (One’s net worth is not measured by where one works, by what work one does or by how much one earns. It is measured by how much one has. But that means how many assets one has. It does not mean how many gadgets one has).

    Eventually, the earnings from investments should gradually exceed the earnings from our salary/jobs.
    At that stage we may choose to allot progressively more time to managing investments and less to our jobs.
    The idea is that we should not (have to) work for money.
    We should make our money work for us.

    The aim is to reach a stage where we can stop working for (earning) money and work for pleasure – at which stage one would not even call this ‘work’.
    The aim is to reach a stage where we can choose to do whatever we wish to do while our investments support the life style* that we choose for ourselves.
    At that stage we achieve financial freedom / financial independence.
    The moral – we need to choose to commit 2/3 hours per week for the ‘cause’ i.e. our own financial freedom.
    (Re *lifestyle. That’s up to us. If we choose a lifestyle that is not too lavish we could reach this stage of financial freedom earlier. As more money comes in from investments, one could, incrementally, choose an increasingly more lavish lifestyle).

    What if you are one of those who state: "I want to work forever".
    You're not alone. Many folks bristle at the thought of full-time leisure.
    Hey, nothing wrong with an enduring work ethic. But you do want the work to be a choice, not a necessity. And you want enough in your portfolio so the job you choose is based on the satisfaction it provides, not the salary.

    We should not count on inheritance, pension, lottery winnings etc. to support our chosen lifestyle.
    Should we get any of these, they should be counted as bonuses / as money found unexpectedly.
    Such money should be immediately invested with a view to achieving financial freedom earlier than originally planned.
    Such money should not be squandered on celebration(s) / increasing the lavishness of lifestyle (e.g. purchasing a depreciating asset like a car that also involves additional recurring expenses).
    Save to invest
    In order to have money to invest we need to save money.
    For this we need to spend less than what we earn so that our income is more than our expenditure.
    So, obviously, we need to either earn more, or spend less, or both.
    Then we can save more, and consequently, have more money to invest.
    It all boils down to postponing instant and current gratification for future happiness.

    To reduce expenses we need to minimize debt and taxes.
    This requires:
    (a) Getting rid of debt. It is best to get rid of all debt as soon as possible (particularly debt like that of credit cards since the interest charged on these is very high) and not take on new debt.
    (b) Tax Planning.
    Additionally, we need to counter the cancerous impact of inflation since it erodes the purchasing power of our money.
    Where to invest?
    Typically, one can invest in stocks, bonds, commodities and real estate.
    These are the ‘asset classes’.
    (One could also invest in art (and antiques), race horses, yachts etc. But these are mostly affordable only by high net worth individuals)
    Additionally, you could also invest in a business that earns money for you.
    This could be a business that is either self-managed by you, or one that is managed by someone you hire, or, it could be a business that is chiefly owned by someone else (i.e. a business in which one has invested only money, not time).
    Incidentally, investing our money in someone else’s business is what we do when we own stocks.
    There are two risks we need to manage.
    One, is the risk of dying too early. This requires life insurance.
    Two, is the risk of living too long. This requires investments.
    How much to save and invest?
    Anywhere from 10 to 50% of one’s earnings.
    When there are no financially dependent spouse / children / parents / siblings, one should be able to save and invest up to 50% of one’s earnings.
    Also, this percentage depends upon how early one wants to achieve financial freedom.
    When to begin saving and investing?
    The earlier the better. That way one can take advantage of the value of time for getting the benefit of compounding.
    (Read Crorepati Wannabe)
    It is comparatively easier to manage investments.
    It is more difficult to manage the investor.
    Feelings, emotions, attitudes of the investor are difficult to manage.
    So, read 10 steps to Personal Wealth.
  5. Aanand

    Aanand Amatore

    Some more:

    Preliminaries of investment

    I am not a qualified Financial Planner / Advisor.
    So, consider my suggestions with that in mind.

    Trading is a full-time profession and is not meant for amateurs or part-time dabblers. It has a short-term orientation.

    Investing has a long-term orientation and is meant for everyone.
    Unlike in the past, the options available for investment are increasing.
    This plethora of options has complicated investing.
    Thus investing requires home-work and continuous updating of one’s knowledge.
    Fortunately, it can still be done part-time.
    However, it is fast approaching a stage where part-timers will be unable to keep up with the increasing complexity.
    That’s why the profession of Certified Financial Planners (CFP) is slowly growing.
    When we have accumulated unmanageable wealth, may be we too would need the services of a CFP.

