GOLD – THE FUTURE

With Diwali just around the corner, we as Indians have always bought gold. On the auspicious day of Dhanteras, I remember my mother buying gold be at a small amount of 1 gm. The Shine of gold has always attracted Indians.

Gold as an Asset Class 

Everyone is familiar with the fact that any calamity – be it man-made, or natural one asset class you can always count on – Gold. Due to which the gold prices have soared. The gold price in March was between Rs 41,500 to Rs 42,500 per 10 grams. With Covid- 19 pandemic in just six months, gold prices have touched Rs 54,000 per 10 grams.

So the obvious question is, should we buy at this rate?

There are various factors which impact the gold prices –

  • Investment demand for gold – This year, the interest in gold has been high and is likely to stay high as it is a hedge against an overvalued market, and it also acts like insurance during a recession. Hence, the demand for physical gold has increased.
  • U.S. Dollar – gold is inversely related to the dollar. But the recent trend has shown despite the increase in dollar gold prices have also increased.
  • Supply – the new supply of gold from the gold producer is on a decline. I had interviewed the Managing Director of the World Gold Council in the year 2003, and he was worried at that time that gold mining has started seeing a decline. And the supply is on a downhill.
  • Economic and Monetary factors – everyone wants to erase 2020 from their life. The real reflection of the pandemic on economic and monetary factors will be seen in the coming months. People are cautious, and gold is always a safe bet.
  • Trading volumes on COMEX – COMEX world’s largest futures market for commodity trading has never seen such high demand for gold mainly due to the prevailing pandemic.

The above factors are driving up the prices of gold. Keeping them in mind the price of gold is likely to touch anywhere between Rs 65000 to Rs 70000 by mid-2021. If God forbid Covid 19 vaccine fails then, the price can touch Rs 75000 or higher to Rs 80000.

I have always advised my clients to have 5 percent exposure towards gold be it in physical form or bonds or Gold Exchange Traded Fund. Even at the current rate, my advice is -invest in gold be it a small amount.

Happy Dhanteras and a Happy Diwali to one and all.. Stay Safe and Invest Safe everyone!!!

Mental health and financial distress

Coming from a family of doctors, recently I was chatting with a very close family friend who is a very senior and experienced psychiatric doctor. Of course the topic of discussion like in most households these days revolved around the recent pandemic.  He was telling me that he has become twice as busy than before due to the deluge of patients who have succumbed to extreme stress and anxiety in the wake of this pandemic. Fear and anxiety of contracting this virus, the fear of unwittingly infecting their loved ones, economic loss and most importantly the fear of death, has pushed people to the edge.  The most hard-hit are the people who were already suffering from some form of mental illness, because this is like their worst nightmare coming true. The lockdown has made this human race which thrived on social contact feel lonely, alone and scared of the unknown.

But this psychiatrist friend ours, pointed out that many of these stress and anxiety related patients had one thing in common and that was- Financial insecurity and instability.

Mental health issues and financial problems are interlinked intricately.  And it would be wrong to think that only the underprivileged sections are affected by financial stress, in fact many well-to-do people who have money and can withstand such setbacks are equally affected.  Although one man’s trash can be another man’s treasure so we are comparing apples and oranges here. Millions have lost their jobs and their livelihood, thousands have had to leave the cities where they were working and return to an uncertain future with no means of feeding their families who relied on their income.  The middle class too has had to bear the brunt of this curse.  There have been large scale layoffs in most companies, almost all have had to face pay-cuts and are not finding any new jobs.

All this while their expenses have remained more or less the same.  They have had to pay their bills, their groceries, their medical expenses and most dangerous of it all EMIs, be it home loan, vehicle loan or personal loan.  Finally, the so called upper class, we might feel that what have they to worry about, but higher one goes, the harder one falls.  Many have had to pay their employee salaries out of their own pockets in the wake of zero income, many sectors have completely shut down with no signs of revival in the near future such as tourism, wedding and celebration related allied industries such as catering, decorators, etc; the list is endless..  Many of these so called big names have had to close their outlets, reduce staff, run from pillar to post to recover money from their debtors, and many have filed for bankruptcy.

The fact remains, that this once in a lifetime crisis has affected us all and affected our mental health knowingly or unknowingly.

