April 20, 2014

Shortest investment book

1.    Save atleast 20% of what you earn

2.    Buy a term life insurance policy such that the policy value = 30-50 times annual expenses (add health insurance to this if required)

3.    Park 10-20% of savings annually in liquid deposits (Emergency fund or for down payment on a house)

4.    Invest 60-80 % of savings via SIP in an index fund or a basket of diversified mutual funds like HDFC equity.

The above is enough for 90% of the people to retire comfortably at the end of a 40 year working life. Anything beyond this just commentary !
So there you go – no need to listen to any broker , read this blog or any investing book J.
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Stocks discussed in this post are for educational purpose only and not recommendations to buy or sell. Please contact a certified investment adviser for your investment decisions. Please read disclaimer towards the end of blog.

20 comments:

Anonymous said...

Rohit,

Have been following your blog for over an year now - Thanks :)

Could you please do an article on Indian Index ETFs/Funds that you would suggest for the long term for the 90% who are very well informed and have little understanding..

Ankur Jain said...


Well said, Rohit.

But one more thing which should be added to this list is:

"Be patient and disciplined. Do not stop saving or investing in your chosen SIPs under any circumstances".

Anonymous said...

hi Rohit,
i have been reading you blog for quite some time. am very new to this field investment. i have a small query like how would you calculate the purchasing power of rs after 30 years and the amount that one needs to have to live life comfortably say after 30-40 years?
it will help if you can explain with some example.
Keep writing such educating post.

Thanks in Advance,
Sumit

Rajesh NL. said...

It is as simple as that! Waiting for another shortest book for someone who can save 50% or more their salary and would like to retire in a decade or so,.. :)

Anonymous said...

Hi Rohit,

One more point you can add is that a small portion of the savings can be accumalated in banks and when the news channel experts scream sell,go for top up on your existing SIP

Regards
Anurag

Kundan Kumar Lucky said...

I will agree and disagree with all the points :-)

1. Saving only 20% is not enough unless retirement goal excludes kids' education and marriage expenses.

2. Even 50 times annual expenses at the start of one's career is going to be a much smaller sum. One needs to extrapolate.

3. One needs to separate the house down-payment part here. Beyond that, 10-12 months expenses should suffice.

4. Index fund performance is not expected to be great. If one can spend 3-4 hours a year, one MUST choose funds. Hot pick: Quantum Long Term Equity.

My personal rule of thumb has been that if one can save 50% of monthly income and spends only 30% (the rest of 20% used for building house or other expenses which will not have to be continued post retirement e.g. kids' fees), the retirement corpus will be so big that only dividend income will suffice for all expenses and the corpus itself will be the legacy one can leave (inflation protected).

Assumptions: inflation 10%, salary hike 10%, rate of return 12%. I assumed 100% investment in equities. For the general public, MFs are good enough. Just switch to dividend paying index fund (Goldman Sach Nifty BEES is the best) once you need the income.

And if spending only 30% sounds too low, ask yourself why a single guy making 30-40K in his first month needs to spend more than 10-12K on items like food, clothing.

http://www.ted.com/talks/joachim_de_posada_says_don_t_eat_the_marshmallow_yet

nrupesh said...

Brilliant, forwarded to my young cousins who don't like to read books.

thanks
Nrupesh

Rohit Chauhan said...

Hi anon
you can find good mutual funds on sites like valueresearchonline.com. look for funds which have a good track record ...meaning 10+ years of give returns more than the index

rgds
rohit

Rohit Chauhan said...

Hi ankur
well said ..that's the difficult part actual. most people fail at that

rgds
rohit

Rohit Chauhan said...

Hi sumit
its difficult to project purchasing power 30 years from now.
think this way, even if you know that inflation will be 6% per year, for next 20 years what can you do ?
what you can control is how much you save and invest in avenues which give returns which beat the inflation(whatever that is)

over long periods, equities are know to beat inflation and hence they help protect and grow purchasing power

rgds
rohit

Rohit Chauhan said...

Hi rajesh
you don't have to wait for that book ..it already exists - look for the book 'free capital' on amazon. its a story of 12 investors who saved and have become full time private investors

rgds
rohit

Rohit Chauhan said...

hi anurag
that requires swimming against the tide which most cannot do. better to set a 5 year SIP and forget about it. most people will do quite well

rgds
rohit

Rohit Chauhan said...

Hi lucky
you just described what a sophisticated investor will do ? how many such people do you know :) ?

a lot of educated professional are poor financial planners. you can imagine what the less educated folks do

my post is only half joking ..I am quite serious when I say if majority can just invest via an SIP in the index versus letting the money sit in savings account, they will do better

I can bet most people don't do that too

rgds
rohit

Rohit Chauhan said...

hi nrupesh
hopefully they will start a systematic invest approach :)

rgds
rohit

Anonymous said...

Rohit, problem in india is different due to sheer devaluation of rupees due to corruption and inefficiencies. Around 20 years back a simple commodity like Gram (Chana) use to be sold at price around 4-5 rs kg now same sold to about 40-50 rs. It means purchasing power of rs decreased by 10 times in about 20 years. If current state of affairs continue in next 20 years it is safe to assume rs purchasing power shall decrease by about 10 times. Also avg fresh engineer salary in india say is about 1200 20 years back which is currently rs 20000 ie if person save money 20 years back just to preserve its purchasing power after 20 years it value should be 10 times more. So in india dice is loaded against honest working professional (read pvt sector working professional) for wealth creation.

Rohit Chauhan said...

hi anon
don't deny that dice is loaded against the average person, especially inflation is a serious issue. although the stats show that inflation is 6-7% on average, lets take the numbers you have given which translates to around 10% annual inflation.

so if someone saves x% of salary (whatever that is) and can invest in equities via SIP, it is possible for that individival to make around 15-16% per annum over a 20 year period. if you do the math, the person will steal beat inflation and improve on his buying power

my point is - you cannot control inflation and what politicians do. you can however control how much u save and how you invest. put it in savings account at 8-9% pretax and u will lose buying power for the sake of safety

rgds
rohit

Anonymous said...

Rohit, thanks for your views. I was recently come across few reports and according to them in India currently about 1.5 lakhs individuals has net worth of more than rs 25 cr and around 8 lakhs people has net worth of more than 5 cr while only 5 % people has net worth of more than 5 lakhs so more than 95 % people unfortunetly fall in below average or severely poor category. HNI or average net worth people is hardly 2-3% of population

Rohit Chauhan said...

hi anon
find it difficult to believe for a simple reason - a city like Bombay has 1.2 cr people. atleast 5% of the people would have flats of their own ..that is 6 lacs itself . considering cost of real estate , I am sure their networth is more than 5 lacs. and this is just one city

rgds
rohit

Anonymous said...

Rohit,also look for one more url (this report is for year 2012. somewhere i have also seend report for 2013).This is made by Kotak and Crisil.
http://wealthmanagement.kotak.com/topindia/pdf/topofthepyramid2012.pdf

Anonymous said...

Waiting for a post on the current market madness - where everything is so expensive !! or are you are able to get good ideas ?

- Amit Shah