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Guest Lecture by Dr. Pattabiraman on Personal Finance and Investing

Today we have a very special finance content creator with us. He is also my favorite. We are with Dr. Pattabiraman. In fact, if you are planning for anything like financial planning or retirement planning, and if you are searching for any related article online, you can't help but come across him. So basically, it's said to Do It Yourself (DIY). Through DIY investing, he has attained his financial freedom. Let's learn from his experience and many personal finance things, what mistakes we shouldn't make, what we can do, let's see all these things detailed in this episode. Without wasting time, let's start directly. Welcome, sir. - Thank you, Boosan. It's a pleasure to have you in this episode. If I have to name one of my favorite financial content creators, I should definitely say you.

  • Thank you. You have been very influential over many people, including me. So, we will get started directly. " Dr. Pattu " If I say Pattu from Freefincal, most of the people would know. But, for the first time viewers, I thought it would be better if you introduce yourself. So, can you go with your brief introduction? - So, I came to the personal finance world by accident. I didn't knew anything about finance. In fact, I didn't even knew anything about household responsibilities. They call me the head in the clouds. I just did my job. In 2010, my mother had a serious accident. At that time, I didn't even feel like going home immediately. My research guide urged me to go home immediately. I was at that level of work. In 2006, my life changed. My father had an incident. I got my first salary at that time. Five days after I got my salary, my father's left thigh femur bone fractured. At that time, we didn't know that it was a form of blood cancer. Exactly 30 days after that, his right bone also fractured. At that time, hospitalization expenses were increasing. I didn't have any money. In fact, at that time, I haven't even seen ₹1 lakh cash. I haven't seen ₹1 lakh in cash with my eyes. My brother-in-law helped me. He was a big help to me. He took care of our hospital expenses. The loan we got from him was almost ₹3 lakhs for my father's hospital expenses. - In 2006?
  • Yes, 2006. Father passed away in 2007. Until then, the expenses were almost ₹3 lakhs. I felt at that time that, before my father passed away, his monthly medical expenses alone were ₹35000 monthly. It would be ₹35,000 beyond the household expenses. Includes his injections and all. At that time, I was also shifting jobs. I was shifting from IGCAR Kalpakkam to IIT. At that time, I didn't have a salary for a few months. I didn't know what to do. In movies, there is a dialogue. The mother says to sell her Mangalsutra. My mother told me the same dialogue. For me, that was the low point of my life. I pursued my PhD, went to Switzerland, did experiments, went to Berlin. Despite doing all of that, I was Zero at that time. I had no use. I had no money. I didn't want such a situation to come back. I had that as a definite goal in my mind. That ₹3 lakhs loan was disturbing me a lot. I felt waste as a Man. Thankfully, the loan didn't have any interest. Since I got the loan from a relative, it had no interest. When my salary increased in IIT, I was able to pay it back. I didn't want such situation to come back to us in life. We can get a loan. We can't say that we shouldn't get a loan. But we shouldn't get a loan like that. Also, we shouldn't live without planning. We shouldn't just wake up every day just for going to work without any future planning. I started to understand that. But of course, nothing happened immediately. 2007, 2008, around 2009, I got interested in Excel calculators. Of course, I was studying about finance at that time. It wasn't a big deal. In June 2008, I think it's been almost 19 years now. Right? - 16 years. -Yes, 16 years. So, June 8th, 2008 was my first SIP. - So, has the 2008 crisis begun? - At that time, the market was already falling. I didn't knew anything about it. - We can't realize that it has started falling. I didn't tracked or know anything. It was a ₹1500 SIP for dividend plan Mutual Fund. I didn't even know about that. I told my health insurance agent that there is something called a Mutual Fund and asked whether can invest in it? He gave me a plan. I signed it and gave it to him. It was ₹1500 SIP for Sundaram Mutual Fund's Tax Saver ELSS. Dividend plan. That's how I started. Of course, I left it at that. I didn't worry much after that. After that, slowly I got interested in financial planning. So, in 2010, my first financial calculator, retirement calculators were there. After that, there was a guy called P.V. Subramanyam. - SubraMoney.com I sent it to him. I said him that I have done a calculator and have put my inputs, but the amount is very high, it shows crores. It says to invest more. So, I asked him to check if I did it correctly or wrong. He checked it and said, everything is correct, said my assumptions are correct, and asked me to start investing. And that's how I started investing knowingly. I didn't randomly invest ₹1000 SIP. I had a target for a month. So for a month, it was above my salary. Calculating how much I have to invest for my retirement, it would have come to ₹55,000. I don't remember exactly. But, my salary was less than that at that time. - So, you were planning for your retirement. So, you had to invest more than our salary for that corpus. - Yes, at that time. So that's how I started. Obviously, I can't invest that much if it is more than my salary. So, I started as much as I could. I didn't go crazy. The only advantage for me was, I had time. My retirement was at 65. So, I had almost 28 years at that time. So, I didn't have to go crazy. I had the courage to start slowly and keep going. That's why I tell people to start early. - Correct, exactly! - If you have time, you can manage everything. If you don't have time, it is very difficult. You can't take many risks. You have to invest a lot. Many problems would come. So starting early solves many problems. So, I started like that. In 2011, there was a website called OneMint. There was a writer named Manshu Varma. He is not writing now. I sent him my retirement calculator, and asked him if I could do this as a guest article. He said to go ahead and publish it on the website. The comments on that article were life changing for me. I was so moved. I have never seen such comments. They said that they had never seen such an open-source calculator. Of course, the internet was different back then. Now it is different. Back then, everyone used to hide formulas. But everything was open in mine. They could customize their needs with this. So they said they had never seen such a calculator. It struck my mind at that moment that... such content would appeal to DIY investors. There are a lot of DIY investors. Of course, it's even true now. Only 10 out of 1000 investors would ask for professional advice. They would completely leave it to the professional. People leaving completely to the advisor are very less. There would be some contribution from them. So, I thought I could give such content to them. That was an enlightening moment for me. Up to that, I was a proper full-time researching academic. I had research scholars and a lab. In September 2012, I had an autoimmune condition called Myasthenia Gravis. What will happen due to that is... My antibodies will start attacking me. My joints from the brain to the nerves will become weak. I can't talk much after a while. I can't lift my hands much. I used to get very tired. For almost one and a half years, I was almost bedridden. I couldn't do anything. I used to move around but I used to get very tired. Then I had a thymectomy. There was a swelling in the thymus gland. They removed it. They removed it in the hope that the autoimmune condition would get better. But it didn't get better. It continued. When I was bedridden, I was very depressed. I was only 38. Will my life be the same? My son was only 2 years old. My mother had Parkinson's disease. Even now she has Parkinson's and is 76 years old. She was 62 years old back then. I was very scared whether my life would be the same. I needed some distraction at that time. I started watching videos of Dave Ramsey. I slowly realized that I had forgotten my worries, and was concentrating on that. I was able to concentrate on one thing. So I thought of doing something. I did a PowerPoint on how to select a mutual fund. For that PowerPoint, I realized that I would get some freedom and flexibility in WordPress. So, I slowly shifted from that website to WordPress. When I uploaded the How to Select a Mutual Fund, I got a lot of traction. Mainly from Facebook, from the Asanadiyas of Wealth group. I was already a part of that group. I knew them from before. I showed it. I realized that they had never seen such content. So, that was the biggest motivation for me to do more. So, I started doing content with the problems I had. If I don't know something, the best thing to do is to write an article. You will learn from that. If you do content based on what you are going to study or search, you will become a mini expert. That is how I started FreeFincal. Slowly it grew up to become what it is now. - Excellent Sir! You had a problem financially. You started retirement planning and calculators from there. In fact, if not many people know, Sir's calculators have been approved and published on SEBI's educational website. So, that establishes the authenticity and hold you have. So, I will