All these stressors lead to a gamut of psychiatric illnesses such as

  • Anxiety,
  • Depression,
  • Post-Traumatic stress disorder,
  • Obsessive Compulsive Disorders (OCD) to name a few.

The boarder terms fall under the heading of ‘Psychosomatic Disorder’ that is effects of emotions causing problems like asthma, depression, stomach ulcers, anxiety, heart problems and others.

The recent pandemic has increased the number of cases of psychosomatic disorders two fold. And its high time we talk about it.

Let us understand the vicious cycle of financial problems and mental problems.

Financial problems due to mental problems

  • Mental health problems makes it harder for people to be motivated and go out and earn money and this further pushes people into financial despair. As people with anxiety or depression have a hard time being focused on the job at hand.  This decreases their productivity and efficiency in their jobs.  Thus they are generally not given any important jobs, which limits their growth in the company, they are not promoted or given salary hikes in comparison to their colleagues which develops a feeling of despair, anger, frustration, self-loathing and even animosity towards their colleagues and bosses.
  • Many a times individuals with depression or loneliness go out and spend on things that give instant but short lived gratification and many enter into vices such as alcohol, drugs, etc spending spree just to cheer them up.  They spend every penny to fulfil these vices even resorting to crime to earn money for this vices. All these empties their life savings and even put them under debt.
  • People suffering from mental problems suffer from memory problem and rational thinking and they end up marking wrong financial decisions or rely on others to make decisions for them, ultimately leading to financial loss or a fraud.

Maintaining an expense sheet is a difficult task even in normal circumstances, but for individuals suffering with a mental illness, it is almost inconceivable as they have lost interest in everything.

  • Individual suffering from mental health often go into a shell where they stop communicating and paying attention to daily details often leading to nonpayment of basic bills resulting in compounding of bills and penalty charges.

The above financial problems act as a fuel to the already burning fire of a patient’s internal anguish and pushes the person to the edge where the mental problem aggravates to the point of suicidal tendencies or antisocial tendencies like causing harm to others.

The biggest financial problem as cited by the doctor was the inability to pay the ‘ EMIs’ every month, thanks to the cheap bank loans provided without any collaterals. Also, plastic money has been cited as an additional problem as a person spends haphazardly since he does not need to open his wallet. During the time of this pandemic with a complete lack of income and using up of all savings, the end result is nonpayment of instalments of loans and credit card debt. The constant harassment by loan recovery agents and their threats adds to this stress, fear and anxiety problem.

A few pointers to avoid this scenario in the future.

How to control debt?

Debt if not controlled can spiral out of control easily which in turn becomes a fuel for mental health burnout. The best way to control debt is to maintain a constant check on the Debt servicing ratio. This ratio states how much EMI is going from your total gross income. The ideal ratio is 40 percent. Which means, if more than 40 percent of your income goes towards paying EMIs the alarm bells should start ringing and one should try to pay off the existing loans and refrain from taking any further loans.

Savings– do not forget to keep aside the emergency fund of at least 4 months of mandatory expenses and make sure at least 15 percent or more is going towards savings.

Taking care of your mental health as much as your physical health: start by believing that “This too shall pass”. Keeping yourself busy in some work. Pursuing a hobby like music or painting. Socializing with people even if its 6 feet away. Exercising, practicing yoga, doing breathing exercises, always keeping a positive attitude. And if you feel you need help do not shy away asking help from your family and friends. Sometimes knowing that you have someone who understands you is therapy enough.

Seek medical help if required: In a survey in 2017 it was seen that nearly 150 million people in India suffered from mental health problems but less than 30 million are seeking care.

Unlike in many other developed countries, India does not have any dedicated support system for mental health patients. The problem with majority of our Indian population is that we still equate mental health problems with insanity.  And going to a psychiatrist is considered a ‘Stigma’ or ‘Mortal sin’.

Everybody needs help at some time and there is no shame in asking for it.  Any mental distress or problem, when detected early either by oneself or by their loved ones can be fully treated by a trained doctor and can prevent the problem from reaching a stage of no return. As wisely said by Michelle Obama, wife of ex American president Barack Obama, an author and American attorney, “It is time to tell everyone who is dealing with a mental health issue that they are not alone, and that getting support isn’t a sign of weakness, it’s a sign of strength.”

