Do you think its a bad mutual fund, because it is not doing well from last many years?
A lot of mutual funds investors lose their patience looking at their mutual fund’s returns after they invest for 2-3 yrs. Its commonly suggested that an equity mutual fund will perform very good over the long term and one can expect double-digit returns, however, if the fund does not return back good returns within 2-3 yrs itself, the investors get very nervous and start judging their mutual fund quality and wonder if they made a right choice or not!
Today I will tell you how to judge the returns of mutual funds using “Rolling Returns” analysis, which will help you to get more confidence in your mutual fund and will help you learn many aspects!
Let’s start!
You Returns will invest a lot depending on when you invested!
Before we go into rolling returns, let’s understand the issue!
Take HDFC Midcap opportunities growth for example
10 yrs CAGR return: 14.96%
5 yrs CAGR return: 11.26%
At the time of writing this article, the returns from this fund are very good. But can this fund give bad returns in a 2 yr period. The truth is that this same “good fund” can give very different kind of returns in a 2/3 yr period depending on when you bought the fund.
Here is some data.
You can see that the 2 yrs return can be 22.8%, 0%, 39.5% or -5.1% depending on when a person entered the fund. So a lot depends on when you entered in the fund.
Now let’s see the same thing for 3 yr time frame.
Again, you can see that for a 3 yr period – the experience can be very very different. It’s not always possible to enter at the lowest point and many times, investors invest their money for the long term when the near term returns are going to be bad. However, they never get prepared for this.
Investor mind is also not designed to stay calm when returns go in negative and that’s when investors make a wrong choice of exiting the funds even if at the fundamental level, the fund has no issues and its just the volatility of the equity which is driving the fund into negative return zone!
You can see that this approach of just looking at the point to point return does not give you enough detailed information about the fund and its volatility.
Rolling Returns – What it is and How to look at it!
Rolling return means a series of returns data for each and everyday investment for a certain time frame.
So in our example of HDFC Midcap opportunities, lets assume a period of 14 yrs from 1st Jan 2007 to 30th Dec 2020. Thats approx 5110 days. If you do a 2 yr rolling return analysis, it means that a period if investing for 2 yrs and you are plotting the CAGR return for each day of investment from the start. (that’s 730 days of investment)
So you invest on
1st Jan 2020 and exit on 1st Jan 2022 (1st instance)
2nd Jan 2020 and exit on 2nd Jan 2022 (2nd Instance)
3rd Jan 2020 and exit on 3rd Jan 2022 (3rd Instance)
….
….
….
30th Dec 2018 and exit on 30th Dec 2020 (4380 instances: 5110 – 730)
So you can plot these 4380 data points and that graph is called a rolling returns graph. In the same way, you can have a 3 yr, 5 yr or even 10 yr rolling return graph.
Check out the example of HDFC Midcap opportunities rolling return chart for 2 and 3 yrs period for last 14 yrs. You can see that in a 2 yr period, the highest CAGR has been around 60% and the lowest at -16% .. So it’s possible to see your investment go down by 16% in a 2yr period as per old data. The same kind of data is there for 3 yrs period too!
Rolling return graph will give you a deeper understanding of how volatile fund returns have been and even the probability of your return being in a certain range (only with past data). Note that its only historical data and the maximum and minimum returns can change depending on future performance.
If you look at the chart above, you can conclude that if you want to invest in this fund – then you can see a downside of up to 10% in a 3 yr period because it has happened in the past. Also, you can see flat returns even in 5 yrs period which has happened in the past.
This kind of analysis tells you that because of volatility even this kind of good funds can see a period of non-performance and flat returns.
I hope I was able to explain what is rolling return in a simple manner.
Conclusion
Remember that rolling returns exercise is a great tool for analyzing the mutual fund, but it’s not the final exercise in itself. There are many other kinds of analysis which is possible and this exercise alone does not give any final judgement.
If you are not happy with your fund performance, then I suggest going through this exercise!
In the last article – 10 benefits of being an employee vs an Entrepreneur, Manish has highlighted some amazing points with some interesting sharings from some real-life entrepreneurs. The article surely has struck a chord with many. After the article was published we decided to write a sequel to the article. We want to leave all you with a new possibility so that you can see your work or job with a fresh pair of eyes.
If you really want to become successful in life, I invite you to step beyond the job and business conversation. A lot of people debate on which is better – job or business?
