Category: Investment

Many of us might be planning to quit job or close a business or pursue hobbies (without expecting money) by taking early retirement. However, early retirement is not that easy unless you plan them well. You need to be ready with a few things. Certain things would not be in your control. In this article we would provide some tips on how you can plan for early retirement.

What does early retirement mean?

While retirement age is 58 years, many are going on early retirement of 5 years or 10 years or even 20 years. Means, people want to retire at 40 years or 45 years or 50 years of age itself.

10 Tips on How to Plan for Early Retirement
Here are major pointers which can help you to plan for early retirement. This list is not comprehensive, however, can provide clarity.

1 – Decide what you intend to do

One of my friends Mr. Srinivas indicated he wanted to have an early retirement at 45 years of age. While I appreciated his decision, I asked him what he is gonna do after retirement life. He said “I have not yet planned”.

This is not the biggest mistake one would do when they plan for early retirement. You want to retire early, but you do not know what you are going to do after retirement? One can pursue their hobbies. They can try to achieve whatever they aimed, but could not do in their life. They can try creating Vlogs, freelance service in the areas they are passionate about, wealth management tips, mentor people in the area which they are expertise etc., There are Several Ways where you can earn during your leisure time.

I know many people personally who planned early retirement and worked as consultants in advising corporates on how these corporates can scale-up both in terms of business and also in reducing attrition in the company.

2 – Take Sabbatical / Leave for a few months

Last year, one of my colleague was thinking of resigning as she wanted a break. Just before she put the resignation, we had to casual talk. Taking a break is good, but the approach could be different. Based on my advice, she approached HR and had 6 month sabbatical leave. Those 6 months, she had fun and frustration both. Finally, she agreed that she wanted a small break and not a long break.

One should decide what kind of break they are looking for. Planning for early retirement is good, but, one should experiment by taking couple of months leave or with sabbatical leave of 6 months to 1 year. This is like testing yourself whether you are ready for early retirement or not.

3 – You don’t get regular income after early retirement

Many individuals would estimate how much income they might get by doing adhoc / hobbies / freelancing services etc., However this is not regular income. It such income can fluctuate.

I still remember one of my friends who took early retirement and had insurance blog where he used to earn income through advertisement as well as selling insurance policies online. He used to earn anywhere between 1 lac to 1.5 lacs per month till couple of year back from where he used to manage expenses. However, these days he earns some peanuts. One should not expect to have regular income from such activities.

4 – Expenses would continue to rise

You might be spending a specific amount of expenses now. However post retirement, you do not have control over such expenses. Check the latest inflation rate in the US which has crossed 8%. You should understand that you do not have control on your monthly expenses. An increase of 6% to 9% of yearly expenses should be considered while you estimate your future expenses.

5 – Don’t expect high returns from fixed income

Till 2020, Bank FD’s offered 6% to 7.5% returns. In the last 2 years, fixed income options including bank FDs or debt funds have given 4% to 5% returns. Don’t expect high returns from fixed income options in future. Countries like Denmark, Japan, Sweden and Switzerland have negative interest rates i.e. Investors need to pay money to keep their money in banks in these countries. While it might take some time for such situation to arise in India, one should expect that FD rates would decline gradually in the coming years.

6 – Invest in equity to beat inflation

If you have accumulated some money and investing in non equity options, then be ready that your accumulated money would reduce at a higher pace compared to the inflation rate. The only way to have returns that beat inflation is to invest in equity. However, investment in equity comes with risk. If you are thinking of early retirement, consider taking risks and invest in equity.

7 – Don’t invest in equity and expect to withdraw regularly

This is the biggest blunder mistake investors make. They plan for early retirement, they feel they can still take risks, invest in equity and start withdrawing some money on a regular basis. Investment in equity is a long term game. Don’t play in the short term. You would lose money. Alternatively, you can try for Some of the Good Systematic Withdrawal Plans in Mutual Funds.