Family should look out for signs of anxiety, depression, change in financial habits be it excessive spending or ignoring bills or an ability to not hold jobs for long or signs of avoiding people. All these are red flags and should not be ignored. Seek professional help and prevent a destruction of a beautiful mind!!!

Retirement Planning – How much you need and when to start saving

Retirement Plan

A lot is written on retirement. “Start early” has always been the advice of all the planner. But how many follow? I know it is easier said than done. There is always the next thing on the to-do list which needs to be bought be it something for kids, their education, marriage, or for the house and the list is a never-ending one. But to avoid situations where we saw in the first article (https://www.dhanplanners.com/finance/tips-to-save-money-during-retirement/) on retirement planning where you need to cut expenses during your retirement best to start early.

The recent pandemic has thrown everyone’s calculations in the air. Again if there is a plan in place you will not be too off track for long. I am not saying to start saving right away. But if you have calculated the amount you will require post-retirement you will have an approximate idea as to how much you will require at the time you retire and how much you will have to start saving from now.

Let us see the calculation –

The general opinion has always been that once one has saved Rs one crore you are all set for retirement. Here is where all of you are wrong.

Every individual’s retirement corpus is different, as loads of factors have to be taken into consideration for calculating the right amount of corpus. So what are these factors? There are two ways one can calculate one’s retirement corpus. The first method is where you take your income into consideration. The second method is where you take your expense consideration.

Individuals who are below the age group of 50 or younger should take their income into consideration, as their expenses are still not fixed since the children are still small and other responsibilities are more. Individuals above 50 should take their expenses into consideration, as they are pretty certain as to how much their expenses would be.

Increase in expenses certainly should be factored in. Listed below are factors for both the approaches:

Income Method Expensed Method
Current Age Current A
Expected Age at Retirement Expected Age at Retirement
Number of years left for retirement Number of years left for retirement
Life expectancy at death Life expectancy at death
Years after retirement Years after retirement
Current annual INCOME Current annual EXPENSE
Expected annual growth percentage in INCOME Expected annual growth percentage in EXPENSES
Annual INCOME at retirement age Annual EXPENSE at retirement age
Rate of return on Retirement Corpus Percentage of the annual expense required after retirement
Inflation rate Required annual expenses at retirement
Inflation-adjusted Rate of Return Rate of return on retirement corpus
Retirement corpus Inflation rate and retirement corpus

 

The above table will give you the corpus required for a comfortable retirement. How much to save to reach this corpus depends on the factors given below. These are same for both the methods:

  • Rate of return during the accumulation phase
  • Existing invested corpus
  • Number of years to retirement

The above factors will give you the amount you need to start saving from now to reach the corpus.

Note: I cannot stress enough the importance of mediclaim in place starting from a young age as with advancement in age your premium amount will increase and also after a particular age it starts getting difficult to get medical insurance. This should also form an important part of your retirement planning!!!

How to become Confident Investors

Economic crisis, lower GDP, unemployment, bankruptcy, killer viruses, apocalyptic climate change …gloom and despair is all that we are reading of late! To the point, that many individuals have stopped opening the morning newspaper altogether. In this current scenario, how does one instil confidence amongst the young investors or the first timer who are just foraying into the world of investments? Most avenues of investments are seeing some headwinds or the other. The housing markets are at an all-time low, precious metals are too high for comfort, fixed deposits interest rates are so low that they don’t even beat inflation, and the stock markets are as choppy as the rough seas. In all this chaos, it is but natural for a new investor who has some surplus amount to invest but is afraid of the risks associated with all these above investment avenues and hence is staying on the sidelines. Our aim is to assimilate that scared investor in the big bad world of investments, by educating him and making him understand all the pros and cons of each asset class and help him make an informed decision, and in the process help him create wealth for himself as well as for the nation.