    Since, investing is long-term, the funds you invest will not be available to you for a long (20 to 30 years) time.
    So, you need to plan your expenses and arrange your cash flow for this.
    Also, you need to protect yourself from unforeseen setbacks e.g. health problems, job lay-offs, accidents, economic downturns etc.
    So, before you begin to invest, do the following:
    • Pay off all debt asap. Perhaps, an exception could be made for ‘good’ debt e.g. debt for education and training and also for that debt where the interest rate is not too high. In any case avoid, like the plague, all credit card debt and other high-interest debt. There is no point struggling to increase every percentage point of return from investment while paying out 12, 15, 25, or even 32% as interest on credit card debt.
    • Get insurance for medical treatment and hospitalization. Also, get riders for disability and accidents.
    • Get term policy as life insurance. This is like car insurance. It is for a fixed period and there is no money back. Term insurance has the lowest premium (and consequently commission for the agent). The money you save on the premium can be utilized for your investments. As a general rule, don’t get any policy that promises to return money, e.g. ULIPs / endowments (in India).
    • Create an emergency / contingency fund that can cover six months of living expenses. This should be kept in liquid saving schemes e.g. a savings account. The return on this will be inadequate and will barely, if at all, beat inflation. However, it will prevent you from dipping into your investments in case of an unforeseen and unexpected emergency.

    The idea of all the above is to protect you, and your dependents from foreseeable and unforeseen risks.
    So, I suggest:
    First, plan cash flow for unavoidable expenses like rent, home and car / two-wheeler loan repayment, children’s tuition fees, insurance premiums, etc.
    Second, account for mandatory investments like EPF. If your employer contributes the same amount as you, then take full advantage of this since it gives you a 100% return.
    Third, pay off all debt – especially credit card debt.
    Fourth, get medical insurance.
    Fifth, get life insurance if you have dependents.
    Sixth, create a contingency fund.
    Seventh, decide on the percentages you want to invest in the various asset classes.
    Eighth, decide how much you want to invest every month.
    Ninth, from the income left over, plan your regular household expenses.
    From your weekly / monthly income, first deduct the agreed upon sum for investment and then, from the remaining amount of money, plan your expenses.
    Don’t do this the other way around i.e. invest whatever is left after all expenses are met. It doesn’t work since ‘expenses rise to meet the money available’.

    • Examine your bank and credit card statements for ways spending could be reduced or eliminated. Also, look for errors and spurious charges.
    • Ask whether your money is going toward the things that are most important to you. Are you spending more on entertainment than on retirement, even if you consider retirement a higher priority? (If entertainment is more important to you, then congratulations -- your spending is in line with your goals.)
    • Avoid being addicted to branded clothes and accessories.
    • Avoid being addicted to upgrading toys and doodads, e.g. latest mobile phones, latest lap-tops, latest TVs, latest iPods and other gadgets.

    Once you have done all the above, then you are ready to invest.

    In equity, invest money that you will not need for the next 7 years at least.
    Invest regularly and religiously, every month, like clock-work.

    For your own retirement, the time horizon of your investments may be anything more than 20 years depending upon your current age.

    In case you are planning to start a family, you need to anticipate the increase in expenses at various stages of the children’s lives, (e.g. their school education, their college education, their marriage etc.) and plan separate investments that will mature at the appropriate time horizons.

    So, considering the above, how much can you invest per month?
    (Remember, you will have to continue investing this amount through SIP for the next 20 years, at least. You may increase the amount, periodically, as your income increases. But, no decreasing it.)
    Additionally, when the market makes a downward correction i.e. more than about 10 or 15%, you should invest additional amounts to take advantage of the low prices available.
  6. Aanand
    thata a big post. it will take time for me to understand..

    guys i need advice on stocks so that i can gain atleast 5k per month..
  7. Aanand

    Aanand Amatore

    And even more:
    You will notice that if, at this stage, you keep your expenses low, then the amount of life insurance you need (and consequently the premium you have to pay) and the amount you need for the emergency fund will both be low.
    Consequently, you will have more money to save and invest.
    And, the more you invest now, the earlier you will be able to achieve your aim of financial freedom.
    By the way, regarding financial freedom, here’s what one US expert has stated:
    “A survey of America's affluent (those who make over $225,000 a year or own $3,000,000 in assets) revealed that 27-30% of all the income the wealthy earned went into investments and savings. That isn't a result of being rich, that is why they are rich. When the pain of getting out of the bondage of financial slavery is greater than the pain of changing your spending habits, you will become rich. Either change, or be content to live as you are.”
    In sum, the choice is between financial slavery and financial freedom.
    All this highlights the need to curtail expenses.
  8. Aanand

    Aanand Amatore

    And, yet more:

    Now, coming to investing.
    Investing starts with asset allocation – the percentages of a portfolio that one places in stocks (equity), bonds, cash, real estate, commodities (including gold), art (and antiques) and even livestock like horses, camels, buffaloes, dogs etc.
    It then moves through multiple decisions in descending priority:
    • Asset allocation (stocks, bonds, cash, real estate, gold, other commodities.).
    • Investment style selection (value, growth, balanced, sectoral, index etc.).
    • Manager selection (active, passive, high-cost, low-cost, etc.).
    • Industry selection (technology, healthcare, etc.); and, finally,
    • Security selection ("good" stocks / MFs vs. "bad" ones)

    Stock / MF picking is the last decision in the hierarchy, and, importantly, it is the least critical.
    Studies suggest that asset allocation and costs (including fees, expenses, taxes) account for most of the variability of investment returns.
    Security selection, meanwhile, accounts for only a fraction.
    Picking the wrong stock / MF in an intelligently diversified portfolio, in other words, is merely annoying.
    Making the wrong asset allocation decision can be devastating.