7 – Two bucket strategy works very well

We discussed about 2 bucket strategy earlier.

i) Based on whatever accumulated amount, one can divide this into 3 parts. Two parts can be invested in equity for over 7 years. Since equity generates 10% returns, your investment would get doubled in 7 and odd years.

ii) One third of the amount can be withdrawn for over a 7 year period. One can invest this in simple FD or simple short term debt fund.

iii) Repeat step-1 every 7 years. Means the investment amount would always double for the rest of your life.

This 2 bucket strategy works well as you are not touching the equity investment for 7+ years which is required to grow.

8 – Have you considered all your financial goals

Don’t be in a hurry and go for early retirement. Consider all your financial goals as part of your plan. It could be children education, foreign education for children, foreign vacations in the future, buying a dream home etc. All these come with a cost. Don’t go for early retirement and then start thinking about these things.

9 – Don’t underestimate skyrocketing medical expenses

Mr. Rajesh wanted to have an early retirement at the age of 45 years. He is physically fit when he had an early retirement plan. However, after a couple of years, he had serious health problems and his medical insurance did not support them. He had to spend lacs of rupees on medical expenses which he never planned. While it is impossible to estimate the skyrocketing medical expenses, there should be a health insurance plan + some amount allocated towards it.

10 – You need to take your family support too

After you have considered all these pointers, consider taking your family buy-in too. Unless they support you, early retirement is not going to be that easy. Once you explain your plans, how you would manage family expenses and what you intend to do after your early retirement, things can be clear to your family too.

Source: Myinvestmentideas

Family office and HNIs can be significant investors for social enterprises with their patient and flexible capital. Here’s a lowdown of reasons behind their hesitancy and what impact investing can bring to their portfolios

If Covid-19 has taught us anything, it is that the world can no longer afford to ignore social and environmental issues. Climate change, poverty, human rights, gender inequality are just some of the issues that are fast becoming central to mainstream business decisions. This paradigm shift towards people, planet and profit is a direct result of the growing understanding by global leaders that socio-environmental issues are agnostic in their impact on people’s lives, cutting across socio-economic levels and geographies. One of the solutions to solving these global issues is impact investing.

The impact investing ecosystem in India has rapidly grown over the last decade. According to the data from the Impact Investors Council (IIC), more than 600 impact enterprises in India now affect more than 500 million lives, attracting over $9 billion in capital. However, most impact capital comes from foreign donors and investors, be they development finance institutions, institutional investors, high-net-worth individuals or global foundations. While this inflow of impact-focused capital has helped build a robust ecosystem for impact investing, it continues to serve as a stark reminder that domestic private capital is still focused on conventional approaches to investment.

Indian family offices and high net worth individuals (HNIs) are important stakeholders in India’s investment landscape. However, investor participation in impact investing is still at a very nascent stage. According to ‘Unlocking Impact Capital: The Indian Family Office Edition’, a study brought out by Waterfield and the Indian Impact Investors Council, domestic family offices and HNIs make up only 7.5 percent of participants in impact investments in India between 2016 and 2020. The same study also shows that Indian family offices and HNIs have polarising views on impact investing. Nearly 52 percent of Indian family offices and HNIs believe that doing good can also generate market-linked financial returns and a near equal proportion believe the two must remain separate and distinct. Family Office and HNIs, with their extensive networks, can be significant investors for social enterprises with their patient and flexible capital. Coupled with the intent to align their wealth with their personal values (a trend which is developing amongst the NextGen), it makes family offices and HNIs perfectly placed to become an attractive source of capital for this ecosystem.

For family offices, impact investment opportunities address issues related to the masses—social enterprises that find solutions for India’s largely underserved but incredibly aspirational ‘next billion’. Some optimistic Family Office investors view impact investing through the same investment lens as they do for any other asset class. This is a definite win for the impact investing ecosystem as these investors function as evangelists, strongly advocating the ability for impact investing to provide commercial returns and impact. Equally, many family offices and HNIs continue to have reservations regarding the ecosystem. They repeatedly point out the industry’s inability to demonstrate measurable results. Moreover, a lack of common frameworks and a common language to measure the impact make greenwashing a real concern. To add to this, many families feel that impact funds and enterprises often lack skilled professionals with adequate on-the-ground experience to understand the nuanced challenges of these businesses.