In fact just recently a young investor had just approached me a week ago for his financial planning but he wanted to do was park all his money in Fixed Deposits because he considered it the safest of all scenarios where his money would at least not decrease. Well as much as safety should be foremost on your minds, playing safe will not help you achieve your financial goals. Remember the adage “No risk, no returns”. Well it’s true. But this risk should not be blind, it should be a calculated risk which has also to be mitigated by proper hedging techniques. After all your aim of investment should be to achieve Financial independence, and we all know Independence involves struggles.  So are you guys ready to take your first step towards financial independence?  Then lets start.

Here are some pointers which might help an investor start his investment journey with confidence.

  • Understanding your attitude towards Risk – first and foremost you need to understand your attitude towards Risk. How will you react to losing money in the market? There are four categories of investors –
  • 1 – Pragmatists – who believe the world is full of uncertainties
  • 2 – Conservators – who believes world is full is perils and high risk
  • 3 – Maximizers – who believes world is low risk and full of opportunities and just jump into it
  • 4 – Managers –who believe in taking moderate risk but not too risky.

SO determine your category. But if you are young with time on your side, I would definitely suggest to change your attitude if you think you belong to the top two categories.  At this age it pays to take some extra risk, and build an aggressive portfolio rather than a defensive portfolio.  And even if you lose some money, will be able to bounce back in the future and consider this lost money as a learning experience.

  • Take some time to learn – once you have identified your risk taking abilities, try to understand about the products you are planning to invest in. If you are planning to invest in the stock markets then get a thorough understanding of the working of the stock markets, watch the business news channels, read magazines and business newspapers, take classes if you feel the need to. Prepare your ground work. Once you feel confident enough, understand the trends of the market, if you have a particular stock in mind then understanding the company, the sector to which the company belongs, past trends and other parameters such as its financial reports etc. Also it is a good idea to first do paper investing, i.e., do a mock trade on a piece of paper where you buy a share which you like and see how it goes.  Since there is no real money involved here, it becomes more easy to not be emotionally involved in it and look at the whole process objectively.  And once you are confident on paper, you can move on to actual trading.  If however you feel that you are still not confident enough to do the investment on your own, it makes sense to invest in the markets through the mutual fund route.  These are entities who are experts in the subject and will invest in the market on your behalf.  Also don’t just invest in any mutual fund.  Research a little about the fund house, the fund manager, the companies or securities the fund has invested in, the past returns they have given, etc.  And don’t worry, over time you will graduate to investing your own money with confidence.
  • Know your field – it is always better to invest in avenues that you understand and have a knowledge about. So say your family has been in the pharma trade for decade, it is best to channelize the larger portion of your investment in that sector, since you will have the guidance of your family members and it will help you to skip the initial teething problems that a completely new avenue will pose for you.  In fact you can use your knowledge to expand your investment as well.
  • Rational investor and not emotional investor – investment should always be rational and not emotional. The moment, emotions come into the picture, your decisions can get clouded leading to miscalculations or losses. A rational investor is one who understands that every investment is fraught with at least some amount of risk and hence you have to keep it in mind before your investment begins. Also you have to set a goal for your profits and set a stop loss for your losses beforehand, that way you are mentally prepared.  You might argue that a lot is written about Emotional Intelligence and how it is very important and leads to better output. But for that you need to first understand its meaning  – As per the Psychology Today Emotional Intelligence/EO ‘The Emotional Intelligence is the ability to identify and manage one’s own emotions, as well as the emotions of others’. Emphasis on the word manage. Individuals with high EQ have the ability to keep in check their emotions, and hence  make better decisions.  If you cannot emotionally digest the thought of losing your money and they very thought of it puts you into depression, you are not cut out for risky investments.  Invest in less risky assets, because no amount of wealth is worth the peace of your mind.

Take professional help not digital – I once had a client who after every consultation or investments, would call me and say I read on a website that a so called fund is better than the fund we are planning to invest in. I needed to explain to him that as per his needs, the fund we have invested in is much better suited to his style of investing and his goals.  Google babaji is now just a finger tip away literally.  But remember, it is after all a search engine, and so it gives search results for your queries, it does not have you interest at heart.  Also what is good for one cannot be true for everybody.  Everybodys needs are different.  So when it comes to planning for your hard earned money, I would REALLY recommend professional help rather than just relying on digital media. Do not shy away from taking professional help, its not just for the filthy rich, its actually for us who want to live like filthy rich in our own limited set of resources.