In this article, we just want to add a fresh perspective to your work life. I have been into several jobs and businesses and I want to help you create a whole NEW relationship with your work.
Here are the 4 Empowering ways to look at your work
1. Job or Business is a SYSTEM you choose
Always look at a job or business as a system you choose to make a living.
At the end of the day, it is a system you choose in your life which helps you to earn money. Job or business both are different systems, now every system will have a different input and output attached to it. Our Business coach Mr Ravi Iyer is a system person. He sees life as a system. He finds a system in everything around him. Whatever system you have chosen, see that you respect and love your system.
Look at what is your relationship with your system (job or business). If you create an empowering relationship with your chosen system you always grow and shine in life, and if your relationship with your system (job or business) is weak it always leads to confusion and chaos.
Two different systems:
Job – This is a system that generates X amount every month for the person – one has to produce X for the company from which the person gets the share. This system is more stable and growth is predictable by nature. The system is linked with the performance and efforts you bring inside the company.
Business- This is a system that can lead to profits or loss at the end of each financial year. Here you cant predict things and the growth can be non-linear by nature. The system is linked with risk vs reward. As a business person – every day you have to find a job for yourself and for your team.
2. Your work has to be your SELF-EXPRESSION
Let me share my relationship with my work or what is right now in front of me.
Let me share how to fall in love with your system (job or business) and how you can grow and shine in your career. I look at my work as my true self-expression.
I love to write
I love to lead sessions
I love to train people
I love to empower people
Most of the time I am addicted to helping people help themselves. Right now I am writing this article as part of my self-expression. Trust me it is not about doing a job or business, it is about expressing yourself fully out in the world through work.
Just try it out, the next 7 days you will fully allow your work to BE your self-expression. In your job or business let your expressions flow, don’t worry about the outcomes just keep on expressing yourself.
For example: If you are a software engineer, express yourself through the software you can create for the world. Your everyday focus has to be on what can you create out in the world using your skillset and knowledge. You go to the office not for the targets or for completing the task, but to express your true self out in the world. You literally fall in love with your work when the game shifts from getting the work done vs. expressing your true self.
Let me give one more example, if you are an architect, give the best designs to the world. Let your designs be your expression, let your work become your expression. You are expressing who you are to the world, you are sharing a part of you with the world through your designs and creativity. Let self-expression be the context of your work and not getting the work done or achieving targets or trying to please someone.
In any field of work you can shine if you chose a different path, you choose a path of self-expression. Sharing WHO I really am with the world.
3. Learn to Operate as an Intrapreneur
I did my master’s in business entrepreneurship. After completing my graduation, I wanted to do a program that helps me to become an entrepreneur.
I finally found an institute which was not just creating manager but entrepreneurs. I gave the entrance exam and got selected. On the first day of college, I created my company “Integration consultancy” and I also got some visiting cards printed. On the first day of college, everyone had to introduce themselves to the stage.
I got on the stage and made a declaration. I said “Here is my company and I am going to to use the college training in setting-up my company”, my professors were amazed and everyone in the class was taken aback by my announcement. I always wanted to be into business but I also did all kinds of jobs in my career. I have worked in the call centre, I have worked in a cyber cafe, I use to write articles in Indian express, I have been into multiple jobs and organizations but not as an employee, but as an intrapreneur.
An intrapreneur is someone who operates or runs a unit within a business created by someone else. We have people in our team who really operates like an intrapreneur, we have Sagar Maheswari and Kunal Purohit (our team members at Jagoinvestor) who have demonstrated several times being an intrapreneur. My professors taught me to always operate like an intrapreneur and I invite you all to start operating like an intrapreneur. Trust me Life is not about business or job when you operate like an intrapreneur
4. Always Work and Operate Like an Artist:
When you are in a job or business, you do think about retirement, But do artists ever retire?
The answer is maybe NO.
An artist is into a job or business? or maybe none. They operate in a different zone, which we should learn to be in. An artist looks at his or her work as their self-expression and nothing else, you take their art away from them and they start shrinking.
A painter will think of something in his or her imagination and will start working on making the painting a reality. It can take a few days or months for creating that one thought a reality. Artists love the game of creating a future in their mind and then converting the future into a reality. Once you learn to master this art of creating, you start to enjoy the process of creation. You master creating wealth, you master the game of self-expression and you live a fulfilled life.
