How $100 Turned $324000! Unbelievable Crypto Growth. Risky Rewards!

All the traditional old stories attributed to financial advisors advocate for saving enough and controlling expenses being the only way to amassing wealth for a relaxed impending retired life in 20 to 30 years. The art of compounding keeps adding valuation to your investments at consistently good rates for the funds to grow on the expected graph.

Traditional instruments being Bonds, Mutual Funds, Bank Deposits, Shares will never eat into your entire capital as turbualence here and there may reduce the average returns only. The assets lying in your portfolio are safe, secure and easily accessible for encashmnt or swapping at any point of time.

We have seen over the past few decades that all the global indices grow at around 11 to 12% per annum. Leave aside the bubbles of markets crashes happening at irregular intervals causing anxieties in the minds of investors, the compounding factor brings a good wealth for you even if you stay invested passively. These are the strong plus points for those believing in safe and assured returns from their investments. Alas! this route of accumulation of wealth takes longer journey to your retirement at the age of 60 years.

Photo by David McBee on Pexels.com

However, for the possibility of your retirement occurring anywhere between 40 to 50 years of age, you will have to think differently!! The idea of putting your money in the most volatile and riskier options could be scary for the obvious reasons but we have been listening from the experts “More the risk- More the profit”. Your money will grow in proportion to your risk only.

The year end rally saw the cryptocurrency prices soaring sky high prompting me to contemplate allocating some money in this newly found love of cryptocurrency in general and Bitcoin/Etherium in particular. Though not a guaranteed return option yet an investment that can get you closer to your relaxed retirement sooner than planned. The risk to reward ratio is incredible as you will see in the following illustration.

Cryptocurrency has come a long way since the year 2010. From virtually nonexistant pricing, Bitcoin has touched $42000 recently. Bitcoin came into existence through its founder Santoshi Nakamoto in 2009 as the first blockchain-based cryptocurrency in the world. It was considered as an attempt to create an alternate arrangement for money transactions directly without using the usual authorized medium of Banks or financial institutions. Feeling threatened by the presence of cryptocurrency seemingly an alternate to the Fiat currency, all countries have remained in unacceptable mode to regulate this cryptocurrency so far.

The price of Bitcoin remained inconsequential for the initial few years but July 2010 saw this unregulated little-known currency moving up from $ 0.0008 to $0.08. A big jump by all means!! Did anybody ever contemplate investing in Bitcoin even in 2010? I think no one would have ever visualized that this scarce commodity will create a magic in few year’s time and investors will carry this currency to astronomical heights.

Despite some of the exchanges closing down due to intervention of the regulatory bodies in various countries, a sudden spurt in price transpired in 2013 when a bitcoin trading @$13 reached a maximum $220 by the end of the year. Bitcoin after attaining a mind-boggling price of $19780 in December 2017 cruised along with prices going down to the $3500 levels right through 2018 but bouncing back to five figures in 2019.

Starting from the third quarter of 2020, cryptocurrency market has shown a tremendous spurt in prices, and the level of $28000 for a bitcoin achieved in December looked invincible. But look at the way this currency has behaved right from the start of the current year. We have witnessed milestones after milestones getting crushed in every session as the price skyrocketed to $42000 a bitcoin levels in the first week of January 2021.

While there is a Maximum limit of Bitcoin i.e 21 million to be mined and 18.62 million have already been in circulation as of date. This limited supply has created the gap between demand and supply impelling the institutional investors to join the party in a big way. The news of more than 78% accessible bitcoins having been possessed by the institutional investors left retail investors vying for the remaining 22% available in the market. As anticipated, this continued demand-supply gap may swell the prices beyond the purview of small investors in the future.

Over the last ten years, this currency has grown from a meager $ 0.08 to $42000, growing to (42000 is a 52499900% increase of 0.08.) Unbelievable. An investment of 100 (roughly 1200 bitcoins) in 2010 would have become $50400000 as of the first week of January 2021. look at the table “A” below for more comprehension. Etherium, the number two altcoin in the market has also been showing tremendous growth in the company with its more illustrious elder brother Bitcoin. Etherium is the platform being used by a large number of small tokens in the market and is likely to remain in demand.

