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Investment Plan: Use the KISS Principle

Simple works. Complicated designs make your systems, your life decisions complicated. The US Navy discovered this simple fact in 1960, and what better way to remember the same but through an acronym:

KISS for “Keep It Simple, Stupid”!

Your lives need not be complicated. Your day-to-day life decisions need not go through a complex analytical process. Investment decisions, more so.

To make your investment decisions simple, here are some pro-tips:

  1. Do not invest in any device that you do not understand fully.
  2. Do not invest in policies that offer too many things. One policy, one offering. Let that be your mantra.
  3. Do not trust agents selling policies, and investment ideas blindly. They have their own agenda.
  4. Study. Google. Bing. Research. Spend at least one hour a week studying about personal finance. That is it. Take notes, if possible. A page a week. That is all.

Keep-It-Simple-Website.png

If the tips are self-explanatory, you need not read any more, and can better invest your time reading up something else. If not, read on:

Do not invest in any device that you do not understand fully. 

With the investment market maturing, we have a plethora of opportunities in the market. You have insurance policies, mutual funds, shares, future, options, ULIPs and tens of others types of opportunities floating all around. So, which do you invest in?

Each device serves some definite purpose, but if you think about it, you invest or spend your money in these devices for two specific purposes:

  1. Minimise risk: It may be health risk or death risk or accident risk. We want risk to minimised. Remember, risk can never be eliminated. (We would talk about risk more in subsequent articles.)
  2. Maximise return: You want to retire comfortably, and make your money do all the hard work. The harder your money works, the more are your returns, the more relaxed you would be.

Try and understand what purpose a particular device serves. Click here to know the purpose that is to be served by Insurance Policies. 

If any device “claims” to serve both the purposes – high return with minimum risk – be aware, and read the next point.

Do not invest in policies that offer too many things. One policy, one offering. Let that be your mantra.

There are these insurance policies for which you pay a high amount of premium, and they provide you both insurance coverage and also some nominal return over the tenure. Trust me, you would have done better to take a term insurance (life coverage) paying a fraction of the premium required for the all-offering-policies, and investing the remaining amount in a PPF (Public Provident Fund) account. [Read about Retirement Plan: Just PPF! by clicking here.]

Likewise, you have this Unit-Linked Insurance Plan (ULIP) which claims to provide investors “both insurance and investment under a single integrated plan”. Really? Just find about the administrative charges. In its stead, you would be better off taking a term insurance and investing the rest in Mutual Funds.

One device, one offering. Term insurance for hedging risk, mutual funds for healthy returns. No complications.

Do not trust agents selling policies, and investment ideas blindly. They have their own agenda. 

To be fair to agents, they have a family to run, and obviously they would push policies that maximise their return, their commission. These agents can be physical agents or online platforms. That does not mean that you do not consult them, if need be.

But just do not trust them blindly. Ask them questions like:

  • What are the assured returns?
  • What would be volatility like?
  • What are the inherent risks?
  • What are the administrative charges? Are their companies providing the same policies for a lower administrative charge giving a bigger bang for your buck?

But to ask these questions, and appreciate their dodging answers better, you need to:

Study. Google. Bing. Research. Spend at least one hour a week studying about personal finance. That is it. Take notes, if possible. A page a week. That is all.

Personal finance is interesting. That you are reading this, means you are interested. Who is not interested in money! Just read more. Take notes. Discuss with your peers. There is no shame in discussing mistakes you made, or learning from the mistakes of somebody else.

Not that complicated, is it now?

Just Keep It Simple. 

Amartya Dey, India

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Stocks & Shares: Looking at Essel Propack

Essel Propack claims to be “the largest global specialty packaging company in the world”. Tell me, which product does not need packaging! Every product does.

ess

Essel Propack provides packaging solutions not only to Beauty & Cosmetics companies, and  pharmaceutical companies, but also to the food packaging industries.

Now what got me interested in EP? Two news points: 

  • A huge drop in crude oil price has benefited many companies from the industry, as plastic is derived from by petroleum refining products. Lower the cost of oil, lower is the cost of plastic raw materials used across product manufacturing units to produce finished goods. 

  • Essel Propack, the world’s largest laminated tubes manufacturer, is understood to design and manufacture tube packaging requirement of Patanjali, which is growing in triple digits and is expected to touch Rs 10,000 crore turnover in the current fiscal.

Additionally, if you look at the fundamentals, it does seem like pretty good, if not great, investment opportunity given the abundance of over-valued stocks around us. A P/E ratio below 21 in this investment climate seems pretty decent.

What do you think? 

P.S.: At the time of writing this blog (end of day 4th July, 2017), the share of Essel Propack had been trading at Rs. 242.00 in the NSE.

144: Time to Quadruple

In the article “The Number 72“, we learnt how to guesstimate the time required for an amount of money to double if invested at a defined rate of annual interest. Click here to access the article.

Then, we learnt about the number 114 in the article “Triple Your Money“, where we learnt about the time required for an amount of money to triple at a specified rate of interest. Click here to access the article.

144

Picture Credit: commons.wikimedia.org

Now, in the last article in this series, we shall become aware of another power number – the number 144. And as the article suggests, it shall help guesstimate the time required for an amount to quadruple i.e., become 4 times its original value for a given rate of interest. And if you have followed the previous articles, you already know the formula:

(Number of years to quadruple) x (Rate of Interest p.a.) = 144

So, if you have a 1000 INR note, you know that it would become INR 4000 at 12% rate of interest in?

Yes, 12 years. Simple, isn’t it?

Hope you find this trick useful.

Note: This is an estimate to be used to make your life easier and does not give an answer accurate to the number of days. Also, the higher the expected rate of interest, the less accurate does the formula become but still you can use it safely!

If you like this trick, like and share this article. Comment if you know more such tricks.

The Number 72

72

Often we see investment advertisements which promise to double our money in (say) 9 years. Sounds good, doesn’t it?

Or don’t you wonder sometime, in how many years your money would double, if a Mutual Fund has been historically providing a return of 12%? Or, if you have INR 50 lacs, given the inflation rate of 8% (say), in how years would its value reduce by half in present terms?

(Answer to the three questions above are given at the end of the article.) 

The answer can be found out easily with a simple trick:

(Number of years to double) x (Rate of Interest p.a.) = 72

So, if someone promises you a rate of return of 9%, know that your money would be doubled in 8 years. If inflation is somewhere near 6%, know that your current kitty would be diminished by half in 12 years if not invested elsewhere.

Do the math!

If you like this trick, like and share this article. Comment if you know more such tricks.

Happy learning!

Answers: 8%; 6 years; 9 years. 

Picture Courtesy: https://in.pinterest.com/pin/53902526760366711/

Note: This is an estimate to be used to make your life easier and does not give an answer accurate to the number of days. Also, the higher the expected rate of interest, the less accurate does the formula become but still you can use it safely!