Talking about wealth creation, you can create a vision of creating your first 1 crore in the next 5 years and literally live into that future day in and out. Your vision has to wake you up in the mornings, your vision keeps you to stay in action. You start to enjoy the process as the process is driven by your vision. Artists are driven by vision and we can apply the same to wealth creation or any other important area of our life.
Conclusion
Be it a job or business – it is about loving your system and let your work become your self-expression. When I get on a call with someone, I get totally engrossed with the other person, I will express myself fully and will allow my humanness to touch the other person’s humanness. I know this will sound a bit weird or new to you, but when you connect with people at a deeper level through your work everything shifts. Your sales, numbers, financial goals, business targets everything becomes like a by-product in life.
Your work has to become your self-expression that is the main point we want to leave you with as an end conversation for both the articles. Our blog is a place for our self-expression and will continue to express our heart and soul with all of you.
Thanks for reading the article to the end. Thank you for being our partner in spreading financial literacy. Do share your comments below and let me know your thoughts
This article was written by Nandish Desai!
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This is a long, but intense and immensely high-value article. So please read it fully!
Today I want to talk about some of the advantages of “doing a job”, rather than running a business or being an entrepreneur.
If you are someone who thinks that having your own business is “always” better than “doing a job”, I want to break your myth and point out several things which people don’t appreciate about doing a job.
There are lots of articles, videos, and podcasts about “leaving your job to pursue passion” and in almost all of them, a “job” is projected as some kind of modern slavery. It projects “doing the job” as working for someone else success and giving your life for others’ benefit.
I think it’s a gross over-exaggeration and while the job has its own limitations and issues, being your own boss has its own share of very big problems. I have also seen many salaried people complaining about their life, work culture, pay limitation, lack of opportunities, and their declaration about how they want to leave their jobs one day and achieve nirvana and ultimate success and get out of the rat race.
Before I tell you some good things about being in a JOB. Let me first share the bright side of “business”
When you do some business or try a startup – you surely become your own boss, you feel more in control of your career path and there is huge huge income potential.
However only when you “become your own boss”, you start missing many things which you get in a job. Only then you are able to appreciate those subtle benefits of a job, which you never realized while being in the job. Today I want to talk about those good things about being in a job that is often not appreciated or realized.
So I am going to talk about 3 primary and major benefits and 7 secondary benefits which not major, but matters a lot.
Lets Start
#1 – Less Headache
When you are in a job, your work is very focused as you are accountable for one single thing. You don’t need to take the headache of other departments and other small things. The way you operate is simple and you can blame others for anything which is not your core-domain.
This means that you have less headache and you can be very productive and focused on your work as you are clear of what is expected out of you. I used to love my job in Yahoo years back when I had very defined tasks in hand and my to-do list was clear and precise.
Compare this to your own business!
For the initial few years, it’s nothing less than a horror movie.
While you are the “BOSS”, you are also a peon.
You are the person who does salaries, buys office furniture, pays electricity bill, works on the website, open the bank account, talk to customers, talk to vendors, run around to deal with CA, get GST calculations done, do hiring, do training and tons of other small and big things!
If you feel that this is doing to happen for just a few months of starting the business. It’s not true. Businesses take anywhere from 5-15 yrs of establishing. There are many people who are having a small company now with few team members, but there are tons of things on their plate which they need to handle and with the changing landscape of business, competition, regulator, customer experience, and business cycles, its a never-ending circus for many entrepreneurs.
Sometimes you start wondering why you are doing everything OTHER than the main task.
When you are in a job, there are lots of invisible systems that are around you and speed up your work. You become a HERO in your company, mainly because you had a lot of focus and time to excel in what is your core job. The invisible support system around you helps you in that.
So in a job, even if you feel there are lots of headaches, it’s often at a minuscule level compared to your own business. So if you are someone who doesn’t want to do be lost in too many things and doesn’t like to handle multiple things in hand, a job is a wonderful place to be in.
The job comes with fewer headaches
#2 – Clear Separation of Work-life and Personal Life
When I had started working 13 yrs back in Yahoo, Bangalore, I remember Friday evenings.
It used to give a feeling that I am starting a new life altogether – The “Weekend Life”
For the next 48 hrs, I was detached from my work life and there was nothing on my mind. It was not my headache what is going to my company. That conversation started only on Monday morning.
Unless you are at a very top position or at some senior level, there is a very very clear separation of work life and personal life.
