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Retire Rich Retire Young…- An effort to make your money work harder…
Presented by:-
Vishal Thakkar M.Com, CA, MBA(fin)Managing DirectorBrianna Knowledge Resources Pvt. Ltd.
Time & Money• Let’s begin with a story! There was a village with a drought. The
Chief of the village found the two smartest men he could find and gave them each Rs.10,000. Their mission…..bring water to the people.
• The 1st man was a hard worker and started a business.• The 2nd man was an investor and built a pipeline.
And the winner is……• Not only did the second man win the contest, but he
found a way to have water (money) come in even when he wasn’t working.
• Both men started from the same background, with the same experience, and the same amount of money. The only difference was that the 1st man worked hard for his money and the second man had his money work hard for him.
“The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.”
– Rupert Murdoch
Retire Rich & Young…What?
• Different People have different meanings –– Some say good lifestyle, no pressure to earn
money etc.– While others say pursuing hobby, not going to
work.Retire Rich & Young, to us, means,
“subscribing to an increasing standard of living, without having increasing effort to maintain it.”
Retire Rich & Young…Why?• To do what I like to do & not just work for
money.• To pursue my hobbies, interests which were
left behind in Rat Race.• To spend more times with Loved ones, family
& friends• To help people, take up a social cause & to
make this world a better place. Whatever be the objective, we all agree that
there is a need….
Retire Rich & Young… How?
That’s Precisely what this program is all about…
Lets first Unlearn a few Concepts, that we have gathered during the course of our learnings in Life…
Let’s Get a Little Practical…
Job Earnings
Monthly Expense
Other Income
Lets See what Robert has to say on this one…3 Types of Income
You need a little help…• House Rent• Milk• Petrol• Electricity Bill • Clothing• Household /
Monthly Expense
• Weekend Getaways
• Habits• Traveling
Expense• Eating Outside• Movies• Mobile /
Telephone Bill.
Freedom / Wealth Ratio…
Freedom Ratio = Other Income* Monthly Expense
* The one which your money earns & you do not.
3 Types of Education
Academic
Professional
Financial
Lets See what Robert has to say on this one…3 Types of Education
What Are Assets?• Dream House• Sports Car• Gadgets• Diamond
Jewellery
“Anything that puts money into my pocket is an asset.”
INCOME
EXPENSE
ASSETS LIABILITIES
What Are Liabilities?• Housing Loan• Car Loan• Personal Loan• Credit Card
“Anything that takes money out of my pocket is a liability.”
INCOME
EXPENSE
ASSETS LIABILITIES
What Is Wealth?• Dream House • Sports Car• Foreign Trips• Shopping• Diamond
Jewellery
“Wealth- Number Of Days You Can Maintain Your Current Standard Of Living If You Lose Your Main Source Of Income.”
Lets See what Robert has to say on this one…Assets V/s Liabilities…
Why Middle Class Struggle?
INCOME
EXPENSE
LIABILITY
ASSET
Let’s Take a Break…
Savers Are Losers… How many of you have a Savings Account…?
What is the Rate of Interest that you get on your Savings Account…?
What about the average Inflation Rate…?
Do You recommend Fixed Deposits…?
“If Savers are Losers, Borrowers would Win”
Lets Look at borrowing…Lets See what Robert has to say on this one…Savers are Losers
Arbitrage• Your Re.1 at work at the bank. • Rs.10 for every Re.1. By RBI Rules, banks can lend out
Rs.10 for every Re.1 that you give them. Meaning they have made up Rs.9 of borrow able money out of thin air. Where do I get some of that?
• They say open an account with us and we’ll give you anywhere from 1% to 5% interest. We’ll even give you stuff!
• Then they then turn around and lend you the money right back saying borrow money from us and we’ll only charge you 10% to 27% interest.
• And that is why banks have beautiful fountains, golden chandeliers, and marble floors. Your money paid for it!
Your Expense, Bank’s Income
INCOME
EXPENSE
ASSETS LIABILITIES
YOU
INCOME
EXPENSE
ASSETS LIABILITIES
THE BANK
Your Mortgage Your Mortgage
What is your interest rate……. really?• Buy Rs.100,000 Home, make a down payment of 20%
(Rs.20,000) and borrow the remaining balance Rs.80,000 at 8% interest with a 30 year term fixed loan.
