Be Rich

RICH.. One word in the world which drives most of the people but in the race to be rich they often forget that whether they want to be really rich or just show that they are rich. Lot of people never become wealthy because they waste too much money on buying symbols of success that depreciate. They are more focused on looking rich instead of becoming rich. The first thing that we were taught about financial independence is that we should save first and then spend what ever is left. However, in the race to look rich, people spend first and then save if anything is left. In most of the cases, nothing is left to save. Expensive foreign trips, new mobile phone every year, a smart watch to match the mobile, air pods, new car, latest jewellery, etc. are a few things which can make one look rich but realistically one does not become rich.

Mr. Mukesh Ambani drives a Maybach because he is the Mukesh Ambani and not vice versa (he is not Mukesh Ambani because he drives a Maybach).

On one hand, we have people like Mr.Azim Premji, India’s second richest man, who drove a second hand Mercedes Benz which he apparently bought from one of his employees and South Indian megastar Rajnikant who drives a Toyota Innova. Whereas on the other hand we have people with an annual income of INR 20-25 lakhs driving high end cars like Audi, BMW etc. These are the people who want to look rich and not to become rich.

Whenever you want to buy something, stop for a moment and think if it will actually make you rich or merely make you look rich. It is important to invest or buy things which appreciate and not which depreciate. You should not spend on a new car or a new mobile or buy a house which you can’t afford just because 3-4 people in your friend circle have it. They can buy it either because they have enough money or they are people who just want to look rich. In either of the cases, you should not follow them.

Today, most of the auto manufacturers are offering a huge discount on purchase of new vehicles. People will go and buy a Maruti S-cross because it is available at a discount of INR 1 lakh but won’t buy Maruti stock which is available at a 50% discount. If there is a sale on iPhone, say, of 10% , people will line-up to buy it but won’t buy stocks like Page Industries or Eicher Motors which are down 50% or won’t invest in mid-small cap mutual funds which are down 25%-30%. In a rush to look successful we spend money on material goods or luxury items which will be outdated in a maximum of 1-2- years. We sell our 2-year-old mobile phones at 50% price but we can’t digest a 10% temporary fall in our portfolio. All these are perfect recipes of not becoming richer.

Think about buying car company’s stock instead of buying the new car. It’s better to own shares in the jewellery company instead of having a massive jewellery collection. Think like an owner, not a consumer. Your goal should be to become rich and not just look rich. Buy whatever you want but only after you have invested for your child’s future and more importantly your future.

“Too many people spend money they earned, to buy things they don’t want, to impress people that they don’t like.” ― Will Rogers

 

THE LAZY INVESTOR

Bill Gates once said, “I always choose a lazy person to do a difficult job because he will find an easy way to do it”

You know what’s the most difficult part in investing? It’s ‘Doing nothing’. With so much of noise around you, about your colleague making “x” return and another friend making “y” return, it’s really difficult to not do anything. As we don’t want to be left behind, we tend to take some action. We don’t take action to make money but only because of the feeling that if someone is making money or making more money than me, then why I can’t make the same amount of money.

Do you remember, the famous dialogue from the movie 3 Idiots “Jab dost fail ho jaye to bura lagta hai, but jab dost 1^st aa jaye to jyada bura lagta hai? “ Same way when our friend loses money, we feel bad, but we feel worst when they make money and we don’t.

Secondly, we are taught that unless we work continuously towards our goal we will not achieve it, and so we apply that to investing also. There are people who are always on top of their portfolio and ready to do some action. If markets are falling, they want to redeem money; if it’s going up, they want to add more; if Fund A  is under performing F, they want to change the Fund A and when Fund C  starts performing better than Fund B they want to dump Fund B. They feel that unless they take continuous action, they will not be able to generate returns in their portfolio.

This is where being lazy helps. It may not work in other aspect of life but in investing it works most of the time. Do you know the easiest way of doing this difficult job of investing? It’s SIP. It’s dull and boring, but apparently the most disciplined and prudent way of investing. Let’s look at some numbers to make it more relevant. Last 3 years return of Birla Equity Fund is around 4% CAGR but last 20 years is around 18% CAGR. Last 3 years return of L&T Midcap fund is around 0.5% CAGR but last 10 years return is around 16% CAGR. If one takes action at every downfall, he will seldom make money. The idea should always be to invest in a good fund house and a good fund, ride through the cycles and get good returns.

One should not change his mutual fund portfolio actively as the fund managers are doing this job on behalf of investors. Most of the good fund managers change the sector and stock allocation in their portfolio actively based on the market scenario. This not only reduces the cost for investor but also the hassles of entering and exiting the portfolios every now and then. You should change the funds only when they start giving below average return and there is no sign of improvement.

Being lazy does not mean stop tracking your portfolio but it simply means that taking the decision of inaction after looking at all the aspects. Being lazy should be by choice and not otherwise.

‘MDBSC’ – This term was coined by one of my Facebook friend. It means My Dull and Boring SIP Continues. So, whenever your friend or colleague comes and asks what are you doing in this market, simply say MDBSC. (My Dull and Boring SIP Continues).