Retire rich retire young

Retire Rich Retire Young…
- An effort to make your money work harder…
Presented by:-
Vishal Thakkar
M.Com, CA, MBA(fin)
Managing Director
Brianna Knowledge Resources Pvt. Ltd.

Time & Money
Let’s begin with a story! There was a village with a drought. The Chief of the village found the two smartest men he could find and gave them each Rs.10,000. Their mission…..bring water to the people.
The 1st man was a hard worker and started a business.
The 2nd man was an investor and built a pipeline.

And the winner is……
Not only did the second man win the contest, but he found a way to have water (money) come in even when he wasn’t working.
Both men started from the same background, with the same experience, and the same amount of money. The only difference was that the 1st man worked hard for his money and the second man had his money work hard for him.
“The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.” – Rupert Murdoch

Retire Rich & Young…What?
Different People have different meanings –
Some say good lifestyle, no pressure to earn money etc.
While others say pursuing hobby, not going to work.
Retire Rich & Young, to us, means,
“subscribing to an increasing standard of living, without having increasing effort to maintain it.”

Retire Rich & Young…Why?
To do what I like to do & not just work for money.
To pursue my hobbies, interests which were left behind in Rat Race.
To spend more times with Loved ones, family & friends
To help people, take up a social cause & to make this world a better place.
Whatever be the objective, we all agree that there is a need….

Retire Rich & Young… How?
That’s Precisely what this program is all about…
Lets first Unlearn a few Concepts, that we have gathered during the course of our learnings in Life…

Let’s Get a Little Practical…
Job Earnings
Other Income
Monthly
Expense
Lets See what Robert has to say on this one…3 Types of Income

You need a little help…
House Rent
Milk
Petrol
Electricity Bill
Clothing
Household / Monthly Expense
Weekend Getaways
Habits
Traveling Expense
Eating Outside
Movies
Mobile / Telephone Bill.

Freedom / Wealth Ratio…
Freedom Ratio = Other Income*
Monthly Expense
* The one which your money earns & you do not.

3 Types of Education
Academic
Professional
Financial
Lets See what Robert has to say on this one…3 Types of Education

What Are Assets?
Dream House
Sports Car
Gadgets
Diamond Jewellery
“Anything that puts money into my pocket is an asset.”

INCOME
EXPENSE
ASSETS
LIABILITIES

What Are Liabilities?
Housing Loan
Car Loan
Personal Loan
Credit Card
“Anything that takes money out of my pocket is a liability.”

INCOME
EXPENSE
ASSETS
LIABILITIES

What Is Wealth?
“Wealth- Number Of Days You Can Maintain Your Current Standard Of Living If You Lose Your Main Source Of Income.”
Dream House
Sports Car
Foreign Trips
Shopping
Diamond Jewellery
Lets See what Robert has to say on this one…
Assets V/s Liabilities…

Why Middle Class Struggle?
INCOME
EXPENSE
LIABILITY
ASSET

Let’s Take a Break…

Savers Are Losers…
How many of you have a Savings Account…?
What is the Rate of Interest that you get on your Savings Account…?
What about the average Inflation Rate…?
Do You recommend Fixed Deposits…?
“If Savers are Losers, Borrowers would Win”
Lets Look at borrowing…
Lets See what Robert has to say on this one…Savers are Losers

Arbitrage
Your Re.1 at work at the bank.
Rs.10 for every Re.1. By RBI Rules, banks can lend out Rs.10 for every Re.1 that you give them. Meaning they have made up Rs.9 of borrow able money out of thin air. Where do I get some of that?
They say open an account with us and we’ll give you anywhere from 1% to 5% interest. We’ll even give you stuff!
Then they then turn around and lend you the money right back saying borrow money from us and we’ll only charge you 10% to 27% interest.
And that is why banks have beautiful fountains, golden chandeliers, and marble floors. Your money paid for it!

