Simple tips for know-nothing investors.

1. Investing
Investing is keeping away a portion of your cashflow every
month to an instrument you greatly aware of to achieve a certain
goal.
 Instruments: Fixed deposit, Recurring Deposit, PPF, NPS,
CD’s, Money Market instruments, Stocks, Bonds, Mutual
Funds etc.
 Goal: Retirement, International travel, 25th Anniversary,
Education, Health Expenses, Dream Car etc.
Tip: some of the goals are many years away like retirement,
anniversary while some of them are just 6-12 months away like
International travel etc.

2. Prerequisites
Term policy
Health policy
Goals – atleast 1 (e.g. wealth creation in 12 years)
Risk appetite (conservative, aggressive, in middle of
both)

3. Asset allocation
 MF’s, Stocks, Bonds are riskiest instruments
 Fixed deposits, PPF are safest instrument in India (people loose money in
fixed deposit too, e.g. PMC cooperative bank)
 Decide your asset allocation based on your age, risk appetite, goal
duration.
 Rule of thumb- subtract your age from 100 and the number you get
should be the ideal allocation to risky instruments such as stocks and
MFs. It’s also given that you don’t need your money invested in
stocks/MF for the next atleast 12 years. You also ready to bear 50%
downside for the portion you invested in stocks/MF.
 50% downside is a real possibility in case of a war, natural disaster,
unforeseen situations.
 Up to 20%-25% downside happens in every 7-10 years. You can’t predict
when. If you can predict, you can become billionaire in just 1 year.

5. Know nothing investor – where to invest
 If you are a know nothing investor, minimum10% CAGR is a real possibility.
 Nifty has a CAGR of 13.4% in the last 20 years (since 1998) and 13.89% in the last
10 years (since 2008).
 In an ideal situation, let’s assume you have been investing 1000/- Rs. Every
month, here is the return data:
 After 20 years: total deposit: 2,40,000 Rs., Return: 1,210,689.20, 5 times return
of your total investment
 After 30 years: total deposit: 360,000 Rs., Return: 4,842,176.51, 13 times return
of your total investment
 All you need to do is to invest in index fund of your country. Nifty 50 is an index
fund and represent top 50 companies in India. Some of the companies are HDFC
Ltd, HDFC, Reliance industries, TCS, Kotak Mahindra Bank, SBI.
 Index fund decides the growth of a country. Its companies monitored and
replaced by other growth companies every 6 months. Eg. Nestle India was not a
part of the Nifty 50 and included on around August.
 Example mutual fund: UTI Nifty 50 direct plan - growth

6. Word of caution
 Given the fact that we have had CAGR of ~13%, it doesn’t mean we grow with the
same pace and will get the same CAGR. We might get better than this or worse
than this.
 Usually, when inflation go down, return decreases. Eg. S&P 500 which an index
from the USA has a CAGR of 6.24% (1999-2019). To be noted, the USA has 0-1%
inflation.
 Investing in a specific equity is a risky affair, your 100% stake is at risk at all time.
Until and unless you have great knowledge on reading financial statements,
understanding market sentiment etc. etc. etc., don’t invest or think to invest in
direct equities. You can’t compete with the thousand other fund managers,
professionals who are in this field from the serval years and work very hard to bring
better results for their client.
 When you invest in Index fund, your money is in safe hand. SEBI looks over index
regularly. You pay less in expenses (0.10%)to mange your fund. At the same time,
an active mutual fund demands around 1% expense ratio which may affects your
return.
 Don’t pause your monthly cashflow to MF’s when you see market is in despair,
instead put more money every month.

7. Happy Investing