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.
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
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
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…
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
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.” Seven Steps To Retire Rich & Young… Lets See what Robert has to say on this one…Don’t Live Below Your Means
Step 3: “Link Liability Targets to Asset Targets.” Seven Steps To Retire Rich & Young…
Step 4: “Plan Liability Acquisitions at least a Year in Advance.” Seven Steps To Retire Rich & Young…
Step 5: “ Increase CASH by Increasing K.A.S.H.” K = Knowledge A = Attitude S = Skills H = Habits Seven Steps To Retire Rich & Young…
Step 6: “Work Smarter, Make your Money Work Harder.” Seven Steps To Retire Rich & Young…
Step 7: “ Have Targets for Job Earnings and Freedom Ratio.” Freedom Ratio = Other Income Monthly Expense Seven Steps To Retire Rich & Young… Lets See what Robert has to say on this one…Life’s Four Quaters
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 …
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