This becomes very tough when you start your own business. No matter what you do, there will be some thoughts of business that will crop up in your mind. This is simply because now you are not working for someone else. You are working for yourself. Your company is part of you.
Sadique Neelgund who started his entrepreneur journey with networkfp.com 10 yrs back shares his comment on this point.
As an Employee, one of the biggest benefit I enjoyed was fixed work hours – 8 hours per day – 5 days a week. Forget about work and boss, enjoy life with friends and family after work and on weekends. Tomorrow, take it as it comes. Resign and move forward if things don’t work out.
As an Entrepreneur, it’s actually work right from the time you wake up to the time you go sleep. Once you become an entrepreneur, your mind is always thinking what next; sometimes for growth and other times for survival. It’s strange many of us want to become an entrepreneur because we want freedom of time. Although we can take leave whenever we want, go to office late etc… But that really does not translate into freedom from thinking about work & business.
According to me, freedom of time in real sense is much higher as an employee than as an entrepreneur.
One of my friends was sharing about his relative who has started a restaurant business in Dehradun. Because he is the “chef” himself, the weekends are non-existent for him now. His business is such that the shop has to be opened almost every day.
Either he has to wait for his business to become much bigger when he can hire a staff who is as good as him or wait for some extreme situations or get SICK in order to enjoy a day off.
Also, some businesses are seasonal and their peak business happens in the holiday season. So be ready to forget holidays or full off time during the holiday season. This depends on business to business also. Imagine that you start a business which is related to “Gift items”. In that case, you will be super busy in all holidays. For you Diwali, Holi, New Year and this kind of time do not mean holidays, but double shifts!
So if work-life balance matters too much for you, a job is a wonderful place.
Note that while you sacrifice the work life balance in the start of your business. Once its established and things are in place, you enjoy a great amount of work life balance. Then you can be very flexible in your office timings, you can take off whenever you feel like and work on days as it suits. It gives a lot of flexibility to you.
#3 – Steady and Stable Income
One of the things many salaried employees do not appreciate well enough is the steady and stable income that comes with a job. Each month, you know how much you will make by the end of the month. You know that till you have your job, your income is assured and it will come without fail.
The business risk which your company takes or any short-term problems which happen with the company do not impact your paycheck. This also means that you can plan your life in a more clear way. You know much EMI you can handle, you know how much expenses you can do, etc etc.
However, in business, it’s a roller coaster ride. It’s like an equity mutual fund chart, where you know deep down that while in long run, you will do well and things will be in place, in the short term you have to face a lot of volatility. A good month/year does not mean that the next month/year is also guaranteed.
Business uncertainties sometimes can be very painful and can put you in a situation where you start wondering why the hell you are into business. This is more true in the businesses where you also have to deploy too much investment and the income stream is very volatile.
Checkout out more on this, in this video by Ankur Warikoo, the cofounder of nearbuy who shares his real-life experience on this matter
No doubt that over the long run, the business can give you an amazing payoff. Your income from business can be huge and you will forget all the initial painful years, however this an important point to consider.
I asked Amit Singh, an entrepreneur who runs a WordPress design and development Agency since 2009 to share his comments, and here is what he says.
To me, there are two good things about the job
1. Assurity Cashflow, that is as long as you have a job, your salary is guaranteed. This allows people to plan and focus on the work at hand. Another major advantage of this is that you get to take loans from banks easily for big-ticket items like Home or Car.
2. Time for hobbies, while this may not always be true but while I was working I used to regularly write blogs to share my learning, and build interesting side projects for myself just for fun.
If you are someone who needs a very predictable income, the job will give you that.
#4 – Flexibility to move on and easy withdrawal
If you are not happy with your job and can’t stand the stress, it’s comparatively easier to move on to some other company, role, or location.
In the end, you are not married to the company you work for. You can take the decision to move on to something else because at the end of the day you are a resource. The way you are replaceable by the company, even the company is replaceable by you.
You need to start the job hunt, plan out things, pack your bags, and move on. I am not saying that it’s a cake-walk, but there is a good level of flexibility on this front.
However, when you start your entrepreneurial journey, there is a good amount of financial & emotional involvement from your end for your venture. You give you time, effort, mind, soul. It’s like raising a baby. You can’t just leave it in between and move on.
If things start going wrong or if you face challenges, you get to fix it and stay in the mess. You cant back out so easily. I don’t want to sound as if I am trying to say that job-switching does not have its own challenges. It surely does! , but in comparison, there is a huge advantage in the job.
