Should Children pay for their parents retirement?

Well, my this tweet triggered a hornet nest!

“Retirement corpus should be prioritized over children’s education. Education loans are available but nobody will give you loan for retirement!”

Followed by this one

“It is not about love. It is about responsibility. You are responsible for your own retirement. Why suck your kids income for that?”

While many people agreed to the same, many did not. Some accused of me being American etc!

Well, the world has changed a lot in last 30-40 years. Let us compare some differences!

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The world was a different place a few decades back. Retirement was not a big thing. Most people lived till 70 yrs only, and many were in govt jobs- that were guaranteed till 60 yr of age with pension + medical cover. Kids used to go to govt colleges- no education loan. Medical expenses were not big. There was no MRI, no knee replacement. No big corporate hospitals.

Welcome to the 2020s

  1. The medical expenses are big post retirement. Out-patient expenses (diagnostics, consultation, pharmacy) are not covered by any insurance. Even for in-patient insurance, the companies try not to insure you post 70 yrs of age
  2. You may have to live 30-40 yrs after leaving your job. Today, can you live 3 years without your salary?
  3. Your kids will have their own expenses- education loan EMI, home loan EMI, car EMI. They may do PHD or other higher studies- and may start real earnings after 35 years of age, or they may not earn well! – You expect these kids to give you monthly cheque. Add another EMI? and medical expenses? That’s fine if you do, but it may be Impossible for them to do so. When they took their education loan, they may not have factored your EMI too!
  4. You know that you will retire. That there will be big medical expenses. Is it not your responsibility to invest and build your own retirement corpus? 

You still expect them to pay you a monthly cheque for 30 years? Also, remember. when you are 90 yrs old, your kids may also be retired/60 yrs old.

Don’t mix love & money!

Do let me know your thoughts in the comments section or by mailing us at wealthparkadvisors@gmail.com

Also, do read our post on how to defuse the retirement bomb. Link

Vijay

How to make 10 crores from 1 lakh in Stock market?

Hi Guys,

Sorry for writing a post after a long gap of 3 months. I am a lazy bum! Especially, since am financially retired. Will try to post frequently from now on ūüôā

Anyways, you must be curious on how to make 10 crores from 1 lakh? Looks pretty difficult?

Broadly, there are 3 ways-

 

1. The first way- SIP for 30 years (assuming 15% annual return)

Start with 1 lakh in Mutual funds, add 1 lakh every year +10% increment/year, so 1.1 lakh in second year, 1.21 lakh in 3rd year, 1.33 lakhs in 4th year and so on.

You will reach 10 crores+ by end of 30th year, and 45-50 crores by 40th year!

Here, is the graph of the same-

Picture1.png

Just 15% growth rate plus annual SIP of just 1 lakh (SIP increasing at 10% every year) can enable you to have 40-50 crores in 40 yrs! Isn’t that amazing?

How to do this?РAchieving 15% over next 30-40 years may be possible by carefully selecting good mutual funds and going by direct route. However, it is entirely possible, that the annual growth rate of mutual funds falls to 8-10% after a decade, and thus it may lead to short fall in the required corpus. Nothing is guaranteed in the financial markets. 15% looks easy today, it may look very difficult 10 years from now. 

Even if you achieve this target, you will be an old man/woman by then! What will you do with so much money at 70 yrs of age? Take it to the graveyard? Also, note that due to inflation, the real value of 10 crores will be equivalent to what 1 or 2 crores is today. In 30 years, 10 crores will not be a large sum of money as it appears today!

Is there a faster way? So that you can enjoy the fruits of your wealth as well? Let us come to the second way

2) The second way- Achieve 10 crores target in 15 years-

We need to increase the seed capital to 5 lakhs and that too in Direct stocks with an objective of 25% Annual rate of return. Also, increase the annual SIP to 5 lakh which is again increasing at 10% every year- so 5.5 lakhs addition in 2nd year, 6.1 lakhs addition in 3rd year and so on.

You will achieve 10 crores target by end of 15th year!!! And, 30+ crores by 20th year

Here is the graph of the same-

Picture2.png

This will enable many of you to achieve 10 crores target by middle age. Life begins at 50!

So, the question is how to implement the above and create wealth.

Achieving 25% annual growth rate for 15 years is entirely possible but not easy. You will need to directly invest in stocks, do research, develop conviction, and withstand the volatility. Your portfolio may fall 50% or even 70% during bear markets.

Also note, that in real life, returns are not linear. To achieve 25% annual growth rate, you will need to achieve 100%+ returns in good years. There will be many bad or sideways years as well.

This article lists the initial few steps before you start investing in stock markets. Do read this article

In direct stock investing, if you are in wrong stocks, you can lose your entire capital. And, if you are in right stocks, you can even achieve 100 crores in 10 years. So, choose wisely!