Name of Currency	Price 2010	Price 2015	Price 2020	Price 2021	Investment in 2010/15	Number of Bitcoin & value
Bitcoin	$0.08	$360	$28000	$42000	$100	1200=$50400000
Etherium	NA	$0.43	$753	$1393	$100	233=$324569

TABLE–A

Friends don’t you feel tempted to invest in this lucrative option despite being a risky proposition. To start with, let me put the various sentiments, both negative and positive about the future prospects of cryptocurrency in the words of leading businessmen/institutions to disseminate a fair idea before taking a dip in the crypto markets:

In the words of Warren Buffet, “I don’t have any Bitcoin. I don’t own any cryptocurrency, I never will,” he told CNBC in 2020. He has always been talking against this currency as these investments don’t follow the strictest terms of his legacy.

Photo by Pixabay on Pexels.com

Another negative news on the volatility witnessed over the last few days as the UK regulatory has been quoted as saying :

“Individuals investing in crypto-currencies such as Bitcoin should be prepared to lose all their money, a United Kingdom regulatory agency warned. The Financial Conduct Authority (FCA) issued the warning after a sharp run-up in price in the last few months and a sharp decline over the weekend..https://moneywise.com/a/why-warren-buffett-hates-bitcoin

Slowly but surely most countries are opening up to cryptocurrency. We have regulated crypto exchanges like Coinbase, Bitflyer, Binance, Kraken, Huobi Global, etc to conduct business and a country like India has also started doing unprecedented business as all Banks allow transactions linked with cryptocurrency nowadays. I am not talking about the trading part which requires relevant skills and professionalism before jumping into this most volatile and risky business. However, this is an opportunity for those having a big risk appetite to venture into this portfolio for investing for a longer horizon.

The big brains of highly accredited professionals working with the leading Banks and Financial Institutions have been talking of a great future for this cryptocurrency.

US investment bank JP Morgan has created a crypto-currency to help settle payments between clients in its wholesale payments business. JPM Coin is the first digital currency to be backed by a major US bank. The crypto-currency, which runs on blockchain technology, has been used successfully to move money between the bank and a client account.

http://www.bbc.com/news/business-47240760

To conclude, I would love to present a very encouraging statement from the CEO of Pay-pal:

“I really like Bitcoin. I own Bitcoins. It’s a store of value, a distributed ledger. It’s also a good investment vehicle if you have an appetite for risk. But it won’t be a currency until volatility slows down.” —David Marcus, CEO of Paypal

Friends, looking at the briefly explained pros and cons of investing in this very tricky, speculative, and turbulent crypto market, you can take an informed decision before taking a call to venture into this unpredictable market. Short term players with fragile financial backup and a tendency to exit or enter the market frequently are prone to greater risk and must avoid spending restless nights after investments. However, as illustrated above, customers with high risk appetite may spare a few thousand to initiate into this market to reap rich dividends in the longer run.

What do you think of holding crypto currency in your portfolio as an alternate opportunity for a long term investment?

Stay Safe Stay Connected

           
Disclaimer: The material and information contained on this website/Blog is for general purposes only. You should not rely upon the material or information on the website as a basis for making any business, legal or any other decisions. Any reliance you place on such material is strictly at your own risk and responsibility

Financial Freedom Step wise Financial Planning, Savings,investments,wealth creation

Financial freedom!! A stage that culminates your long career into a happy relaxed retired life when you don’t have to work for your sustenance anymore. Your savings work for you to live your life happily as the wealth created by you over a span of 30 years starts generating a passive income. This could be, a regular flow of interest from Bank Deposits/ Dividends from the Stock market/Mutual Funds or Rent from the property you own. Looks interesting!! However, the fact remains that most people fall short of their targetted goals due to a lack of planning of their personal finances.

Financial freedom can easily be accomplished by managing your Personal Finances well. Sit down with a piece of paper and pen to scribble the details about your income and expenses at the end of every month. Find the difference between your income and expenses. Yes! This is your cash flow statement. You ought to know about your monthly income and expenses like your salary, Rent, Utilities, car expenses, Interest/Insurance, etc. A perusal of your monthly expenses will provide insight into the nature and relevance of each and every amount spent during the month. well!! You are already on your way to financial Freedom if your cash flow is positive. However, friends, if your expenses are more than your income then you need to sit down and find out where are you going wrong.

