About the Contest
My fascination with investing was sparked-off way back during my post-graduation days when a financial advisor took a session explaining what investing was and how it would help us to meet our goals. My fascination was understandable, after all, why would we not want to make cool bucks over-and-above what we earn? But the real love for investing started when I read the book “Rich Dad, Poor Dad” by Robert Kiyosaki and the perspective-changing thoughts that came along with the book. It was just out of the world, and few snippets allowed me to make money in stocks and then use that money to buy a house. No kidding and I will touch upon that part, shortly.
From that time on, I had read a lot of books, and there is one idea that stands out for me about investment, and that is – “Money making Money”. Isn’t that powerful? Till that time, I used to think of working for money, but that statement made me realize that I can make money work for me. And why not? While you earn your money, your money earns for you too, and if done right what your money can earn for you will be more than what you earn. Read again – what I said was your investments can earn you more than what you can earn through your job. How does that sound? Cool?
I am sure it is. So let’s look at how I go about it and why it is fun.
Why did I get into investing?
I did mention that I had read a lot of books on investing, and they did make a difference. Few pointers which made me seriously look at investing are listed below:
- Investing in certain instruments could hold higher risk than possibly a bank balance which is the lowest form of risk (A lie. I will explain)
- Banks provide a safe return of 1% to 8% per annum and that too for just sitting in my account
- But the banks, as the best investment gurus forgot to tell us, have to give returns way more than inflation to be useful. Inflation, simply put, is the cost of buying goods which in most countries is increasing. The inflation rate varies anywhere between 1% to more than 100,000% (ask the people of Zimbabwe and Venezuela). What does that mean? This means that while our returns are accumulating 8% interest in our bank accounts, a paltry inflation of even 8% wipes out our interest savings.
- How is that? Here is how: Net Interest Earned = Bank Interest Offered – Inflation = 8% - 8% = 0
- Does that mean we should not have savings at all? No. Have savings, but there should be a healthy share between investments and savings. And there is a reason for that too.
- What do you think happens to the money that you put in your savings account? Answer - The bank uses it to lend to industries and individuals seeking loans. So much for calling it safe.
- If you had witnessed the 2008 meltdown of banks in the U.S. then you need to question the thesis that banks are safe, shouldn’t you?
- If you have witnessed inflation sky-rocketing in a relatively well-to-do economy like Venezuela, then you need to question the notion of money made through bank interests are enough to tide you through. It may, in most cases, but what about the worst cases?
- Besides, doesn’t it make you wonder that the money that you put in your bank account is used by industrialists to - hear this now – INVEST? And in the process, the bank and the industrialist make money, and we end up being content with the 1-8 per cent returns. Nothing wrong with that, but why can’t we earn more?
- These were the pointers which made me realize that I had to do more than just earn interest on my savings account
And the more important point was my mantra – Money making money – was not happening in the banks. At best, my money was making 8% returns while through my annual appraisal (at my job) I was earning a 30-35% increment. In other words, I was making more money than my money on its own.
But this was also a good baseline. If I had to invest, then I had to make my money work and earn more than 35% year-on-year, at least.
Sounded like a humongous task, but it was possible.
How long have I been investing?
I have been investing for more than two decades now. Interestingly, the first time I invested was not from the money that I earned but from the money that I got as pocket money. Thanks to my father’s advice, I saved some money and put it in stocks. My father was kind enough to double up the amount, but I was quite proud of that achievement.
Interestingly, you would be surprised that that is how industries function. Organizations borrow money from banks (one of the sources) which is not earned by them, and they use that to grow their business. In turn, they make profits and return the borrowed money with interest to the bank.
So, I was an industrialist back in my student years?? 😊
What do I invest in and why?
I think let’s keep this part story-based than super king-kong sized investor talk. You would agree, I am sure.
Let’s get started.