get to the next question. You said that you started investing in that situation. So you started with a random Mutual Fund. How did your journey go after that? So, how did you structure your journey from there? So, can you tell us about it? - It took me a long time to invest in a structured way. To be honest. I started in 2008. Up to 2013-14, I would buy Mutual Funds randomly. I would just add funds that seemed good. I was doing it like how we are criticizing others now. We would go to the supermarket. We would buy the list that our wife gave us. We would buy lollipops from the billing counter. We would buy 2 of them. Likewise, I would look at the star rating and returns without any idea, and bought Mutual Funds initially. The first mistake I made was I would buy a lot of ELSS funds. I would buy it because my income was low at that time. My NPS would not cover the 1.5 lakhs ATC. So, I had a lot of space. So, without the idea of adding extra SIP to the existing fund, I would buy another ELSS fund. I would do such stupid things. Those stupid things were reduced in 2013-14. I decided not to buy new ones. I had a big portfolio at that time. The problem at that time was I had 8 funds. I don't remember exactly. The Direct Plan came on 1st January 2013. It was not direct till then. I was investing directly through AMC. So, AMC would take my commission. They would take it directly. SEBI started direct plans to change that. So, those 8 funds had become 16. It was an overnight duplication. My next SIP would come in a direct plan. The rest would be in a regular plan. So, I had 16 funds and had to reduce it. I had to rebalance. There were more opportunities at that time. The market would be negative. Returns would be negative. I could sell it little by little. So I did little by little. My biggest achievement in mutual funds is that... from 2008-2013, my returns were 0 . From June 2008 to November 2013. - Approximately 6 years. - Almost 5.5 years. Around that time, Narendra Modi was announced as the BJP candidate. He was announced as the BJP Prime Minister candidate for the first time in late 2013. Till that time, it was 0. Every day, my returns would be 0. Whenever I saw it, it would always be 0 or negative. I was in a dilemma at that time. I was in two minds. Whether I'm doing right or wrong. My family was also in a dilemma about me. But somehow, I had time. I was not going to withdraw that money. I was only going to retire at 65. So just decided to wait and watch. I was in that idea. That was the time when the market picked up. November-December 2013 was when the bull run started. I could not believe it. For example, I would invest ₹10,000 a month. I would get ₹10,000 daily. I can't believe it. When I looked at my portfolio, it was not like mine. It was like there were two extra digits. I would count the units as tens, and hundreds. Then I realized that was the power of equity. It changed my life in just two months. - Ok, correct. - That changed me. After, I became very comfortable with equity. Realized Equity will be like this only. Nothing comes continuously. But suddenly, it will be raining on us. We should be in the market when that moment comes. If we run away from it, we will lose it. That was the realization I was able to understand. From that, then in 2012-2013, a good portfolio managing tool called "Money Sites" was started. Then started investing in mutual funds. I mean, started a mutual fund portal. It started as a startup, but it folded. He is the CEO of ET Wealth. At that time, I was an account holder. In 2012, my portfolio was very small. The power of so-called compounding or growth was very little. Compared to the current portfolio, it was a very small amount. After that, I did not register in my mind. I was able to do it because of the tool. So, you have to be patient and you have to keep investing. And one thing I did was,... I used to invest almost 20% every year. I used to increase my investments. If I invest ₹100 this year, next year I will invest 20% more. 20-25% mostly. Not every year, but on average, I was able to increase. My current return, XIRR, CAGR, whatever you say, my investing growth rate is very high. That's why my wealth was able to grow. Of course, I had to be frugal with my sacrifices. I shouldn't spend too much. Even if our income increases, we shouldn't increase my expenses accordingly. I was able to somehow manage that gap. That was the goal I had. - This was actually very interesting. In this period, whoever came into the market after 2020, it's assumed that the market will always deliver. After seeing only negative or zero returns for 5.5 years, I can't think how many people will continue Equity. Because not many people will do. In my experience, for 2-3 years, I only saw negative returns whenever I opened. I haven't seen positive yet. I have only seen negatives. So, the sooner we see it, the more comfortable we can be with equity. Your experience clearly says that. What made you to choose Equity? Why Equity? This is the question. I have seen you. You don't talk about Equity very optimistically. But still, your exposure to Equity is significant. Why did you choose Equity? Why did you go towards Equity? See, at that time... -- the time I am talking about is 2009, 2010, 2011. During that period, it was a very formative period for me. I started investing in Equity. The reason I started is, ... There is a website called Rediff. There they wrote articles that I could understand at that time. Of course, they were very simplistic articles. If I read them now, maybe I will be very critical of them. But for a beginner like me at that time, I felt that inflation is very important. The inflation idea always keeps coming back. "Monetary inflation". It's my favorite translation in Tamil. Because of the inflation, our purchasing power keeps decreasing. So, our portfolio return should be more than that. That is the first step. Later I understood that we should also invest a lot. Not just portfolio returns. For example, assume there are two people. One has a 10% return and the other has a 25% return. It doesn't mean that the 25% return has got more money. He might have invested less. So, the return alone is not important. How much we invest is important. Of course, the time for growth is also important. I understood all that later. I understood that return should match inflation. Or at least be equal to or greater than inflation. I kept getting such ideas. Also, I read articles by Subramani. So, Equity has a chance to beat inflation. Of course, I did the data based on what they said. They say it very positively. Not specifying Subramani, but also others. They say that you will definitely get a return. They said like that. So, I analyzed it later and found out that it might not always happen. But at least there is a reasonable chance. That reasonable chance is enough. Plus, there is time. If you have time to wait, Equity is a very good asset class. That's why I started my Equity exposure slowly. Of course, it's a very small exposure. If it's ₹1,500 per month, around ₹10,000-₹15,000 will go to NPS at that time. 85% of my NPS is almost government bonds. Only 15% is Equity. But it's mostly like a debt fund. That's why my asset allocation took me almost 10 years to get 60% equity. Started in 2008 and it came to around 50% by 2017. Then it became 60% after 2-3 years. It took such a long time. So, it was not an overnight difference. -- So, what was the maximum Equity exposure? Since we are talking about asset allocation, how do you have your asset? I mean, you started with a contribution to Equity and a side contribution to NPS. There are many more asset categories, right? Many people like Real Estate and Gold. Or conservatively, they just want to keep it in the bank. In most of my interactions, many said they keep ₹50 lakhs in the bank. They tell safety as a reason for that. So, what is your opinion on that? How was your asset allocation when you started? We emphasize reducing it year by year. We shouldn't increase the Equity exposure because of the sequence of returns. How was your asset allocation journey? How do you plan it? Next, regarding these conventional asset categories, does it really beat inflation? Is it correct? What do you think about it? First, let me tell you about me. -- First, I was very clear that I wanted Equity. I wanted a lot of Equity. At least 50%. -- Sorry for disturbing. When we say Equity, we mean stocks and stock-based mutual funds. Let's ask about that in the next question. Let's see how he does it in stocks. But, this is the explanation for Equity. My goal was 50-60%. -- That was a very big goal at that time. I started with just 2-3% Equity. I didn't look at it too much. I didn't think about it much. I was just investing. The current Equity asset allocation is almost 65%. I prefer it to be 60%. But, 5% was extra because I had some real estate proceeds. When I invested, it became 2% and rebalanced. I left it at that. So, 60-65% is what I would recommend for long term goals. If you want money after 15 years, anywhere between 50-65% is fine. You can keep it as per your comfort level. Approximately. For me, 2 assets are enough. See, you have to differentiate an asset by its risk. Because returns can be 12% in Equity. Sometimes, it can be 12% in fixed income as well. It can be 12% in gold as well. It can be 12% in real estate as well. You can't differentiate it by return. You can differentiate it by "risk" for each asset class. So looking in that way, 2 assets are enough. Fixed income, that is debt mutual fund or EPF. Or debt based NPS. That kind of asset class. Plus Stocks