“Do not save what is left after spending, but spend what is left after saving.”- Warren Buffet

SOS:Income-Expenses= Negative. If you are spending more than your income, the cash flow is going to be negative indicating you are either using your credit cards or raising loans from your resources for making both ends meet regularly. You don’t appear to have control over the expenses and taking the liberty to spend more than what you are earning. Do you believe this is a happy situation in the long run? Certainly not!! You are destined to be doomed if you don’t check your Finances immediately. Let’s take a case of income expenses statement of Mr. A for Nov 2020:

November 2020: Income	Dr	Cr
salary		50000
Expenses Nov.2020
Utiilities	20000
Rent	15000
Car Loan	10000
Insurance/Petrol/Interest	12000
Cash Flow	57000	50000

Income-Expenses=Cash Flow::: 50000-57000=(-7000)

The above illustration reveals a negative cash flow of Rs.7000/- as the expenses happen to overshoot total income. Mr.A needs to check expenses or raise his income level to be more comfortable with his finances in the future. Now let’s have a look at the table, you will find that the chances of curtailing expenses are possible through Utilities/Rent only as other expenses are more or less of fixed nature. Mr. A will have to either shift to some alternate location where he could rent a house at lower rent or cut down his expenses on utilities to bring back his cash flow from negative to positive.

With a little bit harmonization in your expenses, you can see your life turning into bliss. This is how you need to manage your personal finances for achieving Financial Freedom. You must remember and need to pursue your goals with FIRE::

FIRE: Financially Independent Retire early:

Management and planning of Personal Finances warrant you to Become Financially Literate. There is nothing technical about it but continuous monitoring of your income and expenses will do the trick for you. Once your path is illuminated with the wisdom of Financial Literacy, you can be assured of attaining freedom sooner than expected. Incidentally such an important subject doesn’t find a place in the curriculum of school or college studies across the world. The sole purpose of education remains in producing Clerks/Engineers/Doctors only and no effort is made for equipping the students with tools for managing personal finances.

May the fault lies in our education system which never enlightens us on managing money matters. Normally every child looks up to his parents for all Financial decisions till he actually starts earning. The child never grows up to tackle financial matters independently. Moving from schooling to college degrees, he keeps improving his grades without ever being told about the intricacies of this very important subject of Personal Finance. Campus placement or getting a good job remains the only exciting factor in his mind

let us start with the expenses part which plays important role in budgeting your finances. Your instinct for spending more goes berserk on finding liquid easy access to money. You must understand that the credit cards and other avenues are designed to meet your emergent temporary requirements. The credit cards are meant for day to day bills only. No long term borrowings!! In no case payment of the credit card bill be made in part or with a minimum amount. Banks/Credit Card Companies play with your mindset always trying to tempt customers for making a minimum payment of bills. You feel temporarily relieved of the pressure by not making full payment of the credit card bill but this trap leads only to make you broke in the future as interest rates charged by the Credit cards companies on the unpaid balances are astronomical.

The balances keep accumulating and suddenly, you will find the credit card companies declining further usage as the limit has been exceeded due to the interest factor. I would recommend auto-debit of credit card bill linked with your Bank account

Let’s understand the two types of credit which you are using in your life. There is good credit and bad credit to name the two. Good credit provides you liquidity at a cheaper rate for the creation of appreciating assets, whereas bad credit will make you pay higher rates for the creation of assets decreasing in value. You need to buy/invest by using bank Loans/Finance Companies only when the asset created by such finance is of appreciating nature. Buy a house/Gold/Stocks or any other investment which is bound to increase in value, it’s a good borrowing.

However, if the asset is of diminishing nature like Car/TV/Costly Electronic gadgets/Furniture etc then you need to re-evaluate the project as rates on this credit are high and the value of items is bound to decrease in the future. This is certainly a bad credit. Since none of these articles are of emergent nature, you can plan and buy by saving from your monthly expenses

Which type of credit do you think will be better? The answer looks imminent when you find items purchased by good credit increasing in value every year and at the same time, the bad credit besides being costly helps only in adding articles getting depreciated in value over a period of time.