3. The third way- Future and Options (Derivative trading)

Yes, you can make huge money from Futures and Options. Not just 10 crores, but 100 crores and that too within 10 years.

I have written a detailed article on how to mint money from Futures and Options. Here is the Link for the same. Please read at your own leisure

Happy Investing!

Vijay

These are personal views of the author and is not an investment advise. Please do your own research or consult your investment advisor before investing your hard earned money
Disclosure: The author is 100% invested in direct stocks. He does not hold any mutual funds. He is a SEBI registered Investment Advisor and owner of the site WealthPark.org 

 

10 types of Investors in Indian markets!

From my real life experiences-

  1. The Gold class (Silent on Twitter, social media)РAge group 38-55 yrs- 100-200 crores in stocks. Self made wealth. Did 10-100x in few stocks. Investing since 2003 or earlier
  2. Honest beginner value investor (usually silent on Twitter)– 50-80% of assets in stocks, usually 28-35 yr old, made some wealth (50L-2cr) in last 3-5 yrs, looking at building 5-7 cr portfolio in 3-4 years and leaving job. Subscribes to Multiple advisory services
  3. Typical Twitter value investor-  Diverse age group, Asset allocation- 99% real estate (1-10cr), stocks- 1% Р1-10 lakhs. Whatsapp group name- Value investing. Discussion on- Intra-day trades, Futures, Options, Break-outs etc. Churns whole portfolio every week
  4. Smart Twitter value investor-  30-40 yr old, 50% asset allocation in stocks- Sells all portfolio in demonetisation time. But keeps tweeting about value investing. After demonetisation market picks up- RTs old tweets of old stocks (in reality- could not buy them again as they have run away before he could buy again)
  5. Beginner, 25 yr old- has no clue what stock market is about. Portfolio size 1-5 lakhs. Joins some groups etc to pass time. Primary motive from stock mkt- time pass & some thrill
  6. The SIP investor– 30-55 yr old. Invests through SIP in Mutual funds. Doesn’t have a¬†clue about stocks. Looks at stocks that go 10x in awe. Beginning to invest in direct stocks
  7. The¬†F&O trader/Broker- primarily gives tips on Nifty, Bank Nifty etc. Earns money via¬†brokerage. Hasn’t made a penny in profits ¬†(mostly losses) but portrays¬†himself as a¬†successful trader
  8. The Networked value investor- Has networks with good stock investors. Doesn’t have a clue about value investing. Gets stock picks from others and talks about them with everyone else
  9. The Sleepy value investorРa RARE breed-  Buys and holds 10-12 compounders for 3-5 years time frame (e.g pvt banks)
  10. The Break out value investor– One who thinks buying break outs and value investing is one and the same! A very common breed!

5 Steps to become rich by Investing in stock markets!

A lot of people buy mutual funds, invest in stocks, gamble in futures and options. But, very few become rich by¬†investing in stock market. There are¬†very few investors we know who became rich due to investing in stocks. Why is that? Why isn’t a common man able to create wealth¬†in 10-15 years from stock market? The reason is simple. Most people do it the WRONG WAY.

Here are 5 steps to do it the Right way-

  1. Find the right businesses-Indian markets have 5800 listed companies and they are increasing in number every year. However, you will find both wealth destroyers like Unitech and wealth creators like HDFC bank on the stock market.You need to differentiate between a good business vs a bad business. A good management vs corrupt/poor management. Very fair valuations vs expensive valuations. Read this link on how to choose a stock
  2. Get Asset allocation right- A 70% return on 10% allocation changes your networth only by 7%. If you invest only 10 lakhs in stocks, while your total networth is 1 crore+, you are literally wasting your time. Read more about asset allocation here
  3. Stop trading in Futures & Options- Nithin Kamath used to trade in Futures and Options, and he is nearly a billionaire today. Not because trading made him money, but because his brokerage firm- Zerodha made him money. Read more about how you can make big from Futures & Options on this link
  4. Stop Financial Porn- Many Analysts and TV Channels keep tweeting and discussing RBI Rate cut or Budget implications. In last decade,¬†HDFC Bank created wealth but ICICI bank did not- was it because of RBI policy or some Budget implications? A company doesn’t make higher sales and profits because what RBI gov or Finance minister will say tomorrow. Switch off the ANALysts who discuss such news daily. Period!
  5. Understand basics of accounting & Economics-¬†Learn to differentiate between a secular business e.g. consumer, pvt banks vs cyclical business- e.g. Fertilisers. You can make wealth in both provided you understand it. Understand how economy functions. Many analysts who haven’t read economics ever- became bearish on Indian economy due to Demonetisation. However, WealthPark was the only advisory that was ultra-bullish on the economy due to demonetisation. Read more about what we said here– it is pretty simple stuff

Last but not the least. Keep it simple, silly. Finance & economics is pretty simple basic stuff. You don’t need big excel sheets to understand valuations of a company. Some one using lot of excel sheets is an indicator of his lack of understanding of basics in the first place. Similarly, in economics, you don’t need lot of data to understand the basic fact that demonetisation will help listed businesses both in short and long term.