or Equity mutual funds. These 2 are enough for most people. Real estate for consumption is okay, according to me. I need a house so that I can be at peace. I need a place to have my roof and my wall. That is a fair thinking. That becomes consumption. Many people make a mistake. They say that their house is worth ₹1 crore. That house has no value. You are using it, that's all. If you sell it, where will you go? It only gets value when you decide to sell it. When you use it daily, it has no value. Similarly, jewellery also. So Real estate as an investment, requires a certain talent. That is my understanding. Not everyone can handle Real estate the same like buying a stock with a demat account. There are many sharks in real estate. There is a lot of black money. They will say one amount vocally. But another amount will be written. So you need a talent to navigate them. Even if you go to a well-known broker, you don't know whether you are getting a good deal. Because there is no common market price. They change the rate everyday. They will say different rate for a house nearby in the same area. -- Yes, even if the nearby house has same size. It is very unfair. -- It is an asset without any regulation. In such a situation, you can't even say the return. They will claim returns by saying... "My uncle bought a house in Velachery 20 years ago." They will give such anecdotal evidence. That is not an evidence for your purchase. My strong idea is not to buy real estate for investment. Buying a home is different. Even there is a caveat in that. If you decide to buy a house and take a home loan, you will get affected somewhere. Because finance is like a water-filled balloon. If you press the water-filled balloon in one place, it will bulge in the other place. Only if you go and see the bulging place, you will know the reaction due to your action. Many people don't see that. They just think of buying a house and leaving the retirement plans for later. That procrastinating is very wrong. You should buy it at an age where you can balance it. For me, 30-35 is a good age to get a home loan. Before that, you won't have that maturity. Plus, you should have that investing habit before. If you have that, you can balance it. So consumption is okay, but investment is not okay. Similarly, Gold is okay for consumption. You can buy as much as you want. Investment is not a very productive asset class. Sometimes, Gold will give very good returns. But, when it will give returns is that when the world is in some trouble. It is an asset class that rises by fear when there is a problem or crisis. Whereas Equity is optimism. When everyone is happy, it rises. The asset class that rises when everyone is happy is slightly better for me. Also, the problem with gold is that it is difficult to handle physical gold. And many people say that gold is an edge for inflation. But it IS NOT as per actual data. It doesn't beat inflation all the time. If you have gold physically and ... if the rupee is worthless tomorrow, if the currency is devalued, like, if an idli costs ₹50,000, at that time you need gold. But how much gold will you have? The gold with everyone will reduce. So, it is not meaningful for an ordinary man. Assuming that we have faith in our country, assuming that we are going to become a superpower, and believe that it won't get devalued suddenly, then Gold is not needed. So, just two asset classes are enough. Fixed income and Equity. --- From that point of view, I feel that ... Gold is a place that shows a pessimistic side of growth. So, should we be not prepared for it? I'm not saying whether to buy gold or not. But in case, My optimism is that Japan will happen to India. Even if the data says that it won't happen, suppose our stock market sleeps for 30 years like Japan, and I'm going with the belief in Equity, and after 15 years, a big problem like this happens, If I had gold, would it help me on that day? What do you think about it? See, Japan's biggest problem is size. -- They are honest people, they are all managing. There are no such problems. Their biggest problem is their population. If I have a diaper company, I want a good birth rate. Only then I can be in business. But their population is on the decline. So, I can only make limited profit. Even break-even will be a big deal in that situation. But there is no such consumption problem in India. When I was young, I was drilled into the idea. Everyone brainwashed me that India's biggest problem is population. If you take any problem in India, they show population as its reason in two steps. But I understood it only recently. I understood it in the 30s that our biggest superpower is population. Our biggest strength is population. We can have such an economy because of population. The same is true in the USA. They have the size. A big country can sell a lot of cars. Because it is a big country, they can intake more population. Of course, the USA has got global reach. That's another thing. But in India, we have the geography plus the population growth. So companies will be in profit for at least the next 20-30 years. So, I don't believe that a 20-year problem like Japan will come to India. I'm that much optimistic. But the only problem in India is a sudden scam. It might be anytime. Suddenly RBI will close a business. A scam could come anytime. If that one scam comes, like Domino's, 10 businesses will fall. Then, the stock market will definitely fall for 2-5 years. At that time, fixed income is enough to balance. That is my opinion. Definitely, Gold can be there. I'm not saying that Gold should not be there. But, the only problem is that ... many people say they want 10% gold in their portfolio. Okay, keep 10% gold. Even keep 20%. That 20% today won't be the same always. If you see next year, it can be 18% or 22%. What will they do then? They won't know the answer for that. -- But isn't the same applicable even if you start an Equity? Rebalancing 2 is different, -- and rebalancing 3 is different. That complexity will come. If you have 2, you will rebalance only between 2. But if you have 3, you will have unnecessary confusion. If you have the confidence to manage your portfolio, definitely can invest in gold. I don't have any problem. But, most people don't have that confidence. That's why I'm saying to keep it simple. -- Similarly, no one will do rebalancing religiously. That is fear. -- There are 2 things in rebalancing. If I start 50-50 now, I will get 10% extra Equity due to a bull run next year. 60% Equity and 40% Debt. I have to take 10% from the performing asset class and invest in debt. But not everyone will think the same due to emotions. They think why disturb a performing one. That is a gambling idea. It is better to stop when you win. But I'm not asking you to take everything. I'm asking you to remove only 10%. Also, people are scared of taxes. I wonder why to be scared of taxes? Because, once you grow, the taxes you pay now can be balanced from just one hour of market fluctuation. We should think like that. -- Correct, that's true actually. You said about ELSS in the beginning. I started in the same way. I kept looking. I saw NSC and 5-years FD in Post Office and some others. I felt that ELSS was the right way to fill the gap in ATC. So ATC came in. After a point, I realized that I could not save taxes. Whatever I tried, didn't help me. I realized that if I earn more, of course I need to pay more tax. The tax is going to be deducted from our earnings only. Tax will be based on the increased income only. So being scared of taxes is not a meaningful approach for finance. Basically, when it comes to investments, you started this way. So now my question is, ... did you start stock exposure early in Equity?, how did it go with your individual stocks? You are very correct about taxes. -- The reason why many people are stuck is ... because they cannot digest the fact that they are paying taxes. They keep on complaining about the taxes They keep on saying that the government is wasting money. Is the government going to save you? You should save yourself. As you said, income is important. Some people say they wish to increase their taxes every year. If you have that mindset, it is comfortable. You can pay taxes. -- I think it will happen at some point. It is a better thing to have a mindset that you are earning. Many don't think like that. -- It is better to get it as soon as possible. Plus, now we have New Tax Regime. -- It's like saying to not invest by default. It is a brilliant idea. -- I hope it goes just one more step. Many people are still stuck in the old tax regime. In this new budget coming in a few weeks, if they reduce the tax slab by one level, the new tax regime will be done. -- I have a question here sir. The problem for me with the new tax regime is that ... when a person starts earning, his income might be low. So, he might start investing atleast to escape tax. Now if that's removed, such people might not start investing at all. So, I don't know how to see the new tax regime. Is it done to increase consumption? I don't know what the idea is. People not starting investing is one problem. It's better only if everyone comes into investing, right? How do you address that? I don't think it will be like that. -- A forced investment is always bad. You have to think for investing. Also, Youngsters have changed a lot now. When I was young, I didn't know what investing was. I used to give my salary to my family. They used to do whatever they wanted. That was my generation's group mindset. Now, the students in my class have started trading. They know about Equity investments. So, things