Who will be paying for your old age?

happy retirement

Shrivastava uncle is 72 and his wife, Manjula aunty is 68. They are my next door neighbours. Extremely sweet and affectionate, they love to talk. They have three kids – all married and employed. Uncle himself was a tax consultant till a few years back. As he grew older, his ability to work 8 hours a day and scout for new clients declined. His existing client base who was also largely retired did not need his services anymore. Aunty is a quintessential homemaker, devoted to the family ever since she was married to uncle. To me, they are a classic representation of the vast majority of our retired parental generation in India.

Last Sunday we met over tea and aunty made some delicious pakodas. As I noted down her recipe, uncle advised me to go slow on fried food. Two reasons – rising oil prices and rising healthcare costs. He said, the joy of fried food is “not worth it”.

Uncle and aunty had always lived a middle class lifestyle. Moderate income with significant monetary commitments towards their children. They wanted their children to get the best of education. But they had not fathomed the kind of money they would need to shell out just for schooling and tuitions, let apart the cost of higher education. So every child ended up taking a loan for pursuing their masters / post – graduation. They bought a home early in life and the EMIs continued till after their second child got married. And for all of his working 35 years, uncle’s sole intention was to save enough for getting his three kids married off in style. But with rising costs of the pomp and show of marriage, his fixed deposits were not enough. So he ended up withdrawing his PF and PPF – because it is so much more fulfilling to walk your chin up in the society than leading a comfortable retired life. So now, they have a handful of savings, minimal passive income and no monthly inflows. They definitely do not live the way they would have liked to.

I sometimes asked them why their children could not send him a monthly cheque so that they did not have to cut down on their lifestyle. They never really answered but I knew that like most parents of their generation, they always wanted to be a giver to their children. It was a matter of self – esteem to not depend on the ones you have raised. Sometimes, uncle used to say that his children need to save for their own retirement, not his. I have met his children – they are very nice people. They visit their parents often and want to help them. But they do not help because they cannot see their father feel dejected at the reality of having to depend on children.

This predicament is not unusual in our current social fabric. Some children don’t care about their parents. For those that do, the parents don’t want to be termed as dependents. It is an eternal sense of insecurity that lingers once the monthly inflow stops. The eventualities are something no one really plans for. Cost of living rises in ways we don’t visualize well in advance. We need to outsource daily chores more than we have ever had to and healthcare constitutes a big chunk of monthly expenses. Since there is so much more free time in a day, the desire to have a social life also increases. The costs of upkeep of that social life varies from household to household.

In India, we do focus on saving for our child’s marriage and may be also education. But retirement was and still is missing from the list of priority financial objectives. To our generation who has just started out on their long careers, retirement seems just too far off. And we hate to look that ahead in time. Some of my friends jokingly retort – who knows if we will be living till then. Well, the mortality rates have definitely gone up.

Some people believe that purchasing a house is all that they need for retirement. But what about the daily cash-flows? The salaries you need to pay to the domestic helpers, the driver and the newspaper man. The rising expenses on milk and flour. The medicines. The gifts that you want to give to your grand- children. We hardly plan for a life which is perhaps going to be so different from what we are currently living. And by the time we do, it is usually too late.

Let us therefore awaken and become more responsible, starting with ourselves. Next time, before you start planning for your child’s graduation expenditure, do set aside a sum for your happy retirement. It is alarmingly more important than you think it is.

About the author:

Shruti is a financial planning enthusiast and spends substantial amount of her free time in helping out her friends and relatives sorting out their finances. Currently working with Mahindra & Mahindra, she is one of our esteemed guest writers. She is an MBA from MDI Gurgaon and a CFA (CFA Institute, USA). 

About CAGRfunds:

We are a bunch of financial experts who help people manage and grow their wealth. We focus on making our clients financially independent by educating them and guiding them throughout their financial journey. If you think you need help with your money, reach out to us on +91 97693 56440.

How are the rich millennials planning for misery?

Last month I met a friend who was visiting Delhi for a mid – month break. Molly (name changed) was into sales of carbonated drinks and work brought her to Delhi on a Friday. So she stayed back and decided to spend some time off with her cousins and friends.