Additionally, potential investors face product related barriers because of a lack of good quality investment opportunities across the risk-return spectrum. Domestic investors have not been sufficiently exposed to the wide variety of impact investing opportunities available in the country. They range from equity investments into funds and social enterprises to less conventional social finance models such as development impact bonds (DIBs), loan guarantees and pay for success models.

India is not lacking in socio-environmental issues and there is enough and more room for philanthropic, impact, and commercial capital to co-exist and complement each other in alleviating socio-economic issues. Wealth advisors to family offices and HNIs can help their clients contribute to real social change by earmarking ‘sustainable development capital’ in a client’s portfolio for the broader spectrum of grants, direct investments in social enterprises and blended finance. Exposing families to opportunities across this spectrum will help broaden the perspective and give clients multiple options to deploy capital towards social development. Equally important is to be able to create metrics for clients that enable them to measure, monitor and evaluate the “impact quotient” of their investments.

As India inches closer towards achieving the UN Sustainable Development Goals and climate commitments made at COP26, unlocking Family Office and HNI capital for sustainable development can be a game-changer. It will require a concerted effort amongst wealth managers to channelise domestic capital to the social sector. It will mean educating and training our relationship managers, working with partners to source investment opportunities, and being able to diligence social enterprises through both the commercial and impact lens. As investors, we applaud the unicorns that get created, but can we also applaud those social enterprises and impact funds that aspire to touch a billion lives.

Source: Forbes India

“The only constant in life is change” – Heraclitus.

If there is anything that the current environment has taught us, it is that change is inevitable and often, unexpected. At the same time, it has underscored the importance of being agile and future ready. For the wealth management industry, winds of change had already started blowing, taking the industry towards a more technology-enabled future. In the last few years, technology has driven many changes across various sectors. Digitally-powered solutions and digital interactions are changing the way companies work and provide services.

Besides the technological changes, wealth management firms are doing well to keep up with the changing needs and attitudes of investors. The attitudes of investors across different age groups and their expectations from wealth managers is currently undergoing a transformation. Add to that, the complexity of the economic environment and the need to stay tethered to the traditional values of trust and transparency.

Let’s dwell into some of the paradigm shifts taking place in the wealth management industry:

New generation of investors

A huge amount of global wealth is currently changing hands from the previous generation to the new generation. Shaped by dissimilar experiences and brought up in a different environment, the new generation of investors has markedly different expectations from their wealth managers when compared to the previous generations. They want to be respected and treated as unique individuals. They seek personalised recommendations based on their financial goals and liking. This new breed of investors doesn’t shy away from doing their research before investing in any investment option. They also discuss investment options with their friends and colleagues and are open to their suggestions. While in the past, advisors and wealth managers interacted with their clients through face-to-face meeting and telephonic conversations, the new generation of investors expects their money managers to be available across different channels at any point in time, in demand.

Goal-based planning

The industry has been witnessing a slow migration from product-based to solution-based offerings. Clients today demand holistic and end-to-end solutions that meet their various wealth related needs. These could range from fund raising for an entrepreneurial venture to creating a sufficient corpus for the child’s foreign education. Instead of providing products or solutions in silos which only meet the one-time needs of the client, wealth managers are undertaking the customer journey along with the clients. This requires assessing the client’s risk profile, understanding her multiple life goals, determining the return requirements, creating an asset allocation strategy that meets these requirements, and continuous monitoring to adjust for changes in the client’s circumstances or the external environment.

Embracing digital

Digitally-powered solutions are slowly becoming the norm, rather than a competitive advantage. Covid-19 has accelerated the adoption across industries. As individuals increase their digital engagements, the wealth management industry, which was traditionally more of a human touch business has now turned phygital. Technology has the power to transform businesses, elevate interactions and user experience, and create customised solutions that generate high value and client satisfaction. Wealth management companies are now looking at artificial intelligence (AI) and machine learning (ML) powered tools to collect and harness data. This helps wealth managers create personalised solutions for their clients. Digital tools are now being extensively used to enhance reporting, analysis, and client interactions. Technology, if harnessed well, will go a long way in further enhancing the human interactions.