have changed. Since the start-up culture came, the investing culture has also become good. That's my feeling. So, I'm very confident that such problems won't arise. Even if the new tax regime is defaulted, they will not remove the old tax. This will be made beneficial. Even then, investing won't be affected. Of course, investmetn will be there. But whether they will invest in the right asset allocation is a different thing. But that is a problem with the old tax regime. -- So, anyway that problem exists. That is not a problem for me. -- What you said is very valid. When I interact with 18-19 year olds, they tell me that they are already investing. Investing is okay. But they start trading to get quick money. They want to invest today and get profit within one day. You said that you didn't get anything for 5 years. They will get angry if they get nothing after just 3 months. They can't accept 0 after just 3 months. That mentality is a problem, right? Let's say, a new person wants to start investing. He doesn't know the word invest. He just wants to do something with his earnings. What should he do while starting from scratch? Let's finish the Equity question. -- Will come back to this later. This is very important. You can't become a rich person immediately. It is a process. You will only know this when you become old. If tell this to a 22 years old, he will say you are a fool and you don't know anything. So you have to get that. You can't do anything about it. But not everybody is like that. There are many responsible people. For those responsible people, the first thing should be "Insurance". 3 types of insurance. Life insurance, even if they are unmarried, they should nominate parents. Don't inform them before taking it. If you inform, they will shout at you. -- They will ask to take LIC. That's fine. -- As long as it's a term plan, that's fine. But some parents don't like term plans. If you inform your mom about ₹1 crore policy, she won't understand. Emotionally, they will not like it. So, it's better to take it without informing. And everyone needs health insurance. For parents, for self, even if you are not married. A good health insurance from private is better. If you buy health insurance when you are younger, it will be cheaper as you are healthy. Of course, what happens in the future will be different. The premium will increase, that's a different thing. But at least we will get inside. Otherwise, it might be difficult to get. Because nowadays even 35-year-olds have diabetes, cardio problems. They won't get insurance. There shouldn't be such problems. Secondly, I would say to build a strong emergency fund. Not all young people will think about investing, or retirement. If a 22-year-old has started working, we can't stress him about investing. I would say for him, first take 20-30% of the salary and save it in another bank account. Let it build up as an emergency fund for a few days. Don't think about it. Enjoy the remaining amount. Or take your parents somewhere. Many people wouldn't have gone on a flight. Enjoy some holidays. If you want to buy a DSLR or a bike, buy it. Just enjoy for one year. This is the time. You can't do it after that. Do it for one year. You shouldn't keep doing it after that. After doing it for one year, you will feel fulfilled and then bored. Not for all, but for most people. At that time, let this 20-30% keep building in the second bank account. If you see it after one year, you will have at least 6 months expense covered. So, if your bike or your washing machine gets repaired suddenly, our TV used to get repaired before the World Cup Final. I have experienced. Nowadays, my computer has become faulty. So, If you need a computer or a laptop the next day, you need money. You need money for such emergencies. It gives you great confidence. Once you can handle an emergency, you will feel a lot of self-esteem. Even if you get 25% returns in Equity, you have actually handled the crisis. That's a big deal. I couldn't do that. That's why I say FreeFincal now. That's why I felt very bad that I couldn't do anything. So, you need an emergency fund to do that. Build it and from the next year, after 12 months, you can start thinking about SIP, Retirement planning, Asset allocation, and so on. So, that's how. -- We talked about tax saving. There is one with Tax savings and Real estate combined. If I take a loan, I get a house and I can save tax as well. How I feel about this is that ... I pay interest to the bank and receive tax benefits from that interest. Here I give money to someone else. So, I feel saving tax like this is not intelligence. Precisely. -- If you decide to take a loan and buy a house, how much loan can you take? Everyone has a capability. Like you said, a roof is an emotional connection for many. If it's for consumption, then it's not wrong to buy a house. What do you think is an okay EMI? How much EMI is ok? There's a guy called Ashal Jauhari. -- He's the admin of "Asana Ideas for Wealth", a Facebook group. He's been saying this for a long time. You said it beautifully in one sentence. Having an EMI and taking tax benefits from it is stupidity. It makes no sense. He always said these. Many people don't understand. -- Many people think they're buying a house for that. I don't understand. I don't know whether they understand what they are doing. Once the money is gone, what to do by saving tax from it? He'll be very happy to meet you. I'll tell him. He stressed the same. He's been shouting the same idea since 2010. Very few people understand this idea. That's the first thing. It's enough if you have that understanding. But of course, If you must have to buy a house, I would say, don't exceed 30-40%. EMI shouldn't exceed 30-40% of take-home pay. So, you need a down payment as per that. First, you need a down payment. Secondly, your investments shouldn't get hit. Of course, some hit will be there. But you shouldn't stop due to that. Many people will stop. That's a 100% problem. Apart from that, if you can manage 35% EMI, 35% expenses, and invest the remaining, then it's definitely ok. -- There's another type of people. They will take a loan. They will start looking at investments also. When looking at investments, they say 12% or 15% returns. They pay loan on one side. They don't feel like closing the loan because the investment is attractive. So, here a choice will come. If I have extra money, Should I invest more? or should I close the loan sooner? What do you think would make sense? How can a person make that decision? See, I always tell everyone that ... -- if there are two numbers, you shouldn't start analyzing immediately. The one who knows when to not analyze is a good analyst. Everyone knows the formula of the average. Anyone can find the average for any number. But you should know when to NOT do it. That's the point. I would suggest to not analyze such things. I would say, why choose only one among the two? Do both. Whenever you get bonuses, or get a hike or extra income, you can pre-pay a little and also invest a little from that. -- It's better to keep it balanced. Keep it balanced. -- Many people have a big emotional problem if they don't have a house. After buying a house, they suffer to pay the loan. If it's like that, it's very difficult. It's time related. They will pre-pay all the money allocated for investment. Even if you pre-pay with a lot of effort, it will take 8-10 years to close. It depends on how they invest. You won't be able to invest for those 8 years. Golden years gone. You won't get it back. You have to think differently. EMI will remain more or less the same. Of course, interest will increase, but you can still manage. If you start with 35%, you can manage. If you have a scope to increase income, definitely your EMI % will decrease. -- Its impact will reduce. Exactly. -- The amount will be the same, but when you see it, it will look small because your income has increased. So, let the income increase and let EMI stay the same. If you have that mindset, let the home loan run. 15 years is typically considered to be an ideal home loan. So no need to pre-pay it hurriedly within 7-8 years. Let it run for 12 years. That's fine. You are paying a lot of interest, because ... they are giving you a lump sum. The idea of resisting interest for no reason is foolish. -- Loan was taken and also bought the house. He has given you the required amount as a loan. -- You can't get that amount by yourself. So obviously, you have to pay interest for that. So stop worrying. That interest will decrease over time. It's called negative compounding. You should have that mentality. I would say to not worry too much. Little for this, little for that. That's it, done. -- What I liked about this point is that ... let your income increase. We started the debate between loan and investment. If you earn a lot, you can manage both. So basically, many people must prioritize that. So let's come back to the old question about individual stock exposure in Equity. When did you start? How is it going? What is your approach to it? See, I'm an unconventional Equity investor. -- In hindsight, I think I shouldn't have invested in Equity. Because it's unnecessary for me. But what I thought is that ... I felt I got financial independence 2, 3 years ago. I decided to continue investing in mutual funds. I was very clear that I'm not going to stop that. I thought like if I get extra money after 6 months or 1 year, I could build a portfolio of stocks other than investment or retirement plans. That's what I thought. Actually, for a dividend income. So, P.V. Subramanyam says that ... Everyone