Now coming to Positive Cash Flow, You will find a certain amount in your Bank account after spending for expenses at the end of every month. These surpluses can be used for making extra payment for reducing your loan liabilities or investing in a phased manner to achieve life goals like child education/New House/Investments/Retirement Fund etc. . Why not start saving today with the howsoever small amount it may be. This beautiful proverb says it all: “Little drops of water make a mighty ocean”.

Nature teaches us a great lesson about the significance of small consistent efforts in our life but a steady stream of savings is required for achieving our life goals. Little by little, birds make beautiful nests and little by little small towns become big cities.

There is a need to evaluate your Balance Sheet at the end of each year. This will show whether you are on right track or not. The consistent increase in Net worth will pave way for making your life beautiful. There are only two ways to keep your net worth curve moving up: Firstly by increasing your Assets and secondly by decreasing your liabilities.

Liabilities		Assets
Car Loan	125000	Bank Balance	75000
Credit Card	50000	PF	60000
		Car	150000
		Mutual Funds	50000
Net Worth	160000
Total	335000	Total	335000

Assets-Liabilities= Net Worth:::(335000-175000=160000)-Mr B aged 30 years

You will see in the above illustration that Mr. B has a net worth of 160000/- and he is well on way to becoming financially independent. An increase in net worth every year indicates the wealth you are creating for yourself and the family for the future. Time to think about long term goals after allocating enough amount towards an emergency fund. Here is a live example of how the principle of compounding works for your consitent savings/investments to pave for a beautiful future.

Principal Value PV	Inflation Rate i	Time n	Future Value FV
50000	6%	30 years	FV=PV(1+6/100)n
			287175

Table(A)

Table (A) provides you the future value of Rs.50000/- after 30 years with 6% inflation.. You will agree that the value of money keeps decreasing every year. You can’t buy for Rs.100 the same stuff after one year which you are buying today. Similarly, the value of your salary/income will not be the same after 30 years. It will be decreased substantially. That means you need to earn more to keep pace with the rising prices after 30 years. Now please refer to the table below: You will find that your salary amount of 50000/- after 30 years at inflation rates of 6% will have to grow substantially and the calculation comes out to Rs. 287175. Does that mean you will have to earn Rs.287175/-pm after 30 years to live the same life which you are living today.> Agreed?

Principal Value PV	Interest rate i	Tenure n	Maturity Value MV
5000	10%	30 Years	MV=PV(1+10/100)n
			1.14 cr

Table (B)

For maintaining the same standard of living as you have been enjoying today, you need to earn Rs.287175 after 30 years but who will pay you this amount after your retirement. You will have to take care of yourself.

Friends,You need to accumulate huge funds which could generate a passive income of Rs.287175 per month, when you are retired and want to live a comfortable happy life. Table (B) as shown above will lead your way to achieve goals by investing wisely with consistent small savings. Average returns in stock markets range anywhere between 10 to 14 % annually and you can earn 10% on bonds/other safe investments also. Let us start investing Rs.5000/-PM expecting average return@10% being the lowest for 30 years You will be astonished to find the huge amount accumulated at the end of 30 years.

Just hold your breath and see the astonishing figures on your screen!!

Is it not interesting? You get an unbelievable amount of Rs.1.14cr on your retirement after 30 years. Is it not sufficient to provide you passive income of Rs.287175/- PM. This is how the compounding of savings works but you need to be consistent and prudent in choosing the right investment avenues.

Friends, I hope you liked my way of expressing financial freedom. I have not touched upon Emergency Fund or Mid Term Goals as these have been covered in my earlier blogs. Your feedback with critical comments is welcomed for making this blog worth gaining knowledge about Personal Finances

Happy Reading

Bumpy Rides

Pandemic crisis is back again as the number of COVID-19 cases and deaths have started rising everywhere acrosss the world. Europe which had a devastating experience earlier is watching burst of 2nd and 3rd wave as authorities are contemplating to reimpose the restrictions to safeguard their citizens from this deadly virus.