Use less data, Use more Common Sense

Happy Investing

Vijay Pahwa

WealthPark

 

Demonetisation is not a game-changer as most people think

Many guys have already called for a slow down/recession, one quarter of bad results, etc The wholesale markets are literally closed, consumption is down, ATM queues are long.

But for how many days? 

It has been 10 days since the announcement, and most people in urban areas have decent cash currency in their pockets now. Maids, Drivers have already exchanged or deposited their old notes in most of the cities where the bank branch penetration is high.

The issue is in some rural areas

People in some rural places with low number of bank branches are facing a lot of inconvenience in exchanging notes. Within a month, they would have also exchanged the notes.

Short term effect on GDP

Our stock markets and economy is not just based on our cash spending. There are many sectors. Let us go through some of them-

  1. IT Sector (TCS/Infy)- Did they lose even 1 day of productivity. Ans- No
  2. Mining sector- No affect
  3. Govt employees (Teachers, Bankers, PSU like ONGC, HPCL) – No
  4. Basic consumption- Did people use less electricity, ate less food or not drive their vehicles (petrol pumps are still accepting old notes)- No.
  5. Medium level consumption- Movies, Malls- in metros cinema halls were still full on the weekend (most people have cards/online booking). In second tier cities, halls, malls were empty- You think this will affect GDP? No
  6. High end consumption- in short term, sales of jewelers have gone through the roof. However, many others like domestic tourism have been hit badly. But, will you postpone your new year celebration/vacation because of this– No
  7. Consumer durables- If someone had 30k cash to purchase TV from his nearby store, he would have postponed the buying by a month till he gets new cash. Do you think he will now never buy that TV? No
  8. Local markets have seen significant fall in sales for 10 days. But, if I were to buy a computer keyboard for 1500 from my local store, I will just postpone it by 10-15 days, but I will definitely buy it. You think people will never buy the things they were planning to buy? No
  9. Real estate/Construction- this will take the biggest hit especially in North India. But, real estate was anyway in a bad shape. Some people will still continue to buy/sell, may be after 2-3 months. I am guessing a 50% cut in real estate transactions for 3-5 months. People will still continue to live on rent. If you were halfway building your house, will you now never build it or delay it by a month? Think about it!

How does demonetisation help, if at all?

No, this doesn’t change the past. Corrupt people have already accumulated tons of Gold and real estate and this does not affect that much to them. People are able to exchange old notes with new notes at a 30% cut on the street. No body is going to burn their money.

Then, what was the point?

This is a big Psychological attack on Cash hoarding mentality of Indians. An average layman thinks that currency in his hands is his wealth. From village to cities, the mentality is same for all Indians. Housewives save cash for emergency purposes at homes, when a credit card would also have sufficed. This cash is idle cash. It is not part of the money supply.

How will future change? Corrupt people will remain corrupt

However, may be around 20% of Indian population (excluding BPL category) will shift to electronic money. May be around 30% of homes will stop hoarding cash. People from village to cities will understand that cash currency has no value, it is the money in bank- which is valuable and it also earns interest for you. So, why keep non-interest earning at home. A big shift will happen. Not for all. Even 20-25% shift works- It will reduce the flow of cash by 30-40%. And this transfer of 30-40% of cash to bank deposits/white economy- will be a big KICKER to the economy.

The money supply will increase (Most TV Analysts betting on reduced money supply. ROFL) This money can be put to use. Immediately, of course lending will not jump. It will happen over an year or two.

Other affects- the cash hoarders are paying at-least 10-15% commission to their maids, drivers for exchanging the money and also calling their relatives from village. This 10-15% commission will be spent on basic goods by the blue collar people. This is boost to GDP in the short term- which will negate the 10 day fall in consumption of some items.

It is not a short term game-changer as most people think. It is the first step to increase the part of the electronic money and reduce cash economy in the country. 

In the short term, except the real estate and high end consumption sector like domestic tourism, high end watches etc. I don’t see any hit. Jobs may be lost only in construction sector, and that too for next 2-3 months only.