Cutting on Food to buy Shoes
The first example, I remember, of buying something on my own was again in my student years. I had saved up money that my father (see how much he played a role? 😊) used to give as pocket money to buy a rough-and-tough branded shoes. That was kind of a kicker. But to achieve that I had to cut on my college food, tried walking where I could have taken transportation and many other things. The learning I got out of that kind of buying was that it was not sustainable. How long can I remain hungry? How long can I live cutting down on things? It’s just one life, I might as well LIVE it BIG. Won’t you agree?
Also, this experience made me realize that even when I earned, I should somehow find ways to multiply my money so that I could have the luxuries of life. I know shoes are not exactly luxury elements, but hey, I was in college back then.
Assets and Liabilities
Flash forward, I have got my first job and buying shoes is a cake-walk, what next? This is when I read “Rich Dad, Poor Dad”. Let me talk about a few perspective changes that happened here. I used to think that a house is an asset, but according to Robert Kiyosaki, the house is a liability. Stumped? I was too. See, what Robert says is that anything that causes cash to flow to you is an asset, and what causes cash to flow out of you is a liability. Now it makes sense, right? I had a loan on my house, so I was effectively having money flowing out so my house was a liability until it could earn me income. Hmmm… true that! Anyway, let me not talk about the book here but my experiences because of the books.
Stocks were my first instrument (if I can call it so) in which I invested. It was easy, my father was doing it, and I had done it back in college days, so to continue doing it was easy. Now, our economy was a growing one, and so it made sense in investing in utilities, and I did. Man, was I in for a surprise! Three stocks skyrocketed more than 300% (warning: does not happen always) and one over 1000%, gave a share split, and a bonus.
But stocks require you to be vigilant and not just invest and forget unless you are investing in a Google or an Amazon. Why do I say that? The stock which gave me a 1000% return was into CD business back when I bought it. Needless to say, the world was transitioning from analogue media to digital media and CDs were the best way for digital storage back then; way better than floppy disks. I think you can guess the fate of the company today, right? Who uses CDs today? This company which gave me such high returns back in 2005, filed for bankruptcy in 2018. Hence you got to keep checking your stocks and the changing dynamics in different industries.
I was lucky to get such high returns in such a short time, but investing in stocks is long-drawn, and you need to be patient and vigilant (remember the company making CDs). I have experienced returns in the range of 18-25% over a longer period. Not bad, huh?
Remember, I told you at the beginning that I made a killer out of stocks and then bought a home? Well, this is that story. You just heard my stocks saga, and the now hear the home saga. In 2008, wifey and I decided to buy a home, and we short-listed this one beautiful property with a swimming pool, gym and really good facilities.
However, wifey and my money put together were just 10% of the cost. Then came the stocks to the rescue. I sold my entire portfolio, and with that, we could cover another 35% of the cost. So we still required 55% to be paid, and that was done through a loan from the banks. That’s it we had our home, and a new asset, which of course, Robert Kiyosaki reminded me was a liability unless I can get done with paying back the loans. I am getting there!
Well, what about the returns? The house value has appreciated by more than 300% since I bought it in 2008. And it continues to appreciate. It is quite rare to see your investments in property depreciate unless you are doing it for an extremely short period.
PPF (Similar to 401K in the US)
Now, as you would have guessed, this is one of the “safe” categories of investment. The returns are better than bank returns but lesser than the riskier stocks. But this category has something that no other category has, and that is – the power of COMPOUNDING. I can choose to invest every month or a lump sum subject to a ceiling amount every year. But year after year interest accumulates and the accumulated amount along with interest gathers further interest the next year, and the cycle continues. For those of you who are unaware of the power of compounding, should understand the concept and if you find similar avenues do invest and see your investments sky-rocket.
Take a look at the following table:
Now, in example 1 we are investing just USD 100 in year 1 and then looking at compounding by 10% every year; 10% is the rate of interest. By the tenth year, the investment has grown by 135% and by year fifty it has grown by 10,500%. This example shows how compounding sky-rockets after the first fifteen years. Another subtle learning from here is that invest early and see your investments go ‘to the moon’ (crypto style) 😊.