Unabated numbers in USA and India with Brazil at number three provide a horrible look as the ever increasing numbers have no respite for the health authorites. Despite claims by several Medicine companies, countries and scientists, Corona Vaccine looks a distant reality for the time being .

However a disturbing Lull in the overall Economic activities caused by social distancing or other restrictive measures taken by the states have started showing a little bit prominence in the recent past. The people worldwide have become accustomed to the pandemic conditions as unlocking of lockdowns and movement of public is sending markets in motion.

IT and consultancy companies have acclimatised themselves to the new environment by allowing their employees to work from home. Pharma companies and Hospitals have accounted for unprecedented volumes of business, Consumer goods online sellers like Amazon are having huge turnover forcing them to employ more workforce in their ranks. The courier/delivery companies are having their field day too as shopping online has become order of the day in the given curcumstances.

Suddenly sanitisation and sensitisation has become part and parcel of our lives. Everybody is cautious about washing his/her hands several times a day or keeping social distance to avoid contacts with strangers apprehending risk of COVID-19.The school kids and teachers have adopted themselves to new system of online education by sticking to their Laptops/ipads for long hours during the day. Alas!! movement of kids for outdoor games/sports is thing of the past and I am sure this is going to impact the overall growth of these kids

The stock markets are generally shown as two different types of animals; Bull and Bear indicating sluggish market or upbeat market conditions. Unfortunately the Bears broke hearts of many in march 2020 as the global markets witnessed a big fall in March/April 2020 giving an impression of no recovery in the near future due to pandemic conditions.

The chances of recovery looked bleak due to unemployment numbers/decreased economic activities and no visible solution to COVID-19. While the stock markets slept for a few months, the yellow and white metal showed briliance by achieving the unprecedented historical prices.

However, the stimulus announced by various Govts worldwide for the small businesses and unemployed people found liquidity in the market. Professionals sitting indoors during the lockdowns realised the significance of Stock markets as they could easily keep themselves busy by finding a new source of income through IPOs/Day Trading or Investments. The result was there to be seen as the smiles returned on the faces of broking houses/investors and everybody concerned with the stock markets.

Multiple subscription in the IPOs globally and Indian markets in particular kept the sentiments booming as we saw Dow Zones and Nasdaq achieving their historical heights and other International markets followed the suit either by recovering fully from the damages or closing near to these numbers.

The global economic outlook is encouraging as the economic activites appear far more satisfactory now. We are still not out of turbulent times and a few bumpy rides here and there can cause heart burns.. Brave and visionery steps by the heads of states/Novel inputs by the Policy Makers/Early solution to Corona Vaccine may be the right answer to the prevailing challenging conditions

Turbulence Again!!

Looking at the charts of International markets, the red sign is again signalling danger as 90% of the markets have either closed in red or going to follow the DOW zones and European markets today. Nifty lost about 300 points closing at 11680, whereas the broader Sensex brought tears in the eyes of investors by shedding more than 1000 points and closing at 39728.

Major culprit again seems to be Coronavirus! Resurgence of COVID-19 in Europe has made the investors scary and hurry for offloading their investments. France, UK , Germany, Netherlands and other European countries have shown sudden spurt in Corona cases with no signs of solace coming from medical fraternity about Corona Vaccine in the near future.

Another big news coming from USA is also not easing the rout as the stimulus proposed by the Administration is also losing steam due to the Presidential Elections only a few days away.

Adding fuel to the fire seems to be the Chinese efforts to aggravate the situation at Indian Borders with instructions coming from Xi Jinping to be ready for a war in near future. 60000 strong Army has been posted on the borders by the Chinese to intimidate the Indians which some experts are looking more as a strategy than a real war

Though traders will have volatile markets to their liking but not a good time for investors to exit. This turbulance may be longer due to the cited reasons but Investors to stay invested and add quality stocks at cheaper valuations if any

