Archive for April, 2015

What can 14% returns do? A lot as we see :)

In 1971, Govt’s Enemy Property Office had shares worth Rs. 29 Cr’s value mostly belonging to people who left India during Indo Pak war of 1965. Cut to 2015, exactly 44 years later, the shares have been valued at 10,000 Cr. That is approximately 345 times in 45 years !

Imagine what % return per year it must have taken to grow by 345 times ?

approximately 14%, that is all.  Over 44 years that 14% made 29 Crs turn into 10,000 Crs !!  This was a static investment on which nothing was done,  This is not all, the dividend last year alone on this was some 40 Crs ! The 14% return does not include dividends. This is what equities can do over long periods of time, create real wealth.

But hardly anyone invests in equity or equity mutual funds and those who do don’t stay invested for more than 2-3 years, forget 20 0r 30 years !! Only 20 or 30 years can create wealth, buying and selling every 1- 2 years will create lots of paper work and not wealth !!

Moral of the story : Invest for really long periods to create wealth, Don’t have 29 crs to invest for next 44 years ? Don’t worry, I don’t have too 🙂  but surely some of us can invest Rs.10000 p.m over next 20 years, at the same 14%  that can turn into Rs. 1.31 Cr’s.I’m fine with that, and guess you will be too 🙂

Source for the news on Enemy Property :

http://www.business-standard.com/article/markets/enemy-shares-to-be-dematerialised-115041700037_1.html

 

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After all, what can 500 Rs p.m grow to?

The letter below,written by a dad, whose 7 year old son saved 500 Rs per month and gave to his dad for investing. Think his dad wanted to teach him about investing in a disciplined way through mutual funds so gave this amount as pocket money. Before you say nice story and move on, as after all, what can Rs. 500 p.m grow to, a few thousands by the time the boy reaches college or gets married? Here are the numbers and they are startling..

College is 10 years away when he turns 17. by the time the little boy goes to college, it will be Rs 1.68 Lacs. Decent money, but definitely not enough for a good education that too ten years from now.

At 27, when the ‘boy’ is old enough for marriage the investment would have grown to Rs.11 Lacs good sum but dont think enough for the typical big fat Indian wedding even today, forget 20 years later.

Let us assume that since it is not enough for education, or marriage the dad will continue the Rs. 500 investment and the son after getting a job invests the same amount every month till he is say forty,

So the total amount invested is  Rs. 1,98,00 over a 33 year period ( Rs.500* 12*33)

Assume 18% return ( markets have given 20% in the last 20 years but let us assume 18%)

The total value is a whopping Rs 1.22 Crs.

All from Rs. 500 p.m invested diligently over a long period in equities as they give the best returns over long term. If it were just increased by Rs. 500 more to Rs. 1000( which is what you may be paying for your mobile bill every month!!) it will be Rs. 2.44 Crs. Agree that inflation would ensure that Rs. 2.44 Crs may not be enough 33 years later but it is better then not investing anything, right?

Now, what is your excuse for not investing, that you don’t have Rs.500 or Rs.1000 pm ?

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From 1 to 100, How 1% change can bring success.

What did Dave Brailsford , a British cycling coach, do to make his team win the famed Tour de france cycling tournament?
And, how can it make you a better investor?

We all know “Save more, Invest better, Spend less” is the solution to our financial problems. Don’t we? We need money for various reasons including for down payment for a  house, children’s education and our retirement. But, we think this would require big changes in our lifestyle and hence we postpone investing.

This is because we are all creatures of habit and find it difficult to  change. What if I tell you that it is no longer the case? What if I tell you that you would not be required to make a great deal of adjustment? But, would you change something as simple as 1% of your routine to get great results?

First, the story which inspired me to write this blog:

Dave Brailsford , a British cycling coach, wanted his team to win the famed Tour de France bicycle race that lasts for 21 days and covers 3500 kms. He made changes as simple as carrying comfortable pillows to hotels so that the players can rest well, making the riders wash hands regularly so that they don’t get infections. By doing this and other tiny changes he believed that his team would win the title at least in the next 5 years. He was wrong,  his team won within 3 years !!. (You can read more about it here : http://jamesclear.com/marginal-gains)

After reading this remarkable story, you would have now understood that even small marginal changes can have big impact in the long run. The best thing about it is that they can be implemented easily.

Here are some small changes you can make to win in the journey of financial freedom:

1. Start investing – Don’t wait for the perfect day, the perfect income at which you will start. But start right now, with what you have. Take the first step.

2. Keep looking for improvements – Small changes, like having auto sweep in savings account so that your balance earns a little more. Put aside 50 / 100 Rs from your purse every day separately, and invest the money every month. Keep your credit card at home and take only the necessary cash if you think you may overspend while going out. Open an investment account for your child. Your kid will be thrilled and you would be showing them practically what it is to invest and what is profit etc.,

3. Give yourself a treat : For every small improvement that you do, treat yourself with an ice-cream or snack. What is life after all with out enjoying our victories, however small!. This victory reinforces that we are on track and we will look out for more areas of improvement.

On the flip side, small mistakes compound  over a period. Avoid mistakes like investing money in the “get rich quick” schemes ( MLM , Plots that will ‘assuredly’ double in value in 1 year, ‘insurance scheme’ with 20% return etc).

So, now tell me what improvements are you doing or planning to do and what mistakes you will avoid ? Would love to hear your experience.

Unravel the Sir Drave Bailsford in you. And, win your Tour De life cup!

Happy financial year 2015!

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