should have a retirement basket. In that retirement basket, one component is pension. Half of it is for pension. Half means, not literally half, but one component for pension. Then, you have your mutual funds, EPF, PPF, etc. Then, you have dividend income. That dividend income is one component. Then, you have active or passive income. Active income is like when you do freelance work. Also passive income. If you have a diversified retirement portfolio like that, you will face less inflation. So, I started with that idea in my stock portfolio. The reason I started a stock portfolio is... I have a great interest in low-volatility investing. If a company's stock price doesn't fluctuate a lot, that means it's valued very strongly in the market. There are two reasons for that. One, debt stocks are in low volatility. Shouldn't pick such company stocks. But healthy stocks, healthy businesses, businesses with very low debt, businesses without red flags, their stock price will be very high. It will be overvalued. It won't come to normal price or undervalued unless there is a huge total market crash. Because management problems won't come typically to those companies. So, you can't weigh the correct price. It will be at that high price only. But, the volatility will be low. And typically, they tend to stay close to their all-time high. If you buy such companies, the only disadvantage is that they will give you a lot of dividends. I don't have a disadvantage but for young people. It's a disadvantage for young people because, they will have tax on dividends. And they will have to reinvest it. At my stage, I don't have that problem. I don't care about reinvesting. Because I don't care once I reach my total investment target. So, I built my stock portfolio with that kind of idea. Even now, my Stock portfolio is only 10% of my Equity portfolio. So, I have only 8 or 9 stocks. -- When new people buy individual stocks, they feel like they are in the driver's seat. That's why they start coming to individual stocks. That's one reason. Also, you get a kick out of seeing its movement. You get the feeling that you are doing something yourself. So, should new people go to individual stocks or not? What should they know before going? For example, if I start a new business, I will search on YouTube and I will get 5 stock names. I will see which is cheaper and buy it. I will check its movement daily on my mobile. This will resonate with most people. Is it a correct approach? Should we do individual stock picking or not? This is the essence of the question. What do you think? Should or should not? is a very difficult question to answer. -- For many people ... If people pick stocks as you say, it will not end well. I'm 100% sure about that. Some people say that they absolutely love choosing good businesses. They love to find good businesses. -- When you say businesses, many people don't even think it in terms of business. It is just a company name. It is a share. It is a stock. That's a problem, right? So what you said is a very valid point. Go ahead. That's what it is. -- If you have that drive, if you have the drive to find good businesses, you need to research balance sheets. Those people can definitely invest. Of course, people who invest like that also invest a lot in mutual funds. In fact, even big stock gurus on the internet ... have a strong mutual fund portfolio. Because we can have it as ... like support for the person who has made a mistake. If you buy a cheap stock based on price and momentum, it is very dangerous. It is extremely risky. It is more like a game. -- Exactly. You get the kick in that. But you don't get the money. Exactly. -- It's a very bad idea in my opinion. It is very dangerous also. For people who like to research balance sheet, I would recommend 20%. Having 25% direct Equity portfolio is absolutely fine. But you have to study for that. It's not easy to do. Many people struggle to buy large cap stocks. -- I don't understand that. Young people will not buy a stock worth ₹4000. But if you buy that stock worth ₹4000, you will get stability. It's same as buying a ₹100 stock now or ... save money and buy two stocks after 6 months. But they won't buy. But if you have that kind of expensive stock portfolio, it will be much more robust. My stock portfolio remains at 10%. Even if the market rises or falls, it will be 10%. That's fine. At my age, it is fine. But at a young age, you need that adrenaline. -- When I started, I did the same. I would buy ₹20 stocks. I will think that I will get 10% if it rises by ₹2. So, how do I say this? If you keep looking at the numbers, it doesn't make sense to me. I would keep doing that. After buying and selling, there is a breakdown called charges If you see that, you will see that the charges are more than the money made. So, not many people even go and look into the charges. So, that's another part to it. I feel that is a problem. So, you say 20% or 25% for direct Equity investing is okay. But then, do it with enough research. Yes, sir. -- Doing it randomly is a problem. When you started, you had 8 mutual funds in your portfolio at a certain point, right? What do you think is like... 8... Whether it's more or less depends on the individual. What do you think is like... Okay, assume I don't know anything. I want to start a mutual fund. I want to do it myself. What can I do? I can't say exactly what I can do. But still, 8 or 10 or 2... There will be some number, right? What do you think is...? See, now we have data to show that. -- Active mutual fund investing is a waste. Whether it is a Mid-cap cap or a small-cap... Whatever large cap it is... Just buy the index. Actually, the 22-year-old we were talking about... After a year, he or she... Basically, if you buy a Nifty or Sensex index fund, the job is done. You don't need anything else. It's as simple as that. And they can just focus on increasing income. Either an additional degree... Or a secondary course or freelancing or whatever can be done. They should focus on that ... instead of wasting time on choosing the mutual funds. The mistake many people make is that ... they have an app for mutual fund investing. They open that app. If they open it, instead of getting their portfolio, they will get top mutual funds. They will look at that. They will buy the ones they don't have. That is horrible. -- To give an example... 2, 3 Axis funds were top rated at some point. They are always the top-rated. If I invest in that... After 2 years, I see that there are 55 in that category. That fund is in the 55th place out of those 55. So, basically... One has risen to the top. That's shown to you today. If you invest while it's at the top, where will it go according to the law of averages? So eventually, that is what is going to happen. To give a recent example... For example, take any PSU funds. If you open it, it shows 97% returns in 1 year. We will think it had 97% returns in 1 year So everyone will buy it even at peak. I don't know what will happen. Because no one can predict what is going to happen. But it's not the way to go. I feel like it's wrong to go and pick only top-rated or top performers. But the problem with people is... They think that beating NIFTY is their aim. They think like that. They can have the goal to beat NIFTY. That's fine I think. What do they do then? Of course, NIFTY is more than enough. Probably after 10 or 12 years of investing, they will realize that. They would know where they would stand. There is an urge like this. Thinking to do better than the market. Thinking 15% not enough and aiming for 25% +/ They think like this. What do you say about those who have this ideology or mindset? See, one of the biggest reasons for me to invest in peace, -- the reason for investing without interrupting is... I never expected much in life. I realized ... after so many situations that, expecting is the problem . If you don't expect it, disappoinments will come only when you have expectations. From other means, I understood that. So, I applied that to Equity also. But if you ask me now, how much will I get from Equity? Safely saying, I would recommend only 10%. After tax ,10%. Maybe 12% to 10% depending on market conditions. For above that, you have to take risks. If you take risks above the level, you are guaranteed of the risk, but not the returns. You have to understand that. What you are saying is that ... based on my understanding, If I go to a small cap, risk is guaranteed, but returns are not guaranteed. In many stories, they say that ... small cap will give returns after 20 years. Even that's not guaranteed. We don't have such data. -- First of all, everyone says that, long term equity investing will win. But, there is no systematic data for that. Many people have fought with me. They have even insulted me. But they won't provide the data. Either you take US data or Indian data, India has data of 45 years only, USA has data of 125 years. There is no guarantee that you will get returns. But, what the guarantee is that ... there is a reasonable chance. That is, 60% to 70% chance of success of beating inflation. That's it. But just for that ... inflation in USA is only about 3%. You have to beat just 3%. Even 3.1% is also a win. But, if the US investors expect 5% or 8% returns, if they get 3.5%, equity has won. But, he has lost. This is the same for India. In India, if inflation is about 7%, actual physical inflation, if I expect 15% and get only 10%, Equity has won. Equity has done its job. -- Our expectation is not met. Why we lost is that ... -- since you expected 15%, you would have invested less. If you had expected 10%, you would have invested more. -- This is a good way to look into it. This is a good angle. Instead of calculating 15%, if you calculate 10, your investment amount for each month will increase. You have to target that.