• In five years you will pay a total of Rs.35,220 to the bank, Rs.31,276 for interest (that is only Rs.3,944 for Principal Repayment).
• With the loan taken to term, 30 years, you will have paid Rs.211,323 total principal and interest (Rs.131,323 paid in interest).
• Rs.131,323 more like 160% not 8%.• You’re getting the truth, just not the whole truth.
Top Two Money Eaters…
• TAXES & Death are the two things which we cannot avoid, so we defer them ALAP.
• INFLATION is number two evil that eats away our money like a rodent
Why do we follow the crowd?We are going to read your mind. That’s right read your mind! Ready…..
1. Pick a # between 1 and 10.2. Now multiply that # by 2.3. Add eight to that #.4. Divide that # by 2.5. Now subtract the # you started with from that #.6. Now what ever # you have in your mind, match it up with its corresponding
letter in the alphabet. i.e. 1=a, 2=b, 3=c, d=4, etc.7. O.K., Now think of a country that starts with that letter. I’ll give you a
second.
Having a hard time……….think Europe………….how about Denmark? You’re thinking of D right, you did get 4? At least you should have if you did the math right. How did we do that?
We follow the crowd because it’s easy and because we are just good at it!
No matter what number you were thinking of the equation would have led you to the number 4. When we invest, we are doing the same. The numbers start out differently, FDs, Post Office, PPF, KVP, IVP, NSC, Mutual Funds, yet your results are the same……...…dismal.
How Do We Get Out?“Albert Szent-Gyorgyi, a brilliant scientist who won the Noble
Prize twice in his lifetime, stated, “Discovery consists of seeing what everybody has seen, but thinking what nobody has thought.” People often make the mistake of asking people who are trapped inside the same box (or way of thinking) how to get out of the box. What they don’t realize is, the instructions on how to escape that box are written on the outside.
* Andrew, Douglas (2005). Missed Fortune 101 Warner Business Books, pg. 122
Practice What They Preach?• Ask your banker/financial planner these questions!• Where is the majority of your money coming from?
i.e. commission, fees, salary vs. investments.• How long did it take you to become a broker?• Can you guarantee that return on my investment?
i.e. the prospectus and small writing.
• You see, they are called brokers because they are broker then you are.
“Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those that take the subway.” –
Warren Buffet
Time Is Your Friend
• Time: a young person’s biggest asset• Compound interest is awesome • For every decade that savings is delayed,
the required investment triples• Example: Rs.500,000 at 65; 10% yield
– Age 25: Rs. 79 per month– Age 35: Rs. 219 per month– Age 45: Rs. 653 per month– Age 55: Rs. 2,141 per month
Power of Compounding
0
700
1400
2100
2800
3500
0 5 10 15 20 25
15%
10%
8%
Growth of Rs. 100/-
Difference is quiet significant in long run.
More About Time• Time diversification reduces investment
volatility
• The Rule of 72
– 72/interest rate = doubling period
– 72/doubling period = interest rate
Years YEAR END SENSEX level 1 year 3 years 5 years 7 years 10 years 12 years 15 years