Your Expense, Bank’s Income
YOU
THE BANK
INCOME
INCOME
EXPENSE
EXPENSE
ASSETS
LIABILITIES
ASSETS
LIABILITIES
Your Mortgage
Your Mortgage

What is your interest rate……. really?
Buy Rs.100,000 Home, make a down payment of 20% (Rs.20,000) and borrow the remaining balance Rs.80,000 at 8% interest with a 30 year term fixed loan.
In five years you will pay a total of Rs.35,220 to the bank, Rs.31,276 for interest (that is only Rs.3,944 for Principal Repayment).
With the loan taken to term, 30 years, you will have paid Rs.211,323 total principal and interest (Rs.131,323 paid in interest).
Rs.131,323 more like 160% not 8%.
You’re getting the truth, just not the whole truth.

Top Two Money Eaters…
TAXES & Death are the two things which we cannot avoid, so we defer them ALAP.
INFLATION is number two evil that eats away our money like a rodent

Why do we follow the crowd?
We are going to read your mind. That’s right read your mind! Ready…..
Pick a # between 1 and 10.
Now multiply that # by 2.
Add eight to that #.
Divide that # by 2.
Now subtract the # you started with from that #.
Now what ever # you have in your mind, match it up with its corresponding letter in the alphabet. i.e. 1=a, 2=b, 3=c, d=4, etc.
O.K., Now think of a country that starts with that letter. I’ll give you a second.
Having a hard time……….think Europe………….how about Denmark? You’re thinking of D right, you did get 4? At least you should have if you did the math right. How did we do that?

We follow the crowd because it’s easy and because we are just good at it!
No matter what number you were thinking of the equation would have led you to the number 4. When we invest, we are doing the same. The numbers start out differently, FDs, Post Office, PPF, KVP, IVP, NSC, Mutual Funds, yet your results are the same……...…dismal.

How Do We Get Out?
“Albert Szent-Gyorgyi, a brilliant scientist who won the Noble Prize twice in his lifetime, stated, “Discovery consists of seeing what everybody has seen, but thinking what nobody has thought.” People often make the mistake of asking people who are trapped inside the same box (or way of thinking) how to get out of the box. What they don’t realize is, the instructions on how to escape that box are written on the outside.
* Andrew, Douglas (2005). Missed Fortune 101 Warner Business Books, pg. 122

Practice What They Preach?
Ask your banker/financial planner these questions!
Where is the majority of your money coming from? i.e. commission, fees, salary vs. investments.
How long did it take you to become a broker?
Can you guarantee that return on my investment? i.e. the prospectus and small writing.
You see, they are called brokers because they are broker then you are.
“Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those that take the subway.” – Warren Buffet

Time Is Your Friend
Time: a young person’s biggest asset
Compound interest is awesome
For every decade that savings is delayed, the required investment triples
Example: Rs.500,000 at 65; 10% yield
Age 25: Rs. 79 per month
Age 55: Rs. 2,141 per month

Difference is quiet significant in long run.
Power of Compounding
Growth of Rs. 100/-

More About Time
Time diversification reduces investment volatility
The Rule of 72
72/interest rate = doubling period
72/doubling period = interest rate

4,285
Harshad Mehta
5,001
Tech Boom
Performance of BSE Sensex - Equities not risky in long run
As Time Increases
Volatility & Range
Decreases

Sensex Growth from 1979 - 2007
After all, in the last 25 years, we’ve seen ….
Two wars
At least three major financial scandals
Assassination of 2 prime ministers
At least 3 recessionary periods
10 different governments and
An unfair share of natural disasters, yet
However had one invested in the Sensex Rs 1 lacs in 1979 it has grown to 1.30 crs earning a return of 19% compounded annualized return.

Rule of 72
If you Put your Money at ‘X’ % then your Money is double in (72/X) years.
For Eg: 1 Lac Invested for 36 Yrs

Investing is NOT Risky…
What is Risky is an “Investor” & not an “Investment”
Fundamental Investing
Technical Investing
Buying Insurance
Lets See what Robert has to say on this one…Investing Isn’t Risky

Managing Investor’s Psyche
Wrong emotion dominates at wrong time

Financial Status of Rich Person
INCOME
ASSET
LIABILITY
EXPENSE

So what do we recommend…
Take the Steering Wheel in your hand…
Invest In Yourself First…
Learn the Language of Money…
Climb the Seven Steps of Retiring Rich & Young…
Make an Action Plan to religiously follow them…
Review your progress at reasonable intervals…