\ This is a great idea. Usually, people start with 12% - 15%. They think that will do the job in 20 years. Should not do that actually. -- Many people think that they are trying to fit in. Thinking about their income and expenses, they will calculate how much return they need. If I get 25% for that, I cannot expect 25%. It's not practical. Still take it as 12%. Take maximum 12%. Try increasing the investment little by little over time. You will get it. If you have that belief, it will come. If you put some belief and efforts, definitely you should be able to handle it. Instead of expecting high returns. -- Makes sense. Let's go back to essentials. In essentials, We discussed how much emergency fund we need, term insurance and health insurance are also needed. When it comes to health insurance, people get confused. Since many people have one policy in corporate, they are confused whether to take one. I think it's important for everyone. Even if I already have one. What do you think? Because your situation made me feel that. While switching jobs, you had some expenses. If you had insurance at that time, your life would have been little different. So, what do you think? Yes, correct! -- My father didn't have insurance at that time. That's why at that time ... When my father didn't have insurance, I immediately got one for my mother when my father was in the hospital. I didn't want to get into that problem again. I knew that my father would not get insurance again. Definitely, unless a person is in a permanent job, like PSU or government jobs, they have government-oriented insurance. There are different types of covers. They may not need it. They have central government health schemes. If that's the case, and provided it is comprehensive, they do not need it. -- What comprehensive mean? It means all types of covers, surgeries, etc. -- They have to research the covers of the claimants. What are the diseases they have claimed for? -- -- To check its real use. After doing that research of claims, they can decide whether they need private insurance or not. In my experience, most government job people don't need it. Corporate job people need it 100%. Because ... You might get hospitalized during switching jobs. -- Yes, that might happen. Some people get a new job, -- but the HR might not include their name. They might not be included in the policy. It would take 2 weeks. In those 2 weeks, they might get hospitalized. So during that, they have to pay. -- Let me give you an example. Assume you get a new job and take 2 weeks' vacation. Let's be optimistic. After being unemployed, you get a good job and you take 2 weeks vacation at that time. So even at that time, we need insurance to manage. So, I feel it is very essential. Absolutely essential. -- And also ... Health insurance is a tricky subject. In this Tamil podcast, we thought of doing 2 episodes, but we did 4. We kept talking about it. It is a bottomless pit. I can tell you what is necessary overall. I would say, at least having ₹10 lakhs is better. Per person? -- Per Person. -- If you get a floater cover, having ₹20 lakhs is better. If you can afford it, not everyone can afford it. But ₹10 lakhs per person is definitely essential. Even if you cannot afford it per family, you can manage it. ₹5 lakhs is very difficult. I was telling you about my relative, my cousin. He is 68. He was hospitalized twice last time. Almost ₹5 lakhs out. We were scared. We were actually waiting for the insurance maturity period to be over. The insurance cover period to be over. Next year, ₹5 lakhs will be reset. We did not want him to be hospitalized before that. Last month, he was hospitalized again. Now, it is gone. It started on May 19th. Within the first 1-2 months, almost ₹2 lakhs gone from ₹5lakhs. With ₹3 lakhs, he has to manage for the next 11 months. Not sure how. It becomes very difficult. If you go for the ICU to hospital, you can straight away forget about ₹1 lakh. It will be gone. So, ₹10 lakhs minimum is better. There is a super top-up cover. You can use that after ₹10 lakhs. You can use the basic structure like this: 10 lakhs, super top-up, whatever you can afford. Of course, super top-up is very inexpensive. It will be only 2000-3000 rupees. ₹10 lakhs deductible, you even get ₹1 crore. So that is ok. A setup like that is needed. -- Ok, makes sense. Similarly, if we take term insurance, do you have any specific number? See, in term insurance-- many people will take ₹1 crore. -- Because it is a round number. Because they haven't seen 1 crore. -- That is the main reason. Actually, if you go to term insurance ... let's assume a family. In that family, let's have a male, a female, a son, and a 10 year old daughter. If the breadwinner suddenly dies, what does that family need? That child has to study for the next 6 years. For that, school fees have to be paid. And after that, college fees. And you have to pay for the monthly expenses. This is the basic. So, for the next 6 years, plus that child is going to study for 4 years, at least expenses for 10 years are required assuming that the child finishes college and goes to work, and he / she will take care of the family. So, 10 years expenses are required. Plus, 6 years school fees, 4 years college fees. This is the basic. If you add up the total ... also some people have 2 kids. If you add up the total, it will be easily above ₹1 crore. -- Also, you have to add inflation-adjusted. If you add all that, it will be easily above ₹1 crore. ₹1 crore is very less. I would say it's ok before 10 years. ₹1 crore is very less now. But, even if you calculate it excessively, the insurer won't give that much. -- Because it will come according to our salary. So, I think my experience is ... - 15 to 20 times annual salary. That will be the maximum insured. So, you ask how much maximum he will give and it is better to take that. Because they are not going to give more anyway. -- They have a limit. Also, some people ask ... -- do we have to take additional insurance for childbirth? Maybe. If you had taken less insurance for the first time, maybe it is better to take insurance after childbirth. Another question is ... do we have to take more insurance after 10 years, due to inflation? Not needed. You have to invest properly and increase your net worth. That is the main thing. Insurance can be same That is basic. -- -- Ok, makes sense. Now, take this calculation. We are planning with a studying child. So, each person has financial goals or needs along the way. How should an individual approach this? Because, many people spend some time, and if they find it, they know what to do. So for that .... As a layman. I go to work daily and earn money. I invest whatever I can. But am I doing it correctly? What do I need? How do I understand all this? So, what would be an approach for someone getting started? So ... -- actually, you have to sit down and calculate. But, if we calculate, we will get very disappointed, disheartened. Approximately, what I am saying is, ... according to Thumb rule, if your monthly expense is ₹10000, Ideally, you have to invest ₹10,000 per month for retirement. If that is not possible, at least you have to invest ₹7000. 75% approximately of monthly expenses. This is for retirement alone. Plus, then for children. So, if you look at all that, as far as I know if you have the same ₹10,000 expenses, it will be like investing ₹15k to ₹17k for 1-2 children. So, you see, how should the income be. -- So, calculating based on what you said, if you earn ₹25000, you can spend ₹10000, but should save ₹15000. Means, the savings rate will be around 50%. I think it will be around 75% in this case. I don't know if I am calculating correctly. 75% savings rate won't be practical for many people. No chance. -- -- But, it's necessary, right? Very difficult chances. -- So, what they have to do is, ... definitely they have to increase their income. Correct, you are right. Also, they shouldn't increase their expenses. The mistake they make is increasing their expenses. If they get a small bonus, they will immediately buy something. That is the problem. Their expenses will be ready. See, if the washing machine, TV, or anything else gets repaired, that's ok, they can't do anything. That is life. Leave that. But, they shouldn't buy new gadgets. Plus, they shouldn't enhance the gadgets. On getting a bonus, they will install an AC in the hall, then another AC in the second bedroom. If you keep planning like this, your expenses will keep increasing. No matter what income you earn, if your expenses increase, you can't invest. There should be both. You should also reduce your expenses. If you can't reduce, you should atleast maintain the same level. Plus, you should increase your income. So, you should sacrifice a little. Difficult without sacrificing. If people think that ... they can both enjoy and be responsible, then it is very tough. We can only do it only if we earn that much. We have to cut my enjoyment a little. There is no other way. This is the practical. That is what I tell everyone ... Today, you're young, you're enjoying, you're partying. Okay, but why should that party stop abruptly if you get old? You can continue to party. But, reduce the level of partying now. So, you can party a little. If you have a balanced mindset like that, you can manage. -- Okay. Makes sense. So, regarding bringing finances into a family ... Basically, talking