Time your equity investment

 

Suparna Pathak:

Namoshkaar. Welcome to Mon Money presented by Content Crankers. This discussion is about the intricacies of Savings, so subscribe and keep learning about the various facets of savings. I am Suparna Pathak, with me is Investment Advisor Saibal Biswas. Before taking our questions to him, let us take a quick look at our opening screen.

Saibal, we had promised our viewers that we will discuss about the stock market. Many people say many things about the stock markets. But the point that keeps recurring is that the more time one remains invested in the stock market, the more the return. The age of the investor is also relevant in the context. If you could tell us something about this.

Saibal Biswas: 

As an investment advisor we hold the view that the faster one enters the market, the lower becomes the risk. There is always risk in the share market, but if one remains invested in the market for a sufficiently long period of time then the risk is reduced. When one enters the share market at a young age, then the person gets a long time to remain in the market. Let us take an example – suppose one wants to buy a car worth Rs 20 lakhs after a period of seven years. This means that an investment of about Rs 12000 monthly in some Systematic Investment Plan of some Equity Fund will ensure such a sum. If I do the same thing after two years, the SIP requirement will become Rs 25,000 per month. This means that by missing out two years I have to invest so much more to access the same amount. It is clear that the younger we start; the bigger will be the corpus that we will be able to create with a lesser amount of money.  Secondly, when we are young, we end up spending much more – we all have pent-up demands that we want to address, and there are other enticements also with so much being on offer on the net …. But if I approach my investment plan from a different angle, that is, if I invest first and then spend, then you will see that my spending habit will also fall in line…

Suparna Pathak: if you explain this a little more clearly…

Saibal Biswas: When we get our salaries, what we first do is spend, and then, from what is left, we think of saving. What I am saying, is to think the opposite. First, you invest according to your goal, then spend. This will help reign in the spending apart from controlling the youthful urges to splurge. 

Suparna Pathak: What you are trying to say is that one should change the priority of spending with the money in one’s hands… what we normally do is spend and after meeting all the monthly expenses, whatever is left, view it as savings. You are saying, “No”, one has to first define the expenses, and while doing so, separate the savings, and what will be left will define the expenses. Right?

 Saibal Biswas: exactly.

Suparna Pathak: My next question is what is the role of age in the context of rise and fall in the market?

Saibal Biswas: One is, at a young age, one’s ability to take risks is much higher. At a young age, one has the strength of conviction that one can overcome the market swings. Second, what we have not discussed yet, is compounding. The most potent tool to beat inflation is compounding. As we have discussed in the past, the return in the equity market is higher, as is the risk, and volatility, which leads to the doubling of monies in the long term…

Suparna Pathak: this is becoming too complex … you are saying that as the market is volatile, if one invests when the market falls, one loses …

Saibal Biswas: till one actually sells out, one does not lose. It is an opportunity, if I buy more after one's investment and a subsequent fall, I can actually average down.

Suparna Pathak: that means, if one can stay invested for a long period, one can take the ups and the downs of the market in stride. Normally people say that the Indian markets have a 5-year cycle. Now suppose one remains invested for twenty years. And suppose both the up and the down cycles remain for five years. Then, if I hold on for twenty years, what is my benefit?

Saibal Biswas: The benefit is simple. If I buy a share or into a Mutual Fund when the market is going down, then when it goes up, then in a relatively short period of time, my money can be doubled. Now for the compounding – 2 becomes 4, four becomes 8, 8 becomes 16 – imagine how this can grow like an atom bomb, if one is able to give it sufficient time. Suppose somebody starts investing at 50 or at 40. Then by the time the 4 becomes 8 or the 8 becomes 16, the time runs out. But for someone who starts young, the time available may be 30 years – just imagine the number of times the money can be rolled and to what value it can be taken to.