Retirement & Legacy Planning

Wealth managers serve clients across the wealth spectrum and cater to their multiple needs. One of the biggest concerns that the wealthiest clients have is whether they will outlive their assets. This is now becoming increasingly complex due to longer life expectancies. the increasing cost of medical care, and concerns over the value of their assets. At the same time, many wealthy individuals wish to have a proper plan in place to pass on their wealth to the next generation. To effectively meet these requirements, wealth managers are engaging with clients early on, to balance their short and long-term financial goals.

The wealth management industry is witnessing several changes. These changes will inevitably make it easier for investors across different age groups to invest and fulfil their financial goals. Yet, some things remain the same—like staying agile, adapting to new imperatives and ensuring trust, transparency and client-centricity are not compromised.

Source: Forbes India

The risk-reward of the Indian market has improved and the market is looking more reasonably valued today, than six-nine months back, according to Prashant Jain, executive director and chief investment officer, HDFC AMC. He believes that the near-term outlook for the Indian economy looks steady, and over time, the country’s economic growth has the potential to accelerate meaningfully. The stock market veteran made these observations at a webinar on Mid-Year Review of Indian Economy & Markets.

According to him, while one may see some moderation in consumption growth, exports and capex recovery should help ensure good growth in the near term. He expects India to be the fastest growing economy in this decade and to emerge as the fifth largest economy before the end of the decade.

On interest rates, he feels that what we are experiencing is normalization of abnormally low interest rates prevalent over the last few years. The sharp pace at which the US yields have moved up has surprised everyone. But, he feels, in India, because interest rates did not fall as much as in the West, the normalisation too, will not be that sharp. So, this should have less impact.

On the topic on how rising inflation will impact the profits of companies, he highlighted how higher inflation may be good for some of the key segments of the Nifty. Roughly one-third of the profits pool of the Nifty comes from banks. Today, two-thirds of bank loan books comprise floating rate loans that will get re-priced once rates start rising. In fact, today, the share of floating rate loans is the highest in Indian banks’ balance sheet than ever before and therefore, the loans will reprice faster than deposits. So, higher inflation, which in turn is leading to higher interest rates will aid the margins profitability of banks, according to Jain. Also, higher inflation is leading to faster credit growth. Added to this, bank NPAs are also extremely low.

Further deconstructing the Nifty, Jain pointed that another one-third to one-fourth of the Nifty profits come from commodity-linked companies such as oil and gas, refining, coal and metals. Such companies are benefiting from high commodity prices and also high refining margins. High commodity prices and high inflation go hand in hand and so this segment too is not going to be adversely impacted by inflation, according to him. Apart from that, 15% of the Nifty is in software services and another 5% in pharmaceuticals. This 20% of the market will benefit from rupee depreciation which is likely because of the pressure on the balance of payments given the elevated oil prices and also the strong FII outflows. So, the outlook on this segment too looks quite reasonable.

Valuation-wise, Jain highlighted that bank stock multiples are now below long-term averages as this sector bore the biggest brunt of selling by FIIs. He also finds some value in IT stocks after correction in their P/E multiples. On capital goods companies, he feels that while the stock valuations look expensive, their outlook is quite robust. So, the sector may sustain the high multiples because when the cycle of capital spending turns, profit growth could be quite high.

He suggests that over the nest 3-6 months, one must invest in phases in equities and take advantage of sharp dips, if any. He, however, adds that one must invest only that money in the market which can be held for a longer period. Today, long-term investors have a good opportunity to buy Indian equity at reasonable valuation as most uncertainties seem to be priced in.

Source: Livemint

The benefits of investing in a diversified portfolio are well known to the average investor. Owning a variety of stocks based on sectors and market caps (small-cap, large-cap and mid-cap) is the recommended approach to investing in securities. This protects an investor by distributing their risk across a range of stocks such that if a stock in one particular sector fails, the loss does not affect the investor’s entire portfolio.