Stock Investments: A Serious Business!! Part I

Investments in stocks are one of the most lucrative, tempting and rewarding investment avenues available in the market. Yes, of course! If you invest wisely by identifying the right stock by using your normal prudence and a little bit patience. I am going to touch the most important parameters which need meticulous compliance to ensure continuous increase in value with minimum risk. I will discuss all the parameters daily to allow you to comprehend the subject before diving in to the pool of volatality and uncertainty with your hard earned money as under:

1. Management: Well if you have made up your mind to invest in a particular stock, the first important thing you must know is the quality of the promoters and team of professionals who are engaged in day to day operations of the company. By any imagination, you are going to be a partner of this company to the extent of your share holding and your money will be secure only in the hands of an experienced promoters who are keen in growth of the company by taking into consideration the interest of retail investors. Although exhaustive information about the promoters is not always available on the internet but you can easily search about the frauds or any other malactivities of the company by googling for a few minutes. The vision of CEO and management can easily be ascertained by watching videos and going through annual reports of the company. A good management will grow its own networth besides creating wealth for the investors. The likes of Tatas, Ajim Premji, Mukesh Ambani,Narayana Murthy, Hindujas, Mittals, Birlas have earned name and fame by following business ethics and creating opportunities for investors to find their financial goals in life. There is no dearth of good promoters and able administrators but you need to find one for your own safety and growth
2. Past Performance: Equally important aspect of strength and values of the company is its past performnce over the years. You can have a glance at the last financials of the company for the last three years. All the information is easily available on the company’s website or NSE where the Top Line and Bottom line can be seen and analysed quickly. A good company’s growth over the years will be stable and keeping in pace with the industry level. Any downtrend in sales/profits/dividends/reserves will caution against investment in such company for the only reason that eveything is not normal with business or working conditions of the company. Better keep at arms length and look for some other company
3. Promoter’s Contribution: I am very particular about the quantum of contribution of promoters in any business. Considerable participation will ensure that the promoters are running this comaony as a main business. Anything around 50% of the capital ensures commitment and dedicated interest of the promoters in this particular business activity. However if the quality of promoters is time tested, this ratio can be considered at lower level too but in no case public holding should be the largest chunk in the capital. The beter portion of capital in good companies is subscribed by the FIIS/Mutual Funds
4. Share Holding Pledged by the Promoters: A clear signal of diversification of business is foreseen in this information. There could be two reasons for this development. Firstly, the lenders are not interested in lending to the company without tangible security and secondly the amount is being utilised in some other business. In both the cases interest of a small investors is certainly hampered and you should stay awy from such companies. There are a large number of other companies which can be considered for safer investments
5. Investments by the Mutual Funds/FIIS: I deem it as one of the major features in analysing the credentials of any company before investment. Since FIIS and Mutual Funds are managed by top professionals and they are equipped with more tools and informations before deciding to invest in a company, my first reaction is to search for these investments. If the top fund houses have invested or considering to invest their funds with the company, I am 60% decided for putting my money into such company. These were a few features which need only a few minutes to decide whether we are going for this stock or not Once we are Ok with the initial analysis, we will see how the technical part helps us in deciding whether to go far or against investing in a company . We will scrutinize the undernoted ratios available on the public domains or website of the company in our next post tomorrow morning to see whether we should venture into investment in this company and if yes to what extent.

1. 6.PE(Price to Earning) Ratio
2. 7. EPS(Earning per Share)
3. 8. EBIDTA(Earning Before )
4. 9. PEG(P/E to Growth) Ratio
5. 10. DE(Debt equity) Ratio
6. 11.ROCE(Return on Capital Employed)
7. 12. ROE(Return on Equity)
8. 13.Dividend Track Record

Let’s Create Wealth

We have seen a large number of investors accumulating huge wealth by investing wisely in the stock markets irrespective of the fact that these markets are the most volatile centres in nature. Fortunes favour the brave!! and who doesn’t know the king of stock market Warren Buffet, a billionaire and rated as one of the ten richest people across the globe. And that’s because he shares the belief that, over the time, the world will improve, will grow and will be a better and more efficient place to live than it was before. George Soros, ICahn, Ray Dalio,James Simons,Steve Cohan,David Tepper, besides Rakesh Jhunjhunwala from India are the great rich people who have earned their fortunes through the stock markets The money has not come overnight but it’s the result of consistent efforts, timing the market, investing in valued shares and taking the calculated risks.