Suparna Pathak: Another thing that we heard is that the share index which was at a certain level twenty years back, would be at a much higher level twenty years hence. This means that the growth in the index will also be reflected if one remains invested for a longer period. This means that like going uphill, taking the ups and the down into consideration, the incline is upwards…

Saibal Biswas: It is like the maths problems involving the monkey going up a greased pole… it goes up and down, but ultimately reaches the top. The same is true for investments in the stock market…

Suparna Pathak: I see you have done some calculations …. If you quickly explain this, please…

Saibal Biswas: This is about the example that I was giving. If one has a time period of seven years to buy a car. If one invests Rs 15000 every month then one’s total investment is Rs 12 lakhs. This will allow one to buy the desired car worth Rs 20 lakhs after 7 years. But if one starts after 2 years, then one will have only 5 years, which will call for a monthly investment of Rs 25,000. For going back two years one has to invest Rs 3 lakhs more to reach the same target.  

Suparna Pathak: Consider this: If you start early, then. In the end, your gains will be much more. To sum up, the market is characterised by ups and downs, you have to be patient to enjoy the power of compounding. I mean, the fruits of patience are always bigger.

Let us stop here. In the coming episodes, we will cover the other areas of savings and investments. Stay with us. Subscribe and Like.

Saibal Biswas: Don’t forget to share. Awaiting your questions. Thank You.

 

Takeaway

To reap gains invest in shares from early in life

Calculate your requirements: first set aside for investment, then with the leftover, meet you expenses.

 

Searching for the Serendip

 

I am still looking for clues about the proverbial lost camel. 

King Giaffer’s sons were clever. The three princes of the Serendipo were taught well. Their teacher was great. He managed to imbibe in them the power of logic and its application. Incidentally, this Serendipo is said to be the Serendip for us that gave birth to ‘serendipity’.

The story, in case you don’t know it, runs like this. King Giaffer had three sons. He wanted them to grow as able heirs to the throne of Serendipo. Their master on completion of their education returned them to the palace reporting that the princes were ready to take over their royal duties. But the king needed to test his sons’ ability to rule with sagacity. At that point, a merchant came into the royal court to complain that his camel was lost, probably stolen. The three princes were tasked with finding the camel even without being told anything about the camel.

So, the three Royal Princes set out on their task to first find the clues. I leave the details about how they found the clues to the camel’s look and other details for identifying it for you to find by reading the story. 

When the princes approached the merchant with the details, the merchant thought they were the ones who had stolen the camel, for how else would they know so much about his lost camel? The story ends with someone finding the camel in the desert and bringing it to the King and King rewarding the princes for their sagacity and cleverness.

Alas! For me the life that I had aspired for remains even now like the camel. Lacking the sagacity of the princes of the Serendipo, I am still searching for the clues that would lead me to the life that could douse the craving for that life in me. But the Serendip or the Serendipo continues to elude me.

I sometimes feel that I was not meant to be. Whatever that has happened to me, in a good way that is, came in accidentally. That was the serendipity for me. But for the rest that actually was meant to be.

Take for example the issue of achievement. All my contemporaries and classmates are achievers and resting on their laurels. And me? Well! Still learning tricks to stay in business called earning and surviving.

So, I thought he could be my master when he told me I was still in my prime and I need to learn the tricks of creating content in a modern way. But he left that to my sagacity to define ‘modern’!

Trust me since then I have been running from pillar to post to learn about what modern was. The ultimate was the guy who nursed whisky at my expense telling me to leverage my experience! So, I blended the two received pearls of wisdom and thought digital would be the way.  Isn’t it modern? I learnt video editing, and creating a domain for my blogs (yes, that’s where, if you are reading it, I have posted it.) and now I am told I need to create a sub-domain. I don’t know how. So I have to learn it.

But the best came from the wisest. He told me to learn from my failures. From relationship to profession, I have been a serial failure. So, my bag of wisdom is full by that count. Yet, I still remain in search of the master who taught those three princes so that I would at least know about the shape of the craved life and the way the princes predicted the camel’s look!

(Please feel free to leave your comments in the comment box so that we can stay connected)

(DALL-E created the pix for me)