Overnight Millionaires – no one becomes Warren buffet overnight. Everyone needs to work hard and be a disciplined investor and always look at investments from a long term horizon. Volatility is a part of investments, ride that wave and you will definitely reap the benefits. Rome wasn’t built in a day.

Start small and invest for long term – take baby steps, i.e., start with a small amount and gradually build your portfolio. Do not go all in at first go. Understand, monitor and learn by keeping a regular tab on your portfolio and churn your portfolio at regular intervals, i.e, weed out the nonperformers and add more of the outperformers. Once you are confident start with bigger amounts.

Don’t put all your eggs in one baskets: Although everyone knows this one but no harm in repeating. A judicious mix of various asset classes spread across various investing genres such as aggressive, defensive, high risk, low risk, high return, low return, fixed assets, liquid assets, etc go a long way.  This way a setback in one asset class wont cause a huge dent in your overall portfolio.

As suggested start small, learn from your mistakes, stay for a long haul and evolve into a confident investor.

Budget should you worry or invest wisely – finale

Budget should you worry or invest wisely

With budget around the corner and a sluggish economy, everyone is worried and eagerly waiting for the Finance minister to dish out something exciting or wave a magic wand and make everything oki!! Everyone is hoping for a tax cut or some other similar gifts. But the irony is without tax income how do you expect the government to increase spending for infrastructure and how to do you expect the government to infuse much needed money into the economy.

So how does Tax revenue affect growth?

The last two years, that is 2018-2019 and this current year, the tax revenue has decreased considerably.  In fact this year for the first time in two decades, there has been a fall in the direct tax collection. Direct taxes account for almost 80 percent of the total tax collection.  As per reports as published by the Economic times – The Income tax department has been able to collect Rs 7.3 trillion till January 23rd which is 5.5 percent below the amount collected same time last year. The Government was targeting at collecting Rs 13.5 trillion but with the decrease in the businesses cycle, this target looks unachievable.  The effects of this can be seen on government spending as well.  In the current scenario, without government spending, the revival of economy seems difficult.  Also, indirect taxes are out with coming of GST whose committee meet every month to analyse and bring out reforms as and when they seem necessary which has been far and wide and with time, the GST reforms are settling down and hence less changes happen over time.

What has tax collection should concern you regarding your investment decision?

PROBABLY NOTHING.  Although decrease or increase in income tax affects investments amount but tax rate cuts or increase should not affect your investments decisions.  Why –

  • Achieve goals – why does a person invest? Reasons can be numerous like buying a house, car, retirement, children or in general being rich. SO your investments are decisions which are based on achieving these goals and not on budget.
  • Insurances – an individual will always require medical and life insurances; budget or no budget, slow down or no slow down. You already have a tax benefit for this category and trust me, no finance minister is going to take away tax benefit on insurance premium paid. So an individual planning on renewal of medical insurance or buying new policy, should not be waiting for the budget but should just go ahead.
  • Emergency funds – emergencies come unannounced and one always has to be prepared for it. How – by keeping at least three months worth of cash’, equivalent to your mandatory expenses, aside in liquid assets. In other words, funds that are readily available. Will budget change your decision about keeping aside emergency funds?,    Even for selecting the liquid asset for investing, budget should not be a factor in your decision.
  • Retirement – retirement planning is a long term planning, especially for individuals in their 20s, 30s or 40s. You should be looking for something like a long-term Systematic Investment Plan (SIP) or investment in assets like real estate. This decision should never be based on budget, as you cannot predict every years budget’ and the changes it will have on your asset class, and churn the portfolio accordingly. In fact you will stand to lose out more than gain with such a strategy.
  • Investments – where to invest, what to invest in, how long to invest, these are all variables which are in your control and which has to be aligned with your needs and goals and not with external factors such as Budget.

This years budget is much awaited and hyped due to slowing economy and there is hope that there will be certain announcements that will make business environment more conducive to growth and consequently result in better cash flow in the our hands.

That being said, Budget is not a magic pill that can solve problems overnight.  These are problems that plague the world and are not just ours.  It will take time to get back on its feet.  Till then we have to more concerned about our own financial goals and needs and undertake investments based on these and not what the Budget has to offer.