We went to this cosy little Italian place in GK 1 and promised each other to pen down 5 stars on Zomato for the heavy doses of heavenly pasta that we had. We quibbled a little on who should pay the bill and then we dropped both our cards on to the bill tray. Swipe. Up went an eye brow and five fine lines cuddled up into a frown on her forehead. I knew what was wrong. It was 20th of the month and her bank balance was into a low 4-digit number. No, credit card was not her solution. She was just unable to save what she wanted to save every month. And as result, she had been deferring her much coveted Euro trip for over a year now. Because she never had enough surplus to fund her desires, sorry – foreign vacation desires.

Molly was a quintessential corporate working girl. She was realistically ambitious, driven to deliver more than expected, eager to learn and extremely proactive. However, with over 3 years of work experience now, she was still far from financial independence.

That evening I went back and thought – why a good part of our generation (Read: Millennials) is so professionally accomplished yet financially poor. At this age, our parents were probably running a family of five. And we struggle to scrape through a month. A lot of this has a very deep connection to our habits and behaviours. Let me list down what comes to my mind.

We don’t want to grow up

No adulting

Credits: thevanguardusa.com

The spending priorities of our generation are extremely different from that of our parents. With the luxury to spend only on ourselves, we experience negligible levels of financial responsibility. And our inexperience at “adulting” reflects in how we manage our money.

We fail to delay gratification

Spend today, Save later

Credits: theawkwardyeti.com

Our generation is more here and now. We want quick replies to emails and hate to wait for the next sale in H&M. We also always want the latest in town. Since we don’t have much responsibilities (Refer the first point), we have this innate urge to gratify ourselves immediately. We believe in living now than living long. Even if that means possessing three credit cards.

Likewise, we want to get rich quick

Everyone wants to double their money within a year. Everyone also wants to step out richer from a casino. Neither of this happens to everyone and every time. If we want to stay rich for a long period of time, we need to deploy our money carefully, rationally and patiently. There are no shortcuts to securing a good life for one’s own self.

We misunderstand saving for our future

Bank deposits cannot beat inflation

Credits: Matt from the Daily Telegraph

We get a misplaced sense of security when we put a certain amount of surplus in our banks. We also feel proud of ourselves since we took a stab at “Saving”. But sadly, the world has move past the era when savings were enough for livelihood. Our ever increasing standard of living coupled with rising costs is a double whammy. And savings can do nothing but give us a false sense of security and sufficiency. Investing is the new saving.

About the author:

Shruti is a financial planning enthusiast and spends substantial amount of her free time in helping out her friends and relatives sorting out their finances. Currently working with Mahindra & Mahindra, she is one of our esteemed guest writers. She is an MBA from MDI Gurgaon and a CFA (CFA Institute, USA). 

About CAGRfunds:

We are a bunch of financial experts who help people manage and grow their wealth. We focus on making our clients financially independent by educating them and guiding them throughout their financial journey. If you think you need help with your money, reach out to us on +91 97693 56440.

Have you been taking hasty investment decisions?

Hasty investment decisions

Investing in equity is a little like marital courtships. The market rallies are like the butterflies in your tummy when you are courting your partner. Only till you realize that all is not hunky dory!

The recent market volatility has shaken up a lot many investors. Those who jumped on to the equity bandwagon are left wondering if they took the right bets. And those who didn’t are still contemplating if they really did miss the bus. Many amongst them are those who are convinced that they took hasty investment decisions which they now regret.

In this article, we break the myths which lead to these hasty investment decisions.

  1. If your insurance premiums are being returned to you, do the maths again.

Almost every family has those policies which promise to return back your insurance premiums. What a joy it is to get insurance cover and also get all your premiums back! Fact check – the actual premium that goes towards your insurance cost is probably just a small fraction of the total premium you pay. The rest of your premium gets invested and you are passed a small fraction of the returns generated (which actually may not even beat inflation). Basically, you get a small insurance coverage, pay a high premium and get meagre or no returns. Never mix insurance with investment!

  1. You cannot earn double digit returns in 2-3 years and that too consistently.

Over the past few years, investors have witnessed 20+ returns within a year or two of starting their investments. But that does not always happen. In some years equities will give you high double digit returns and in some years they will go negative. Volatility is common and a part of your wealth creation journey. Keep your expectations realistic.

