In my career almost spanning 2 decades, I have come across many kinds of people with respect to the way they consider investing.
Type 1 : These are the people who have no investments, no savings. They have a bulk of money lying in their bank accounts which keeps inflating as the salary gets credited month on month. Whatever remains after the expenses stay in the bank account earning them absolutely nothing! They are happy to see those 5 digits and sometimes 6 digits figure in their account which gives them a sense of security and being sorted for life! They have never thought about a life beyond working years and are comfortably under the assumption that this fat bank balance will take care of them till they are walking on this earth.
Type 2: These are the people who do think about investment after hearing and reading from here and there but their other life priorities never get them around to really start investing and then it gets too late.
Type 3: These people are a bit serious about investment so they invest in Fixed deposits of varied tenures which barely beats the inflation. Some other get introduced to someone who sells them policies which have 2-in-1 benefit (taking care of both investment and insurance) and at the end of a long period of 10-15 years, they are promised a lumpsum money which is a cherry added on top. This makes them relaxed that they are through their responsibility of investment and the rest of their life will be on a bed of roses.
Type 4: These people understand the importance of investing but more than that, their non mandatory expenses (which we can comfortably call leisure) hold more priority. So they invest a small amount thinking it will take care of their retirement years and spend the rest.
Type 5: Lastly, these people definitely know the importance of investing and have done proper research about where to invest to get the best returns. They either rely on their knowledge or on someone who has experience in the field to give them honest advice. They understand the impact of inflation on investments in long term, the power of compounding which can make them wealthy and clearly know how rupee cost averaging works in tandem with their goals and comfortably build a good corpus for them beating inflation by a huge margin!
SCORE CHECK
Give yourself 0 points if you are Type 1. If you are reading this, most probably you are working and not saving for the future is not a very good idea considering how expensive even the day to day things are becoming. Think about yourself. Think about your family. Think about investments.
Give yourself 1 point if you are Type 2. At least you are thinking about investing. But don’t keep thinking lest it will get too late. To understand what I mean, click here. ( Takes to the SIP / STP page).
Give yourself 2 points if you are Type 3. You are investing. Good Going. But have you considered the impact of inflation and how it eats on your hard earned money like a termite? The bank fixed deposits give you returns which are way less than what current inflation is going on. So technically, you are getting negative returns on your investments. Every 100 Rs you invest, you get 4.5 Rs (4.5% returns), but inflation takes away 6 Rs (6%). So your 100 Rs is actually 98.5 Rs (100+4.5-6) by the end of your fixed deposit tenure!
Insurance policies should only be bought keeping insurance in mind. Mixing both insurance and investment do no good. Such policies are expensive and give returns which cant beat inflation. The lock in period is too high hence very low on liquidity. If you invest the same amount in mutual funds, at the end of your tenure, you will get much superior returns.
Give yourself 4 points if you are type 4. You are investing in the right instrument – Mutual Funds. But what you are investing isn’t enough for your retirement. The inflation is eating on the investment every year. So what 100 Rs can buy you today will cost you Rs 574 at the end of 30 years ( Assuming you are 30 years old and retire at 60 years). So the idea is to first set aside an amount for household expenses and investment and then spend the remaining amount on leisure not vice versa.
Give yourself 5 points if you are type 5. Way to go! You are on the right track. Keep topping up on every market fall and keep increasing your SIP amount every year by at least 10% to contribute towards your long term corpus.