about finances in our house, culturally, it is not that open in India, right? What would you suggest? Assuming a family with Husband, Wife and kids. Not only that. Starting from a young age to college to earning, they mightn't know anything about finance. Basically, no one knows what to do. They don't know tax, finance, investment. How can we bring all this into a family? See, there are two things. -- #1. Husband and wife should know everything about investments. There are two styles. In some families, husband and wife will be very enthusiastic about investment. They know everything. Both of them will decide together. But, that dynamic won't work for some couples. For example, in my case, my wife will allow me to do anything until I don't do anything stupid. If she asks for expenses, I need to provide money. That's it. That is okay. But, she did not know for a long time about my investments. But, I forced her and made her learn. Or at least, she has access to. If I'm not there, she knows where to look. That type of dynamic is okay. That is also fine. But, they should know everything. It's okay if they don't know much. But, some trusted person should know. If a husband or wife can't manage suddenly, we shouldn't think badly. For example, Someone will actively invest and manage a portfolio. Suddenly they will get a promotion or an onsite job. If they leave, they can't do anything. Then, the wife or the husband should take care. Then, they should be able to handle. For that, they should know everything. They should know why they are doing it. It's fine to know where they are doing it. We will know that on looking the account statement. But, it's important to know why they are doing it. Only if you talk, you will know. Having dialogue is very important. Plus, ... the spouse may not be educated or they may not be computer-savvy or X-savvy, or they may have a fear of online investing. Such problems might be there. Then, you need a trusted advisor. You need the trusted advisor's number or contact. In many families, the breadwinner will die. They will give a lump sum amount from the corporate or the friends will pool and give that amount. A person will say that he will do it for you and lose it. Even if they have good intentions, they will make wrong investments. That shouldn't happen. So, for an advisor ... If you are the primary money manager, and if you can't handle it, then you should know to contact this person. The wife or husband should know this information. Then it's fine. -- -- Ok, makes sense. So, that's the first part. -- The second thing you asked is how do we introduce finance to children I think, only if you get it, you will know some things. When you are young, they will scold you if you leave the fan, light switch on. Only if I earn, I will know what that means. I realized that when I paid electricity bill with my money. So, we have to wait for certain things. Not everything can be known at all time. They will study the power of compounding in 8th or 10th class. So, there is no need to know its importance. But what I would recommend is ... now many children ask to buy them many things. I would ask the parents to make the children do research. If they ask for a gaming station like Xbox, make them to first research all the brands. You are not going to reject it. You buy, but you take 6 months to research. In those 6 months, the delay gratification will come. The urge to buy immediately will go away. They will first look at 4 brands. Finally he will think that ... no need of gaming station. They will think going to Richie street, and buy an assembled desktop, which they feel is better. So that's a bank for the buck. If the child grows the mentality of researching the value of a certain budget, they will become good investor in future. That's my strong belief. So, you should leave that research to the kids. Because they are only asking to buy, Instead of saying that you can't do it, you should say to research, give you 6 months. You can also save money in those 6 months. That is the way to handle it. -- Perfect. Now, in your investment journey, some mistakes might have happened. Out of all the mistakes you have made, which is the biggest one? Do you have anything to highlight? Or do you want to highlight the mistakes in general? My case is a very boring journey. -- I have neither seen a great multi-bagger nor made disastrous mistakes. I have made normal human emotional mistakes like ... unnecessarily investing funds, buying additional funds, trying to reduce cluttered portfolio. I have mainly made such mistakes. But, from what I have seen in my readers, the biggest mistake they make is ... investing based on the last 1 year's return. Atrocious mistakes. You won't believe this. NUFTY Next 50 is the story you told. What happens if you buy at the peak? In 2018, it was at the peak because it was the return of 2017. They invested based on that. From 2018 to 2 months ago, it was down. It was down, it didn't break even. It didn't for a long time. So, everyone got annoyed. Many people will scold me. If you go on Reddit, my name will be very famous. I will be called as waste person promoting NIFTY Next 50. Now it has gone up a lot in the last 2 months, Now, everyone is saying Nifty Next 50. -- It is like a pattern. Everyone chases after it has finished raising. Whether it is patience or... What you are saying is correct. Investing based on the last 1 year return is a big mistake. If you avoid that, you will reduce half the mistakes. It is a huge mistake. It is the #1 mistake in the capital market, The 2nd mistake is regret. Thinking that If they had bought it early, they would have got 10% extra. Thinking that as a mistake after missing aopportunity. There is no place for regret in the capital market. Mistakes will happen. Means ... Even if you lose or win, you should have the same mindset. You should leave that regret. If you leave that, you can be a happy long-term investor. No matter what problem you face, either good news or bad news won't affect you. To be a stable investor like that, that is the best mindset. There is no place for regret. Both Regret and Success should not go to your head. You should take care of it like that. - Ok, makes sense. You said not to regret missing early investing. Basically, it is trying to time the market. What do you think about timing the market? To give a recent example, 4 days ago, everything fell down due to election results. Some people might be sad that they could not buy it that day, and some might be happy that they bought it. Is there any meaning in timing like that? There is nothing as per data. But what do you think about it? First of all, this is not market timing. -- Definitely not this. Market timing is ... you have to use some kind of ... either you have to use economic indicators, macro economics, or you have to use price-based strategies, averaging or PE. You can use any technical indicator. They say that time is better than timing in the market. My idea about timing is that ... if you have a proper strategy, you can time the market. But you need a basic maturity. You can never always win everything. No strategy will work for timing. I practiced a double-moving average strategy. That strategy never failed in 122 years of data. If I sell based on that, people will buy it. But, that strategy failed for Sensex alone. Sensex and NIFTY alone. It worked for NIFTY Mid-cap. It worked for small-cap too. But it failed in March 2020 just for Sensex and Nifty,. Because in March 2020, it fell in one month and immediately moved. Within a month, everything happened. The crash was over. It failed that. Even if you backtest for 122 years, I cannot predict whether it will win or lose in the future. So, no timing strategy has a 100% strike rate. That maturity should come. Also, our investing is a separate journey. There is no use in backtesting. Whether that journey wins or loses, we will only know at the end of the journey. That's a risk we have to take. So, in that way, I would say that ... Market timing is not bad. But, it is imperfect. Similarly, "Time in the market" is also not bad. But, it is also imperfect. That too is not 100% guaranteed. No matter what your prior return is, your journey time in the market can be different. Whether you are timing or being in the market, everyone is waiting for same bumper return only. That bumper return will come once in 5 years. Like 90%, 110% returns in a year. That bumper return might come once in 5 years or twice in 10 years. Everyone is waiting for that. So, in a sense, we are all timing in the market. But, that maturity should come. Whatever you do, it might not work 100%. -- Actually, in what you said, both are needed. Sustain to get. So, you have to stay in the market and if that happens, it will be like timing. We discussed that, some people are not tech-savvy and they don't have much opinion on online investing. Basically, they won't believe apps and afraid of getting scammed. So, to get them to invest and make them invest in equity, how can someone convince them? Or how can someone make them understand that it will work? First of all, ... -- Mutual funds have a very nice structure. They are all designed as trusts. In those trusts, you cannot take everything and run away. There is a definite guarantee in that. Unlike chit funds or benefit funds, such problems will not come in Mutual funds. The one advantage of Mutual funds is that ... AMC has understood that ... if they run a business honestly and people friendly, they get good profits. They don't need to do anything shady. It's very good for the investor. Right? -- -- Correct. When