But that’s not all. In example 2, the growth is even more phenomenal. Here, after the first year, you invest USD 100 every year and now look at the growth. At the ten year mark, your investment has already grown by nearly 600%. At the end of the fifty-year mark, the growth is a phenomenal 111,000% and that too, for an investment of USD 5000 over 50 years. How cool is that? And here’s the second learning – compounding increases exponentially with an increase in the investment mass. That is, instead of USD 100 when we increased it to USD 5000, the returns at the end of 50 years were ten times more.
So, invest in avenues which allow you a compounding growth.
**Caution – At first it may seem to be going slow, but once a certain corpus accumulates, the compounding effect is mind-boggling. In other words, this investment may require a longer period, roughly in the 15-30 years range. I have so far seen a return of 32% roughly and growing.
In the order of investments, this is the last of my investments, although mutual funds are the easiest and best way of earning returns. And, of course, you would have heard disclaimers such as - mutual funds are subject to market risks, haven’t you?
But done over a longer period, mutual funds are the riskiest non-risky investment. What did I just say? Well, I meant over a longer period, mutual funds tend to iron out market risks. There are many ways in which you can invest in mutual funds. First, find a good mutual fund house and then pay a lump sum investment and wait for a few years to get good returns. The other way is to invest a specific amount every month, and this is one of my preferred ways. Why?
See, if you follow stock markets, then you know that they tend to go up and down in a short period. So, if you keep investing, let’s say USD 1000 every month, the investment can happen when the market is up and also when it is down — heard of the proverbial buying at dips? Well, the systematic investment plan (SIP) every month does exactly that. And over a longer period, the benefits are amazing.
I had started this late as I already said, but my wife was invested for nearly 11 years and already has returns of over 112%. Of course, part of it is also attributed to the speed with which our market grew over the last decade. The returns of best mutual fund houses in our country ranges between 18% to 32%. Not bad, either. And my returns over two years of investing stands at 11% roughly. So, this is one good avenue too and a recommended one.
Well, well, well, how could I end my article without talking about the obvious one, which I would be expressing even without saying so. Why? After all, I am writing this article on a crypto-based platform, am I not?
I started on my cryptocurrency journey with Steemit in 2017. See how late I was? But the story is that I started here and stopped because I was not earning at all. No matter what kind of article I used to write, there was just no following or upvotes. Then I found the secret. I started participating in the contests and winning, and that’s how I started earning Steem.
I used Steem to buy other coins and tokens and many more coins from airdrops. The interesting part is that I never invested even 1 FIAT currency here. So, technically, I invested zero money and got the returns that I got. That’s like infinite returns! 😊 How many can boast of that?
So, that’s about my investment journey.
But why invest? What is the end goal?
Well, after reading about my investment plans and returns, there would be little left to the imagination as to “why?” invest. And you would have also seen the aspect of your ‘money making money’ alongside you. This cycle would continue until your money earns you so much more that you don’t have to work anymore!!
Let the last sentence sink in. If my money can earn me more money, then I am free to do what I like instead of work. Of course, what you like could also be your work, but then you stop doing it to earn money, and you start enjoying it, right? That’s my goal. I want to have my money earn me so much that I just go about my writing work without needing to think about earning money. Get my goal? Here it is - early retirement, writing, cruising, holidaying and enjoying!!
I wish this same goal for every one of you reading the article. All the best to you and me!!
So, that sums up most of my story.
Let’s summarize anyway.
Investment modes and methods can vary, and not all investments need to follow my path. Many of my friends have invested in stocks and PPF first and then later in mutual funds and lastly in a property (they have not even started crypto ☹). So, the order of investment is not as important compared to the need to invest. So get started.
Here is a table talking about my preferred investments and associated risk and returns.
I hope you enjoyed reading my story. Until next time, ciao!
Image Courtesy: Pixabay