Let’s Take a Lunch Break…

Investment Avenues…
I know all of you have been waiting for this one…
But not too soon…
Let us first understand the difference between good Loan & Bad Loan

“Here are 5 great reasons to carry a big, long mortgage and never pay it off.” - Ric Edelman, Author of The Truth About Money (1997 Book of the Year).
Mortgages Don’t Affect Home Value
The value of your property is going to rise or fall regardless of whether or not you have a mortgage. You wouldn’t keep Rs.100,000 between the mattresses, why would you keep it in your house?
Your Mortgage Is The Cheapest Money You’ll Every Buy
People have a ton of debt, i.e. credit cards, auto loans, student loans, etc. By far, the cheapest loan you can get is a mortgage loan. Why wouldn’t you borrow against your house at 6% acquiring more assets to increase your R.O.I., instead of borrowing with a 18% credit card.

You Might Need The Cash
Financial Troubles? i.e. retirement, job loss, medical, family, marital, college, etc. Banks only like to lend money when they know it can be paid back.
Tax Law Encourages You To Have A Mortgage.
Mortgage insurance and interest is tax deductible whereas interest on other loans are not. In essence the government rewards you with cash back for paying interest on your mortgage.
5. Mortgages Become Cheaper Over Time
Depending on the loan you choose, your mortgage payment stays the same over time. However your income increases making the payments easier to make.
Lets See what Robert has to say on this one…Good Debt V/s Bad Debt

Investment Avenues
Real Assets
Real Estate
Commodities
Oil, Gold and Silver
Paper Assets
Stocks and Shares
Certificate of Deposits
Government and RBI Bonds
Foreign Exchange
Mutual Funds
Public Provident Fund

The Beauty of Real Estate!
Phantom Cash Flow (Depreciation) – Make money and count it as a loss
Banks Lend You Money – Try that with stocks
Leverage – Get more for your money
Sec - 54 Tax Deferred Exchange – No capital gains tax
The Bigger the Better
Negotiations – Something is worth only what someone else will pay for it
Appreciation

Dolf De Roos’s Four Questions
Q: How many Rupees worth of stock/property can you buy with Rs.10,00,000? A: Rs.10,00,000 with stocks, but with real estate a whole lot more!
2. Q: The moment you buy your Rs.10,00,000 worth of stock/property, how much is it worth? A: Rs.10,00,000 with stocks, but with real estate it could be a whole lot more!
3. Q: When you buy your Rs.10,00,000 worth of stock/property what can you personally do to increase the value? A: With stocks pray or write the C.E.O. of the company and ask him to ease up on the private jet trips. But with real estate you can paint, put in new flooring, landscape, or even add a room.
4. Q: Once you have bought Rs.10,00,000 worth of stock/property and it has doubled in value what must you do to enjoy the gain? A: With stocks sell them and pay capital gains, but with real estate you can sell, trade, refinance and enjoy limited and even sometimes no tax.

Commodities
Buy and Sell Commodity Futures
New to Indian Market
Timing of Purchase
Knowledge and Skills

Oil, Gold and Silver
Oil Futures can be traded as a commodity
Timing of Purchase
Knowledge and Skills

Stocks and Shares
Do it on your own
Give in for Portfolio Management Service (PMS)
Discretionary V/s Non-Discretionary PMS
Let us do a Mass Role Play

Which Company will you choose to invest in?
Name of Company: Wise Co. Prudent Co.
Sales Rs. Crore 1000 800
Net Profit 120 200
Profit Margin 12% 25%
Equity Capital 200 500
Debt Funds 200 100
Return on Equity 60% 40%
There are other financial / non-financial factors that would influence investment decisions.

Certificate of Deposits
Use Rule of 72 for your advantage
Banks, Corporates, Post-Office etc.
Even Indira Vikas Patra and Kisan Vikas Patra come Under this asset classification
Lacks Liquidity and Flexibility
Yields meager Return post inflation and taxes

Government and RBI Bonds
Safety of Capital
Lowest Return
Mostly to Balance the Investment Portfolio
Tax Saving at other times

Foreign Exchange
Hedging Instruments
Now used for Investment because of Volatility
Large in Base, Deep in Scope
Booming because of Foreign Institutional Investment Inflows

Mutual Funds
Collective Investment Schemes
Open Ended Schemes
Close Ended Schemes
Equity Linked Saving Schemes (ELSS)
S-I-P’s (Systematic Investment Plans)
Concept of Fund of Funds.