In long term, this is really good for the real estate sector. The expected fall in land prices is 20% in areas with high cash component. Apartment prices (where majority is usually paid in white, and cost of construction is big part) may fall only 10% or so. I don’t see any sub-prime crisis. Rather, affordable real estate and move to white economy will ease the transaction for a common man. The number of transactions will definitely crash for next 5-6 months, but give it an year, and the revival will be amazing

Let me end with the following quote- “If you vaccinate 20% of population for an infectious disease, the incidence of the disease will fall by 50%”

I have two more articles which you can go through-

http://www.iima.ac.in/~jrvarma/blog/index.cgi/Y2016-17/cash-n-credit.html

http://timesofindia.indiatimes.com/people/OPINION-Demonetisation-Recession-at-the-gates-or-GDP-at-9/articleshow/55430551.cms

Happy Investing!

5 Reasons- Why you should & should not hire an Investment Advisor?

Why you should NOT hire an Investment Advisor?

  1. DIY Approach- You believe in Do it yourself approach. You can spend many hours reading annual reports. You can track various sectors, long term/short term sectoral trends, stock selection, portfolio allocation, asset allocation. You want to save your money and do all the research yourself
  2. Disguise– A lot of Investment Advisors are actually disguised brokers/sub-brokers, Mutual fund distributors, Insurance policy sellers. The No 1 objective of such advisors is to get commissions/brokerage. Make sure your advisor income source is only the fees paid directly by you to him/her
  3. Small portfolio size- Your portfolio size is less than 5 lakhs. With such a small portfolio size, the fees of any Investment Advisor will be more than the benefit. Instead, you can pick a couple of good mutual funds yourself. Instead of focusing on stock market, focus on increasing your salary/career growth

Why you SHOULD hire an Investment Advisor?

  1. Outsourcing- you can research on your own too but rather want to focus on your career, family, hobbies instead of reading annual reports, following stocks and checking opportunities. In today’s corporate world, people don’t get much time to spend time even with their families on a daily basis (weekend uncle syndrome)
  2. Capability issue- You are very good in what you do, but stock selection, reading annual reports, and selling/buying decisions are very tough for you. You would rather take services of someone known/expert. After all, for a medical ailment, you have choice to read a couple of medical books and treat yourself- but you should rather go to a doctor!

Happy Investing!

5 Factors that decide Diversified vs Concentrated portfolio

While some Investors believe that having a concentrated portfolio will give the best returns provided you know your stocks well, others believe diversification reduces your risk while sacrificing a little bit of returns.

Being an Investment Advisor, I have seen thousands of portfolios. Highly concentrated portfolios that are doing very badly, and highly diversified portfolios that are doing very good. Let us take some examples-

  • A highly concentrated portfolio with 80% of value in just one small cap. Portfolio size of a few crores. What happened here-
    • The company did well for initial 18 months but is down 60% over last 2 years. The business is not doing well
    • Very illiquid stock– The investor is not able to get out of his position. Not much of a choice for him. Investor is stuck with one stock in the portfolio (was not able to exit at the right time and now can not exit for an unforeseeable period of time) – stuck forever?
  • A diversified portfolio- 40¬†stocks. Portfolio value of 15-25 lakhs
    • The investor has a regular job and is not able to track all the¬†companies
    • Each stock is worth a few thousands only, both gain and profit in one position is immaterial to the investor who has an annual salary of 25 lakhs
    • The portfolio quality is below average and is under-performing Nifty
    • Is it better to buy NiftyBees (Nifty ETF) than have a portfolio at all?

How many stocks  one should have in a portfolio? There are five factors to consider here-

  1. Whats is the portfolio size?
    • 2x annual expense or 30 times annual expense
    • Bigger the portfolio, more difficult it will be able to replace the loss
    • If someone earning 25 lakhs per annum loses 1 crore in a stock, what is the emotional and financial outcome?
  2. Are you full time? How well do you know your stocks?
    • No matter how well you may know your stocks, there are unique risks in each business. No one can know a Satyam or a Ricoh India in advance
  3. Are you psychologically trained to withstand volatility?
    • Portfolios with few stocks will have high volatility and periods of under-performance compared to the market
    • Do you have the stomach?
  4. What is your age?
    • A 25 year old has atleast 30 years of earnings year ahead compared to only 10 years or so for 45 year old
    • Do you have a long road ahead where one mistake can easily be fulfilled by others’ performance?
  5. Asset Allocation
    • Is all your money in stocks? Do you also have bonds to withstand volatility in the portfolio?

A 10-12 stock portfolio is a decently diversified portfolio for most categories of investors. The portfolio allocation of each stock should be a function of conviction, management quality, business quality, growth and valuations. However, if the portfolio size is too big, a 30-35 stock portfolio isn’t bad too provided you are able to track all your stocks and know them well

Happy Investing!

Wealth Park