1 31-Mar-80 128.57 28.57% 31-Mar-792 31-Mar-81 173.44 34.90% 100.003 31-Mar-82 217.71 25.52% 29.61%4 31-Mar-83 211.51 -2.85% 18.05%5 31-Mar-84 245.33 15.99% 12.25% 19.66%6 31-Mar-85 353.86 44.24% 17.58% 22.44%7 31-Mar-86 574.11 62.24% 39.49% 27.05% 28.36%8 31-Mar-87 510.36 -11.10% 27.66% 18.58% 21.77%9 31-Mar-88 398.37 -21.94% 4.03% 13.50% 12.61%10 31-Mar-89 713.60 79.13% 7.52% 23.81% 18.48% 21.72%11 31-Mar-90 781.05 9.45% 15.24% 17.16% 20.52% 19.77%12 31-Mar-91 1167.97 49.54% 43.12% 15.26% 24.97% 21.01% 22.73%13 31-Mar-92 4285.00 266.88% 81.76% 53.04% 42.80% 34.71% 33.94%14 31-Mar-93 2280.52 -46.78% 42.93% 41.76% 21.78% 26.84% 23.95%15 31-Mar-94 3778.99 65.71% 47.90% 39.57% 33.11% 31.45% 26.85% 27.40%16 31-Mar-95 3260.96 -13.71% -8.70% 33.09% 35.03% 24.87% 25.60% 24.05%17 31-Mar-96 3366.61 3.24% 13.86% 23.58% 24.81% 19.35% 24.39% 21.86%18 31-Mar-97 3360.89 -0.17% -3.83% -4.74% 23.18% 20.74% 20.63% 20.02%19 31-Mar-98 3892.75 15.82% 6.08% 11.29% 18.77% 25.60% 17.29% 21.43%20 31-Mar-99 3739.96 -3.92% 3.57% -0.21% -1.92% 18.02% 18.05% 19.92%21 31-Mar-00 5001.28 33.73% 14.17% 8.93% 11.87% 20.40% 23.47% 19.31%22 31-Mar-01 3604.38 -27.93% -2.53% 1.37% -0.67% 11.93% 14.45% 13.03%22 31-Mar-02 3469.35 -3.75% -2.47% 0.64% 0.89% -2.09% 13.23% 13.63%22 31-Mar-03 3048.72 -12.12% -15.21% -4.77% -1.41% 2.95% 8.32% 14.53%23 31-Mar-04 5590.60 83.38% 15.76% 8.37% 7.54% 3.99% 2.24% 14.71%24 31-Mar-05 6492.82 16.14% 23.23% 5.36% 7.58% 7.13% 9.11% 15.16%25 31-Mar-06 11279.96 73.73% 54.67% 25.63% 17.08% 12.85% 9.54% 16.32%26 31-Mar-07 13,072.10 15.89% 32.73% 30.38% 14.71% 14.55% 12.27% 7.72%
10/28 5/26 3/24 3/22 1/19 0/17 0/1427.85% 19.94% 17.95% 17.36% 17.67% 18.00% 17.79%35.71% 19.23% 12.50% 13.64% 5.26% 0.00% 0.00%
Average ReturnsProbability of Loss (%)
Probability of Loss
As Time IncreasesVolatility & Range
Decreases
Performance of BSE Sensex - Equities not risky in long run
4,285Harshad Mehta
5,001Tech Boom
Sensex Growth from 1979 - 2007After all, in the last 25 years, we’ve seen ….• Two wars• At least three major financial scandals• Assassination of 2 prime ministers• At least 3 recessionary periods• 10 different governments and• An unfair share of natural disasters, yet
However had one invested in the Sensex Rs 1 lacs in 1979 it has grown to 1.30 crs earning a return of 19%
compounded annualized return.
Rule of 72
• If you Put your Money at ‘X’ % then your Money is double in (72/X) years.
• For Eg: 1 Lac Invested for 36 Yrs
Rate of Interest
Yrs to Double
After 36 Yrs
6 12 Yrs 8 Lacs
8 9 Yrs 16 Lacs
24 3 Yrs 40 Crs
Investing is NOT Risky…
What is Risky is an “Investor” & not an “Investment”
• Fundamental Investing• Technical Investing• Buying Insurance
Lets See what Robert has to say on this one…Investing Isn’t Risky
Managing Investor’s Psyche
Zurich India Mutual Fund
The cycle of fear, greed and hope
Fear Greed H ope
Wrong emotion dominates at wrong time
Financial Status of Rich Person
INCOME
EXPENSE
ASSET
LIABILITY
So what do we recommend…
• Take the Steering Wheel in your hand…
• Invest In Yourself First…
• Learn the Language of Money…
• Climb the Seven Steps of Retiring Rich & Young…
• Make an Action Plan to religiously follow them…
• Review your progress at reasonable intervals…
Let’s Take a Lunch Break…
Investment Avenues…
I know all of you have been waiting for this one…
But not too soon…
Let us first understand the difference between good Loan & Bad Loan
“Here are 5 great reasons to carry a big, long mortgage and never pay it off.” - Ric Edelman, Author of The Truth About Money (1997 Book of the Year).
1. Mortgages Don’t Affect Home ValueThe value of your property is going to rise or fall regardless of whether or not you have a mortgage. You wouldn’t keep Rs.100,000 between the mattresses, why would you keep it in your house?