  1. You don’t sell your house when property prices drop. Why do you panic sell equity?

This is one area where the liquidity of equity is used to its disadvantage. People tend to panic at the slightest of negative returns in their equity portfolio. The panic results in selling out and incurring a loss. And thus equity becomes the untouchable for generations thereafter! The only thing you need to ensure during negative returns is if you are invested in a good enough fund. Equities are meant for the long term and you have to survive through the noise about all the negative returns.

  1. Guaranteed returns will never help you grow your wealth.

We are inherently curious about our future. No wonder the Godmen have a whole industry to themselves. However, if someone is being able to guarantee you a return, it is natural that he will keep a margin of safety and guarantee only what he can certainly earn and accordingly pass on to you. The guarantee is almost always close to inflation or sometimes even lower than that. So your fixed and recurring deposits can at best help you protect your capital, not meet your future financial goals. You need to put your money to work with some calculated risks so that you can grow your wealth.

  1. Just because you want the highest returns, doesn’t mean you should put all your money on that one instrument.

We often get clients who want to invest in the “best” mutual fund and the “best” stock. The reality of life is that the experts can only have views around what could be the best. What turns out to be the best is a fact you get to know only in the hindsight. So the “best” strategy is to not put all your eggs in the same basket. Diversify adequately.

  1. Technology has enabled you to see your investment value on a daily basis. But that doesn’t mean you should.

When did you last check the current valuation of the house you purchased? For some of you the answer would be never. Exactly our point. Just like property needs time to appreciate, so does equity. If you feel too restless about watching your portfolio every day, you need to stop doing that right away.

At CAGRfunds, we strive to help you grow your wealth. And thus we ensure that we tell you the right thing at the right moment. If you are currently worried about your portfolio, we are just a call away! Feel free to reach out to us on +91 9769356440.

Is trading in stock markets your answer to create wealth?

Trading stock markets

I grew up watching the black screen with constantly changing green and blue tickers. For a little while, I even used to handle my father’s clients who used to call every 15 minutes with a new “Buy” or “Sell” order to be placed. I was a kid just out of school then, with very little idea of what stock markets were. But, it was thrilling! I remember telling my father – I want to make money like this for myself one day.

But as I got deeper into the industry of financial planning and wealth creation, I realized a lot of things about trading in stock markets. And all of these are applicable to almost all of the traders.

  1. Most of the stocks are bought to be sold on the same day
  2. Most of the buyers have no idea of what business the company is in
  3. All of those who are buying a stock believe (or hope) that the stock price will go up and vice versa
  4. Sometimes, such buyers think that they know why the stock will go up
  5. The quantum of buying on any particular day is equal to the quantum of selling (which means that while the buyers are convinced about the price going up, the sellers are of a diametrically opposite view)
  6. Every day at 9 o clock, analysts tell us the stocks which will be doing well for reasons X,Y and Z
  7. Every day at 6 o clock, no one really asks those analysts if they really did well.
  8. In most cases, the probability of the recommendations doing well or not well is pretty much the same as a tarot card reader’s prediction

So you get the drift of what I mean.

Let us look at a simple scenario. Say for example Mr. A believes that the price of Stock X is likely to go up by 10% today and hence he buys at Rs. 100. X indeed rises to Rs. 110 and Mr. A sells it off to Mr. B who also buys it with a belief that the price will rise further. X further rises to Rs. 118 and Mr. B sells it off to Mr. C. Obviously, Mr. C also wants to make money and believes that the upward movement will continue. He therefore sells it off to Mr. D at Rs. 128. This continues till that moment when the cycle breaks. The last man standing ends up making a loss. In this cycle, there is a high probability that none of the players have any idea why the price is behaving the way it is. But what they do know is that there is a bigger fool who will pay a price in anticipation of the price rising further.

And that is trading for you, my friend. It of course is one of the most thrilling activity to indulge in. But so is poker. Therefore, one of the economists, Paul Samuelson once said –

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

Long story cut short – Trading is a risky activity and is under no circumstances a medium of creating wealth. Yes, a lot of people have made money with trading. But will you be one amongst them is the question you need to ask yourself.

And for those who were thinking of taking that leap – Money is hard earned. Care for it the way you would care for your child.