Tuesday, 29 September, 2009

When Will You Have Money?

In the twenties, you either couldn't care, or didn't have enough. Investment. Savings. Putting something aside. All these were for someone else. Definitely someone older. The reasons being:
1. Not now.
2. I'll start saving/investing later.
3. I don't have money now.
4. You earn so much more than me, that's why you can think about all this.
5. Some other stuff that you thought of, because the above were all my excuses.

As I came into the thirties, I realised that, oh yeah, I wasn't going to get any pension. Therefore I had to provide for myself, by making money work for me, and not work for money.

So what about savings? Being brand conscious meant that savings were barely matching the minimum required to keep my savings bank account active. And keeping up with the Joshis meant that I had to have all that and more.

The PF contribution from my salary, for the first few years didn't amount to much as the base salary was so low.

It is only recently that I have realised that the oft repeated mantra - start early - is so important.
And what does it take? Rs 2000 for a simple SIP with a mutual fund. 6 years will give you a savings of at least Rs 144000, or more, assuming the fund performs.

Or a few thousand rupees in shares. All it takes is a an investment every month on a few shares and then forgetting about it as you keep on building your portfolio. No one keeps track of the daily ups and downs of the sensex as one might think. It doesn't make sense either. Every six months or a quarter is all that is required. But study the market you must.

And what do you invest in? Initially, till you have extra money to play with, and till your confidence grows, start with defensive stocks. And later, when you can, cyclical stocks. Defensive stocks won't be star performers on the bourses, but they won't play roller coaster with your heart beat. They will give steady dividends and grow steadily too. Cyclical stocks will be the stars who add to your profit booking.

And should you have a heart attack because you invested your life's saving in the markets and saw the market plunge? No. Go out and buy the A-list stocks for cheap.
The market plunges for a day, a month, or a few months, but sooner or later the markets are sure to bounce back and grow. After all, the richest man in the world is not an entrepreneur, dotcom owner or a member of the European royalty. Just someone who started early, in his teens, and invested wisely, and rode all the ups and downs of the markets with aplomb.

This part of your investments should be about 5% of your wealth. And of the 5%, you can split it into safe stocks and slightly risky stocks. So by an off chance, something seriously goes wrong, you still have your 95% safe.

I suppose everything going bust is a rare event. Like in 2008. Property valuations bottoming out are hard to digest if you are a speculator in the market, but if you are worried that the house that you are currently occupying has halved in value, forget it. It is notional value anyway. That value is of no use to you. So is the wealth on paper with your shares. Till you decide to sell it, the shares are just something to objectively look at and for your chartered accountant to remind you of at the end of the year tax returns.

So what next?

Pay off all your loans, ideally by the time you are 55. Hopefully you have invested in property, gold, PPF, Bonds, Fixed Deposits and 6 month's expenses worth of savings in your account. Calculate the number of years till you reach 55. Figure out your 5% that you can spare in a year to be invested in shares and mutual funds. Read up on the best performing funds and the SENSEX / NIFTY 50 and A-List stocks that you can invest in. Ignore all thoughts of becoming suddenly, stupendously rich on a penny stock that someone gave you a hot tip about.

Open a Demat account and a trading account linked to your savings bank account. And start today.

With Rs 2000 to 5000 as a monthly investment in shares, it is not longer about 'I will do it when I have money', but rather, 'I will invest now SO THAT I have money' at a later date.

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