2. Your Mortgage Is The Cheapest Money You’ll Every BuyPeople have a ton of debt, i.e. credit cards, auto loans, student loans, etc. By far, the cheapest loan you can get is a mortgage loan. Why wouldn’t you borrow against your house at 6% acquiring more assets to increase your R.O.I., instead of borrowing with a 18% credit card.
3. You Might Need The CashFinancial Troubles? i.e. retirement, job loss, medical, family, marital, college, etc. Banks only like to lend money when they know it can be paid back.
4. Tax Law Encourages You To Have A Mortgage.Mortgage insurance and interest is tax deductible whereas interest on other loans are not. In essence the government rewards you with cash back for paying interest on your mortgage.
5. Mortgages Become Cheaper Over TimeDepending on the loan you choose, your mortgage payment stays the same over time. However your income increases making the payments easier to make.
Lets See what Robert has to say on this one…Good Debt V/s Bad Debt
Investment Avenues
• Real Assets– Real Estate– Commodities– Oil, Gold and Silver
• Paper Assets– Stocks and Shares– Certificate of Deposits– Government and RBI Bonds– Foreign Exchange– Mutual Funds– Public Provident Fund
The Beauty of Real Estate!1. Phantom Cash Flow (Depreciation) – Make money
and count it as a loss2. Banks Lend You Money – Try that with stocks3. Leverage – Get more for your money4. Sec - 54 Tax Deferred Exchange – No capital gains tax5. The Bigger the Better6. Negotiations – Something is worth only what
someone else will pay for it7. Appreciation
Dolf De Roos’s Four Questions1. Q: How many Rupees worth of stock/property can you buy with
Rs.10,00,000? A: Rs.10,00,000 with stocks, but with real estate a whole lot more!
2. Q: The moment you buy your Rs.10,00,000 worth of stock/property, how much is it worth? A: Rs.10,00,000 with stocks, but with real estate it could be a whole lot more!
3. Q: When you buy your Rs.10,00,000 worth of stock/property what can you personally do to increase the value? A: With stocks pray or write the C.E.O. of the company and ask him to ease up on the private jet trips. But with real estate you can paint, put in new flooring, landscape, or even add a room.
4. Q: Once you have bought Rs.10,00,000 worth of stock/property and it has doubled in value what must you do to enjoy the gain? A: With stocks sell them and pay capital gains, but with real estate you can sell, trade, refinance and enjoy limited and even sometimes no tax.
Commodities
• Buy and Sell Commodity Futures• New to Indian Market• Timing of Purchase• Knowledge and Skills
Oil, Gold and Silver
• Oil Futures can be traded as a commodity• Timing of Purchase• Knowledge and Skills
Stocks and Shares
• Do it on your own• Give in for Portfolio Management Service
(PMS)• Discretionary V/s Non-Discretionary PMS• Let us do a Mass Role Play
• Name of Company: Wise Co. Prudent Co.• Sales Rs. Crore 1000 800• Net Profit 120 200• Profit Margin 12% 25%• Equity Capital 200 500• Debt Funds 200 100• Return on Equity 60% 40%
– There are other financial / non-financial factors that would influence investment decisions.
Which Company will you choose to invest in?
Certificate of Deposits
• Use Rule of 72 for your advantage• Banks, Corporates, Post-Office etc.• Even Indira Vikas Patra and Kisan Vikas Patra
come Under this asset classification• Lacks Liquidity and Flexibility• Yields meager Return post inflation and taxes
Government and RBI Bonds
• Safety of Capital• Lowest Return• Mostly to Balance the Investment Portfolio• Tax Saving at other times
Foreign Exchange
• Hedging Instruments• Now used for Investment because of Volatility• Large in Base, Deep in Scope• Booming because of Foreign Institutional
Investment Inflows
Mutual Funds
• Collective Investment Schemes– Open Ended Schemes– Close Ended Schemes
• Equity Linked Saving Schemes (ELSS)• S-I-P’s (Systematic Investment Plans)• Concept of Fund of Funds.
Public Provident Fund
• Fixed Obligation Every Year• 15 years Lock in• Good for Tax Saving• Introduces Concept of Forced Saving
Let’s Take a Break…
Seven Steps To Retire Rich & Young…
• Step 1:
“Decide your Age of Financial Retirement Now.”
• Step 2:
“Buy Liabilities to the Extent of Need and Not Desire.”