Investments in stock markets are the highest yielding avenues available for investors who maintain their calm during the turbulent times as the markets keep testing your nerves with high level of volatility. Regular study of the industry reports coupled with periodical performance analysed through various parameters keeps your portfolio insulated against sudden losses as the investments are like a child who needs proper pampering/caring/feeding/education and regular check ups to grow into a healthy and well informed young man.

It’s very easy to start investing in stock market as mere opening of investment/brokerage/Demat account provides you minimum requirement for gaining entry for buying/selling of stocks of your choice. Yes the first part is as sample as ABC and most of the investors may find the going a bit tough in selection/study of the individual share initially. There have been instances of huge loss occurring to the investors where the money has been spent in buying only on getting tips from the so called market experts or TV Channels. The use of digital information and expert’s recommendations bear implications as this could have come through a marketing efforts by a group of vested promoters. A thorough independent study takes only a few minutes before plunging into this very volatile world but it can help you in becoming financial literate to save your hard earned money.

Recently I came across hundreds of recommendations on various TV Channels/You Tube Channels who were recommending shares of their choice citing various reasons for a bumper rewards on a particular trading session known as Muhurat Trading on the auspicious festival of Diwali in India. The markets are opened for one hour on this day which otherwise turned out to be a HOLIDAY. This is the hype created by motivated people/professionals who try to lure your greedy instincts by forcing you to buy a particular stock through induced marketing skills. You need to be aware of such practices in vogue across all the global markets irrespective of the country you are living in. You need to take care of following important observations before committing yourself to buying mode in the stock market:

1. Start with a small amount as this will provide you an opportunity to test the waters before taking a plunge in the river. Have patience and don’t react on movements of the market on daily basis as you are entering this market as an investor to grow your wealth and not as a trader who plays on speculation only. This is not a gambling like casino where number appears purely on your luck. The stock market is a business which has certain basic perinciples to show preservance consistently. The right decision taken after proper analysis before investment will certainly bring good fortunes unlike casinos.
2. Allocate a fix part of your savings to this portfolio depending on your risk appetite but never put entire money in stock market as there could be other avenues available where your investment is safe with low yield
3. Invest initially in Large Cap companies who have track record of continuous growth over the past few years. This may not give you big returns but will keep your money safe initially. Study their financial information of at least for the last five years and see various parameters of sales/profit/debts/other features which doesn’t require any technical skill. Compare to see if these figures are increasing or decreasing. Try to learn about the group or promoters whether the company is paying regular dividends or involved in some litigation which may hamper their business in future. You will find consistency in the working of these big companies and learn the basic information which will help you in analysing smaller companies too.
4. Nobody has learnt anything FREE as nothing comes free in this world. Even the so called free use of Social platforms come by sacrificing your personal infomation and privacy!! Every success comes with sustained efforts after tasting setback/losses/fall and wrong decisions. Don’t get upset with your failures as these are the stepping stones for your smiling future. Just try to learn from your failures and be careful while riding the cycle again.
5. Don’t depend blindly on the recommendations of experts without seeing any logical evidence. Try to analyse the information by co relating exhaustive data available on various platforms and using your own due diligence and normal prudence before investing in the stock.
6. Don’t put all eggs in one basket. Invest wisely in diverse industries. In the ever changing vibrant economies, the priorities of Governments and promoters keep changing. Any particular industry or a stock which remained rising continuously over the years may just relax providing you an opportunity to enter the stock on lower valuations. Dont reshuffle your portfolio frequently as such practice will only enrich the brokers

Invest when others are exiting from the market. During the Dot com bubble 2000, Sub Prime Fiasco 2008 or Harshad Mehta Scam 1992, when most of the investors were scared away due to the crash in stock markets, the great players were busy accumulating the quality shares at throw away prices. Never in the industry, any slump in the stock markets has remained in vogue for more than 15 months. When the stock markets returned to senses, the heart burns were visible as the small investors had dumped all their holdings by selling the shares at unbelievable discounted prices and you can imagine the fortunes of those who had acted wisely by grabbing the opportunity in a big way. The COVID-19 has also seen see-saw movements of global markets during the current financial year and crash in shares of non essential items have seen prominent stocks losing their values to the extent of 80%.