    Now you know why I am not (yet) getting to the point and providing a specific answer to your specific question about specific investments (in specific Mutual Funds).

    Now, let’s take each of these asset classes.
    1. Stocks. I am a believer in this because, overall, this asset class has given me good returns.
    (a) This asset class will test one’s patience – to the limit. And, often it will not live up to expectations. It can be frustrating. It requires risk (and loss) tolerance and a cool temperament. There was a period when I saw my investments melt 25% of their market value within about one month. There was a period of about 5 years when my investments did not grow anywhere even close to my expectations. But then, from about May 03, I have seen an unprecedented rate of increase in the market value of my investments. That is the nature of this asset class. So, to benefit from investments in this asset class, one has to manage one’s temperament (as an investor) and not expect any specific returns during any specific periods of time.
    (b) One needs to decide whether to invest directly by picking one’s own stocks, or to invest through MFs. I, personally, believe in the latter. But, hey, that is a matter of personal choice based on self-evaluation. It’s not necessarily recommended as the universal ‘best option’. Here’s what one US expert on investing in stocks has said, “Unless you just enjoy the stock-picking game — a common and perfectly acceptable reason to play — the permanent mantra should be, ‘Don't do it at all.’ As numerous studies have shown, the vast majority of professional investors can't beat the market.” And, I add, I am not a professional investor.
    2. Bonds. During the current period of possibly rising interest rates, I don’t think that these will give adequate returns.
    3. Cash. Have enough to meet your expenses, and, of course, the emergency / contingency fund.
    4. Real Estate. Admittedly, this asset class has given excellent returns to many investors. But, again, as a matter of personal choice, I am not fond of it, as of now. In the future, when there are real estate MFs available (e.g. REITS in the US), I will consider investing in them.
    5. Gold and other commodities. Gold (and silver too) has done well as an investment. However, here too, I will consider investing in commodities when there are MFs available in this asset class.
    6. Art (and antiques). I know nothing about investing in these. So, this asset class is not considered by me at all, at least at this stage.
    7. Nor do I consider investing in livestock since I know nothing about it.
    (By the way, one could, for added diversification, also consider investing in these asset classes in different countries.)

    Considering all this, what is your decision regarding investing in the various asset classes?
    I recommend that you choose to invest a portion of your portfolio in stocks (equity) as an asset class through MFs in India.

    Investing in MFs in India.
    Here, I would recommend that you limit your investments to Equity diversified MFs and to Tax Planning MFs (the latter are also called ELSS – Equity Linked Saving Schemes).

    Expectations of returns.
    Personally, if I get an annual average return of 15% on my investments over the next 5 years, I will be happy.
    An average return of 15% means that my money doubles in 5 years.
    I recommend that you temper your expectations accordingly.
    This will help you overcome the inevitable disappointments and it will help you stay invested during market corrections.
    I also recommend you invest by using SIP to take advantage of Rupee Cost Averaging.
    Additionally, invest a lump sum amount whenever the market goes down by more than 10%.
  9. rsinfo

    rsinfo Regolare

    New Delhi
    My 2 bits:

    1. Don't indulge in day trading. Brokers would nudge you towards it but its their job. Their livelihood depends on it.
    2. Invest - don't gamble. Don't go with the stock of the day or flavour of the season. You are not purchasing ice cream ;) Always invest in businesses that you understand & pick companies you have faith in. Invest for long time in good companies & let them do the work for you.
    3. Keep your ear to ground but don't react to each & every news. Good companies tend to come out of trough much faster & better than others.
    4. Unless you have time & inclination, don't invest directly in the market. Go through mutual fund route.
    5. ULIP is a waste of money. Avoid them. Buy term insurance instead & invest the remaining premium in good equity MF.
    6. Always buy a mediclaim policy in addition to what may be provided by your employer. If you switch job, your pre-existing diseases may not be covered under your new employer policy.
  10. nkapoor777

    nkapoor777 Regolare

    New Delhi
    You might wanna try your luck at the casino! Got one in your area??

    On a serious note, making money from stocks is not a given and no one can get it right all the time. You win some, you lose some! Please don't fall for the sales talk of brokers who will bombard you with tips! Think about it, if the brokers actually were confident about their recommendations, why would they want to share the spoils with you??

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