Seven Steps To Retire Rich & Young…
Lets See what Robert has to say on this one…Don’t Live Below Your Means
• Step 3:
“Link Liability Targets to Asset Targets.”
Seven Steps To Retire Rich & Young…
• Step 4:
“Plan Liability Acquisitions at least a Year in Advance.”
Seven Steps To Retire Rich & Young…
• Step 5:
“ Increase CASH by Increasing K.A.S.H.”K = KnowledgeA = AttitudeS = SkillsH = Habits
Seven Steps To Retire Rich & Young…
• Step 6:
“Work Smarter, Make your Money Work Harder.”
Seven Steps To Retire Rich & Young…
• Step 7:
“ Have Targets for Job Earnings and Freedom Ratio.”
Freedom Ratio = Other Income Monthly Expense
Seven Steps To Retire Rich & Young…
Lets See what Robert has to say on this one…Life’s Four Quaters
Action Plan…
Let us begin with a little quiz
25 Years
What is the Average Age when one starts Earning?
What is the Average Retirement Age?
60 Years
Rs.15,000/- p.m.
What is an Average Income of anMiddle-Class House-hold?
Rs.5,000/- p.m.
How much can a personsave on a regular basis?
If a person can save Rs.5,000/- per monthWhat will be his wealth when he retires?
Assuming:
He increases his investments by 5% every year
Invests in an Asset class that gives returns of 20%
At Age 60 his wealth would have been
Rs.27 Crores
Creating Wealth is Easy
We can all be Wealthy
THE TRUTH
Start Saving Early
The longer you save, the more you make
Save in the Right Asset Class
This will dictate how much wealth you create …
Save Regularly
Even a small amount saved regularly, is good
How can you create wealth?
4.90 Crores*
27 Crores*
40 years25 years 60 years
Ram Shyam
Savings Starting Age 25 40
Savings - Monthly SIP Rs.5,000/- Rs.15,000/-
Saving Years till age 60 35 years 20 years
Total Amount Saved (appx.) Rs.57 lacs Rs.62 lacs
Starting Early
Give time to your investments rather than timing
Assumptions: (a) Savings grows at 5% annually (b) Returns assumed at 20% CAGR
0
1,000
2,000
3,000
4,000
5,000
6,000
1990-
91
1991-
92
1992-
93
1993-
94
1994-
95
1995-
96
1996-
97
1997-
98
1998-
99
1999-
00
2000-
01
2001-
02
2002-
03
2003-
04
2004-
05
Sensex
Company Deposits
Bank Deposits
Inflation
Gold
Equity market (represented by BSE Sensex) has outperformed all other investment avenues
Selecting Right Asset Class
In past 27 years BSE Sensex has given about 18% returns
Past Performance (BSE Sensex)
Year Sensex Investment Rs.
1979 100 1,00,000
2006 10,000 1,00,00,000
This is in spite of …
• Two wars• At least three major financial scandals• Assassination of 2 prime ministers
• At least 3 recessionary periods• 10 different governments and• An unfair share of natural disasters
Twin Benefits of Investing Regularly
Disciplined Investing through Systematic Investment Plans (SIPs) is the ideal way to reduce risk
Rupee Cost AveragingAverage Purchase cost
will be less
Automatic TimingAt higher prices – less unitsAt lower prices – more units
Rising Market Falling Market
Market Units Purchased MarketUnits Purchased
Save Regularly
Investing in the BSE Sensex – 25 years
Market timing does not matter over the long term
16.02%02%
Fixed investment on 1st day of every month
16.90%15.07%
Fixed investment athighest sensex value
every year
Fixed investment atlowest sensex value
every year
Data source: ICRA MFIE
Give Time rather than Timing the Equity market
• “We do not need to be wealthy to be an investor …But we can be wealthy if we are investors”
• The Right way to create wealth …
Buying potential big winning stocks
Successfully timing the marketsFollowing Expert Advisors recommendationsSaving a lot of money
• Wealth can be successfully created if we just follow the three basic principles ...
Starting early and saving for longInvesting in the right asset classInvesting Regularly – big or small
Wisdom
XXXX
“Only a fool does the same thing over and over again and expect a different result.” – Albert
Einstein
ConclusionSo the question is………….
What are you going to do with your time and your money?
Questions…
Wish you good luck.
Thank You…