Public Provident Fund
Fixed Obligation Every Year
15 years Lock in
Good for Tax Saving
Introduces Concept of Forced Saving

Let’s Take a Break…

Seven Steps To Retire Rich & Young…
Step 1:
“Decide your Age of Financial Retirement Now.”

Step 2:
“Buy Liabilities to the Extent of Need and Not Desire.”
Lets See what Robert has to say on this one…Don’t Live Below Your Means

Step 3:
“Link Liability Targets to Asset Targets.”

Step 4:
“Plan Liability Acquisitions at least a Year in Advance.”

Step 5:
“ Increase CASH by Increasing K.A.S.H.”
K = Knowledge
A = Attitude
S = Skills
H = Habits

Step 6:
“Work Smarter, Make your Money Work Harder.”

Step 7:
“ Have Targets for Job Earnings and Freedom Ratio.”
Freedom Ratio = Other Income
Monthly Expense
Lets See what Robert has to say on this one…Life’s Four Quaters

Action Plan…

What is the Average Age
when one starts Earning?
Let us begin with a little quiz
25 Years

What is the Average Retirement Age?
60 Years

What is an Average Income of an
Middle-Class House-hold?
Rs.15,000/- p.m.

How much can a person
save on a regular basis?
Rs.5,000/- p.m.

If a person can save Rs.5,000/- per month
What will be his wealth when he retires?
Assuming:
He increases his investments by 5%every year
Invests in an Asset class that gives returns of 20%

At Age 60 his wealth would have been
Rs.27 Crores

THE TRUTH
Creating Wealth is Easy
We can all be Wealthy

How can you create wealth?
Start Saving Early
The longer you save, the more you make
Save in the Right Asset Class
This will dictate how much wealth you create …
Save Regularly
Even a small amount saved regularly, is good

27 Crores*
4.90 Crores*
40 years
25 years
60 years
Starting Early
Give time to your investments rather than timing
Assumptions: (a) Savings grows at 5% annually (b) Returns assumed at 20% CAGR

Sensex
Bank Deposits
Company Deposits
Inflation
Gold
Selecting Right Asset Class
Equity market (represented by BSE Sensex) has outperformed all other investment avenues

Past Performance (BSE Sensex)
In past27 years BSE Sensex has given about 18% returns
This is in spite of …
Two wars
At least three major financial scandals
Assassination of 2 prime ministers
At least 3 recessionary periods
10 different governments and
An unfair share of natural disasters

Average Purchase cost
will be less
Rupee Cost Averaging
At higher prices – less units
At lower prices – more units
Automatic Timing
Save Regularly
Disciplined Investing through Systematic Investment Plans (SIPs) is the ideal way to reduce risk
Twin Benefits of Investing Regularly
Falling Market
Rising Market
Market
Units Purchased
Market
Units Purchased

Give Time rather than Timing the Equity market
Investing in the BSE Sensex – 25 years
16.02%02%
16.90%
15.07%
Fixed investment athighest sensex valueevery year
Fixed investment atlowest sensex valueevery year
Fixed investment on 1st day of every month
Market timing does not matter over the long term
Data source: ICRA MFIE

X
X
X
X
Wisdom
“We do not need to be wealthy to be an investor …But we can be wealthy if we are investors”
The Right way to create wealth …
Buying potential big winning stocks
Successfully timing the markets
Following Expert Advisors recommendations
Saving a lot of money
Wealth can be successfully created if we just follow the three basic principles ...
Starting early and saving for long
Investing in the right asset class
Investing Regularly – big or small

Conclusion
So the question is………….
What are you going to do with your time and your money?
“Only a fool does the same thing over and over again and expect a different result.” – Albert Einstein

Questions…

Wish you good luck.
Thank You…

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Retire rich retire young

by Brianna Knowledge Resources Pvt Ltd on May 31, 2010

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Retire rich retire young — Presentation Transcript