many customers come, they don't have to do anything wrong. If they run their business properly, they will automatically get money. It's enough if they behave within the rules. And also, we have SEBI. SEBI is like a cinema police. They will come only after it's over. But, they have been doing wrong for so long, coming like a cinema police at the end, they have changed the rules. They have managed somehow. -- More regulated atleast. Yes. -- In the 1990s, ... a UTI fund which was believed to be a debt fund was an equity fund. At Harshad Mehta time, it completely fell. Everyone started crying. There was no information for the people. But, it has changed now. So, there is reasonable ... Means, Capital market risk is different. Fraud risk or malpractice risk is different. But, the risk of malpractice is more or less very minimal, I would say. Maybe it's not zero. There will be a new problem because, Risk is the unexpected bad news you get. If you expect it, it's not a risk. So, there will be a problem. But, generally speaking, it's manageable. Of course, you shouldn't put all the money in one fund. You can split it and manage. Somehow, you can manage it. But, capital market risk, I would say, over expectation is the bigger risk. Like you said, Equity participation has increased in India after 2020. DMAT participation increased. They have never seen negative returns. The only negative they have seen is that ... when the stake was idle sideways last year. Exactly. That's their at best seen negative returns. If they have confidence that this is how it is, they will get hit definitely. That shouldn't come. -- What I expect is, ... in the next two years, if the negative returns went 20%, it will be like a reality check. I would call it an opportunity. Actually, more than the opportunity ... many people will quit. -- True. They will leave the market. -- Everyone will say window shopping on social media. But definitely many people won't invest. They will all lose. But, it will test you. Equity will test you. You have to be ready for that. -- That brings me to the other question. Assume the portfolio was hit by 55-60% like what happened in 2008. How would a common investor react? Many people might book the losses. How to handle it? Because you have been looking at the market since 2008. You would have seen a lot of stagnation. Or, you would have seen the market fall when LTCG was introduced. You would have seen too many events. How did you handle? And how could one handle it? Capital markets are bound to have this risk. But then, how will one handle? We can't say it's an expectation. It's an event, right? Correct, absolutely. -- See, we can easily talk about this theoretically. Of course, you can't control human behavior. But I have an idea in terms of emotional logic. Like everyone is emotional about their house. They want a house, or a room, or a corner. I want them to have the same logic for retirement. When I retire, I shouldn't be independent. Particularly, I shouldn't need the favor of my kids. I should stand on my own feet. As long as I have health, definitely, I should stand on my own feet. I need money for my needs. That's why I invest. So, I don't need that money now. Whatever problem comes in between, let it come. I'm willing to wait. Only if you have such mindset, you can invest in Equity successfully. I was saying the same thing during 2008 to 2013. You don't need money now, right? If it turns red, let it turn red. Need to just wait. That's my emotional logic. I'm emotional about my retirement. Because I was in someone else's favor. I don't need that money favor from my brother-in-law. That seemed bigger to me than the negative returns. But not everyone must have such experience. But maybe if some people use this logic, maybe if it is useful for 1%, maybe I hope. That's what I am saying. -- I'm waiting like that. But when I wait, ... there is a chance to trapped in a wrong fund or wrong instrument. How to know that decision? Assume I took a fund. I'm emotionally ready to wait. But what if I was waiting with a wrong fund for 5 years and didn't get a return? How would I understand that? When do I exit from that? Or should I even exit? Should I even think about switching? Did you have any such experience? See, for that ... -- the only solution is Index fund. You can be peaceful. There aren't such problems. It will rise when the index rises. There is no fund manager problem. There is no such problems. Everyone will have a star fund in their portfolio. If you see ... History will tell you that ... AMC itself will promote the associated star fund manager. They will promote in media interviews. After a few years, he will resign and start his own fund house. You will feel like a fool then. We trusted him and invested, but he left. So, without such unnecessary dependence, the best vehicle is the index fund. You can be peaceful. Also, you need a mature mindset for the index fund. Because when you look at it now, if there are 10 funds in a category, Only 5 funds beat the index. Those 5 beating funds will keep changing. As you said earlier ... Today's star performer might not perform tomorrow. So we can't predict which 5 funds will beat in the future. Probability is like a coin toss. Like heads and tails. Why do I need that game? I will be happy in the index. If you are like that, you won't have a problem even when you get negative returns. "Am I investing in the wrong fund?", there will be no place for such question. We can be happy. That's it. -- -- Makes sense. I will say this as a good episode. If we look at it as a closing, with your total experience, for the audience, this is the financial journey. You will ask to know and do something. This personal finance is like a postcard. There is nothing more to say. The content in the postcard is ... Do this and don't think too much. For that, what will you say? Life insurance, -- Health insurance, Emergency fund, 50% Index fund, or 50-60% index fund. remaining - EPF, PPF. Maybe a debt fund, if needed. That's it. -- What about taking loans? If needed, we can take 30-35% loan on appreciating assets. Depreciating assets are not needed. You can wait and buy a car without a loan. You can buy a second-hand car until that. If you want to buy a new car, you can wait, accumulate and then buy without a loan. That's what I would say. Ok, then regarding researching and following daily, What do you think? Don't read anything. -- Infact ... Don't get angry on me, don't look at any kind of content. Once your finances ...W What I tell my readers is that ... "Once you are done, show the FreeFincal way to your juniors and friends, and just leave", I say. I say, "You don't need to be part of FreeFincal." They will take care, I say. They will hand it over to their juniors and go. Also, I won't have a drop in content. I say, "You won't have confusion". Just like that. If the third umpire rewatches the reply again and again, they itself will have a doubt whether out or not out. they won't say it correctly. They will think and say. So if you keep watching, keep listening to the news, something will come to confuse us. It's not necessary for us. See... These basic steps that we talked about, once it is done, 30 minutes is enough for a year. If everyone have a 5-day leave in December or January, in that 5-days leave, 30 minutes is enough. - To rebalance and change something. That's it. -- 30 minutes for a year, that's all. You can definitely do that. That's it. You don't need to look at the portfolio after that. -- In fact, the reality is ... We are looking at the phone once in 30 minutes, which is not really of any use. Unfortunately. -- You shouldn't do that. You should do something else. What I am saying is ... Maybe just watch a movie at that time, Or do something for your upskilling. -- -- Productivity. Yes, productivity, something. -- It's better to do something like that. I would say ... one of the best distractions is ... to try to become a entrepreneur. -- Okay. Because you are always occupied. Yes, you are always occupied. -- Some problem will come. Whether you run a YouTube channel or a website, some problem will come. Camera might get repair, Content issues might come, or you might have a problem with the website, or a plugin problem will come. You will be distracted. And eventually over 10 years, that passionate entrepreneurship will result in an income stream. -- True. And I'm not saying to leave your portfolio. What I am saying is, you keep investing, but don't keep looking at it. -- You shouldn't keep looking. Do what you do, don't stop. Do more, but forget about it. That's it. It's like Scultping actually. Every sculpture starts from a stone. But that sculptor should know when to stop sculpting. Otherwise it will become a stone again. It shouldn't be like that. -- Okay. It was very insightful. I think this episode will be useful for many people. The link to FreeFincal is in the description and comment. Do check it out. In fact, anything related to retirement planning or financial planning, there is no content missing from his website. In fact, I would like to say. I have shared a real experience on our channel about how one person raised ₹10 crores. That content is also from his channel. In fact, I learnt a lot from there only. So, it will definitely be useful. If you want to watch more episodes like this, do mention it in the comments. Thank you sir for being here. Thank you so much for answering all my questions patiently. Thank you, it is a very good interview for me. I enjoyed it so much. Thank you so much Boosan ! -- -- Thank you so much ! -- Subtitled by Dwaraka : )