A smallcase is a new and exciting product for retail investors that offers portfolio diversification as an in-built feature.

What are smallcases?

Smallcases are baskets or portfolios of stocks or exchange traded funds (ETFs) that are professionally tailored to reflect an investment plan, theme or idea. Smallcases are offered by Smallcase Technologies, an investment platform based in Bengaluru, India, where entities such as brokers, investment advisors and asset management companies undertake extensive research to create diversified portfolios for investors. According to Vasant Kamath, the CEO and co-founder of Smallcase, “The idea is to get retail investors to take a portfolio-based approach while investing in stocks, versus thinking about individual stocks.”

How do smallcases work?

Opening a brokerage account is mandatory in order to invest in smallcases (Smallcase Technologies has partnered with seasoned broking entities like Edelweiss, Zerodha, and HDFC Securities). Since smallcase investment entails owning the stocks of various companies, it also requires a trading and a Demat account. Once the transaction is complete, money is debited from the investor’s trading account, and in its place, stocks are credited to their Demat account. There is no specified lock-in period for these stocks, and they can be held or sold as needed.

Smallcase vs Mutual Fund

Smallcase portfolios often get compared with mutual funds. While the two are similar in that they both minimize risk through diversification, there are multiple benefits to going the smallcase route.

1. No Lock-in period

As mentioned earlier in the article, there are no lock-in periods for smallcases. Whereas some mutual funds preclude investors from exiting their investments for a certain period of time, this is not the case with smallcases. Investors can exit at a time of their choosing.

2. Cost of investment

Mutual funds investment are known to charge up to 1.5-2 per cent annual fees on the amount invested as expense ratio. Smallcases only charge a nominal amount (0.2%) at the time of performing the transaction. Thus, smallcase investments carry no hidden costs and work out to be a significantly cheaper option than mutual funds.

3. Transparency and control

Mutual funds disclose the stocks in the portfolio at a fixed time. On the other hand, smallcase investors can see and control their investments immediately after investing. They do not have to rely on a fund manager to make investment decisions for them, as is the case with mutual funds.

4. Ownership of shares, not units

Smallcase investments ensure that investors have ownership rights in the stocks comprising their portfolio. In the case of mutual funds, investors do not own a stake in any of the companies; they simply hold units of the portfolio.

Conclusion

One can now easily invest in smallcase investments or in mutual funds at the click of a button. The process is simple and help is available at every step.

Source: Motilaloswal

Billionaire investor Chamath Palihapitiya says successful investing is all about behavior and psychology and even the best model or analysis in the world is of no use if investors press the panic button during tough times. “The most important thing you can do to maximise the odds of success is figure out what, if any, behavioral advantages you have or can create for yourself,” he says in an interview to a financial website.

Palihapitiya — a Canadian-American billionaire of Sri Lankan origin — founded a California-based venture capital firm named Social Capital in 2011. Although he holds a degree in electrical engineering, Palihapitiya has had an illustrious career in the finance industry over the past two decades. His stock picks and investments as head of Social Capital have outperformed the S&P 500 by more than 1.3 percentage points over the past few years. His firm has a diverse portfolio of investments in healthcare, financial services, education, consumer products, frontier and enterprise sectors.

The investor held important positions at American tech firms AOL and Facebook before becoming a venture capitalist. Now he is on the board of many successful companies and is also a part-owner of the Golden State Warriors NBA team.

In 2020, Palihapitiya started the Social Capital Hedosophia Holdings Corp. V, a special purpose acquisition company (SPAC), that has since facilitated mergers, share exchanges, asset acquisitions and initial public offerings (IPOs) of several businesses. The venture capitalist has gained a huge fan following on social media and has more than a million followers on Twitter and regularly appears on news media to offer opinions on the finance and technology industry.

Invest in the winners

Palihapitiya says he follows a philosophy of putting his money into the winner of an industry as success will then surely follow.

“If you try to outsmart the market, chances are you won’t win. I personally have tried this several times, without much success. Remember, the average buyer makes the simple decision to invest in the category winner. There are reasons why a certain company is the best in its industry. And there’s a reason everyone is investing in this company,” he says.