The long term valuation of the stock continues increasing not only by appreciating in the value/price of the stock but also from the regular dividends/bonuses/rights issues offered to the holder from time to time. Reinvestment of all these incomes keep the value multiplying to higher levels for diversion into passive income investments later on . We will discuss investments for passive income and also look at the various parameters for identifying a stock for its valuation in our next post. Till then: Have a relaxed day

Personal Finance-1

As discussed earlier, Personal Finance is an exercise to plan your Finance so that you have enough money for your immediate Financial needs, savings for higher education of your children and planning for retirement. All Financial planners recommend for early action on your planning but I think this planning can be started at any stage of your life but sooner the better as the insurance premiums keep increasing with age and the gap between your current and retirement age keeps decreasing making it difficult for your money to grow enough .However you need to have resources to generate income to fulfill all these goals. It could be through your salary,business or any other regular stream of income. The art of managing your income, expenses and savings comes from within by becoming finacially literate which does’nt cost you much. A rough calculation on a small piece of paper willl be enough every month to provide you the much needed expertise in personal finance. Lets start from the first step:

1. Minimum Emergency Fund: You need to create this fund to overcome the unforeseen circumstances. You may be contemplating to leave the job and looking for better job options or there could be a slump in your business due to sudden defaults by the debtors/unfavourable market conditions. In such circumstances you can’t afford to stop living your life style, maintaining the social status, pursue education of your children and other routine expenses. To maintain a buffer, you need to have a minimum bank balance equivalent to 4 to 6 months of salary/income in your Bank account. This will provide you comfort level to search for the new job or to tide over the adverse market conditons. If you are drawing a monthly salary of 10000$, you need to maintain an emergency fund in your bank account to the tune of 40000$ to 60000$. You will agree that this cushion will not let you down when you are not getting regular salary/income
2. Insurance: Most of the planners rank this item at number four in priorty but I would prioritise to suggest obtaining of Life Insurance or Term Life Insurance Cover for the earning member of the family to safeguard against any future risk to life or permanent disability. There is no need to get LIC for all the members of your family. The total quantum of Life Insurance Cover should normally be 8 to 10 times of annual salary/income. For example if your salary is 100000$ per year then the total cover should be 800,000$ to 100,0000$. Fortunately the amount of insurance premium for a Term Life Insurance Cover is very small and it keeps increasing with the age. This amount is sufficient to ensure that your family does’nt feel the financial issues when you are not around and continuity of education of your children is guaranteed. Besides a Medical Insurance/Health Insurance cover needs to be taken for all the family members as the ever increasing medical/hospital bills can cause turbulance in the entire budget of the family and whole financial planning could be paralysed. I will prefer for a Medical Insurance coverage of 500000$ under a family floater scheme which does’nt cost you much and every member of the family is covered by a single policy.
3. Savings: Having covered the uncertain part of your life upfront, I will prefer you to save a minimum 25% of your Net income and keep aside to invest for creation of wealth. This investment will start earning for you and take care of all your sustenance expenses when you are not working after retirement. You can invest these funds in high yield Securities, Stocks, Real Estate, Mutual Funds as per your interest and opportunities available
4. Monthly Household and Life Style Expenses : This takes away the major piece of your cake as your Bills, School Fees,Grocery,Utilities, Car maintenance, Hotel Bills and Club Memberships consume maximum part of your budget. You can allocate 60% of total income under this expenditure. Though Credit cards make a second line of defence to meet the unexpected unplanned expenditure for buying a computer/Bike for the children but effort should be made to pay off the bills regularly and in no case the part payment ever be made for the credit card bill as the balance will attract a huge rate of interest. The Credit Card companies will keep coxing you for the minimum amount for obvious reasons Under all circumstances, the allocation of 60% should be used for payment of all bills including credit card bills

Hope to come back again tomorrow with further inputs but I will wait for your feedback and suggestions to make this exercise more interesting and simple.

Have a great day!!