It is easier to buy the winners of a particular industry and let them grow over time instead of trying to find a company that will be able to outperform the current top company. “You can spend weeks scouring over every financial statement and drawing up theories on why you believe a company will outperform the top company in the industry. Wouldn’t it be simpler and less stressful, and probably financially more rewarding, to just pick the top company?” he asks.

Invest for the long run

Palihapitiya says people should invest for the long term as that is the key to successful investing in stocks. “Whether it’s been my job, my life or my investing, I’ve learned that long-termism is an important key to success. I’ve gotten the most back when I invested my time, vulnerability and money with very few short-term expectations but many long-term ones.”

Prioritise your needs

Investors have to priorities their needs, he stresses. It is very important to set up a proper list of needs and address them wisely so that they can make the most out of these for a better future. There are some things that will not change no matter what the situation is. Investors need to keep their focus up so that their preparation for the good times remains intact and doesn’t get derailed through discouragements and disappointments, says the veteran investor.

Do your homework

All veteran investors say it is important for investors to do their homework well enough before choosing a stock. Palihapitiya says investors will have to see the performance of companies and then decide to invest in the ones that are healthy enough and can last the distance.

Monitor data efficiently

The founder of Social Capital lists monitoring data as a sound way to make an investment. His investing style is not about looking at technical patterns or stock charts but about looking at a business to understand it and then investing in the company concerned.

Maximise the odds of success

There is no one right way to value a company, he agrees. “Most of us have no idea whether investing in an early stage company will lead to outsized returns. As a result, the best way forward is to maximise the odds of success as an investor. It’s not about guaranteeing success, it’s about guaranteeing the best odds of success.”

Palihapitiya says human psychology has a huge impact on the kind of decisions that investors make. Investors have a tendency to repeat what they are most comfortable seeing and doing. “There’s a theme in psychology called repetitive compulsion. That psychological trait actually has incredible insights in business as well, particularly in investing. What it really means is that you have a tendency to be compelled to repeat what you are most comfortable seeing and doing. So, when you have a psychological blindspot, this idea of repetitive compulsion just reiterates those loops over and over. It really takes somebody who can dispassionately, but empathetically, point at those things and say ‘Hey, why are you doing that?’ or ‘why do you believe those things that you do?’ or ‘why did that happen the way that it did?’,” he explains.

But there are some rules that investors can follow to prevent themselves from doing something irrational, he says, especially when everyone else is losing their cool:

1. Don’t trade stocks; buy companies

When investors buy stocks, they should view them as buying companies. Buying a company is like hiring a great CEO to work for investors and their families. “You can rest well knowing that Bezos, Musk, etc, are on the job. That’s not true for all CEOs so decide accordingly,” he says.

2. Try to buy companies that can potentially earn 10x in 10 years

“If I’m not willing to do that, I don’t buy it. This doesn’t mean that I will bat 100% but that isn’t the goal. The goal is to become disciplined in a process, repeat this process and don’t deviate,” he says.

3. Have patience

Once investors have bought a company, the hardest decision is to take no decision and to patiently wait to be right. “If I become too short-term focused, I am my worst enemy and will overthink, overreact and underperform my potential,” he says.

4. Try not to look at prices every day

The market has an amazing way of giving investors great opportunities to see the truth, he says. “You just need to realise that the price and the truth aren’t always the same. Looking at daily prices makes it harder for me to see the difference.”

5. Don’t play with derivatives

Options seem fun but they are like allowing a toddler to play with a loaded gun, warns Palihapitiya. “You can have a few close calls but it eventually catches up with you. In short, I have come to believe that the markets are the summation of everyone’s collective consciousness in any given moment,” he says.

According to Palihapitiya, the market constantly overreacts and under-reacts in any given moment, based on investors’ psychology. But over time, he says, sanity always prevails. Hence, by creating investment rules and living by them, investors give themselves the best chance of not losing momentum in moments of chaos, finding and sticking to their conviction and letting prices catch up, he adds.

Source: Economictimes