So if you are someone who enjoys this “weak attachment” and appreciate the flexibility to move on to something easier, the job is for you!
But let me also point the bad thing here. Even if you are working well, doing decent – there is always a risk to get fired from your company for various reasons. In the end, it’s not YOURS.
That thing never happens in a business. Jaise Bhi ho, Apna hai!
#5 – Social Standing & Recognition
“Hi – I am AVP of XYZ corporation” draws much more attention in social circle, than a “Co-founder of an ABC Struggling startup”.
If you are holding a key position in some big company, people want to talk to you, be friends with you and invite you for various events. You are also recognized on social media and getting this attention often pampers you and acts as a motivation for you.
You get your identity due to your designation/brand. Also if you are handling a key position or managing a big team, you also get a chance to experience giving orders to others and command things. You handle people
In business, this social recognition will come very late or may not come every. When you leave your big position in a company and do a startup on your own, it’s like from a happy, glossy Karan Johar movie, you are in a dark, realistic Anurag Kashyap movie
Let me give one more shot at it!
From Varun Dhawan of Humpty Sharma Ki Dulhania, you suddenly become Manoj Bajpayee of Gangs of Wasseypur.
Here what Mahavir Chopra who recently started beshak.org after leaving his job at a very big company shares with us
Entrepreneurship is an extreme sport. It’s a mental shift. It’s a rollercoaster journey of finding yourself that is not for the faint-hearted. When you take up an entrepreneurial journey, you are changing who you are.
You are no more the senior guy working in that successful company, who called the shots in the system and things worked. You are unarmed, you are vulnerable, you are naked in front of the world. From you representing a large company, a tiny company now represents you.
The romanticization, glorification of an entrepreneur shown in movies, shouldn’t be the reason you want to become an entrepreneur – that way all of us should become gangsters or serial killers :D. You should become an entrepreneur if you are ready to unlearn, rebuild your self while building an organization that generates value from scratch – when you are ready to test your strengths in the real world, you are ready to face your weaknesses.
If this social standing or commanding position is something you enjoy a lot, the job will be a perfect place for you.
#6 – Move up the ladder and access certain kind of roles/work
When you are in a job, you mostly move ahead and up the ladder.
If you are extremely skilled in something and your domain knowledge is incredible. Then as you move up the ladder, you can get a chance to lead a big team in your area of expertise.
If you feel saturated in a particular domain, you can think of trying out another domain in the same company or the same domain in another company once you switch the job. You mostly experience “progress” in your career when you are in a job.
Also in Job, you can use someone else success and hard work to lead a role that you want. You can let the business uncertainties be handled by someone else and dedicate yourself to learn a new skill of your liking (obviously it has to be related to your work).
For example, let’s say you are a good software programmer and have designed great front end websites. Now if someone doing a new startup, and you want to give a shot at leading the planning and creating of the front end of the startup. You can join the startup and fully focus on that new thing you to add to your resume. You can let the business owner worry about the funding, company future, salaries, and other things.
However, when you start your own business, you often start from scratch the rebuild things. You first do down, then move up which is quite volatile.
Let me explain with few more examples (ahh.. its not an easy thing to explain)
If I want to explore “teaching” a bunch of students. It’s almost impossible to do if I open my own school. I will then be running around for things like hiring teachers, renting or buying land, construction work, managing staff, design of curriculum, making a marketing plan for the school, and whatnot. I can’t be a teacher then.
If you want to lead a team of 20-50 people. Then if you are an expert in your field, then there is a possibility that within a few years you can move to another job where there is an opportunity to lead a big team.
If you think of starting the business, you have to first deal with a lot of petty tasks before you can do that years and years later. You will mostly be busy with so many things that you will hire someone else to lead the team at the end of the day!
I hope you are getting what I am trying to say. In a job, there a nice chance of incrementally become bigger because of other efforts and setup.
Here is what my friend Ameya Dhani says, who worked for more than 15 yrs and now started his own business as an Industrial solution provider
When I was engineering student, I always fascinated about corporate culture and dreamt of working with MNC. I was fortunate to have my dream come true and had chance to serve in Corporate offices of MNCs at various levels in my job tenure.
Working in a company will give u readymade identity at the professional & social world. You will have the knowledge required for completing your assigned task and if required, company will upgrade/polish it through their internal team or consultants. This will help you to learn new skills to master the task.
As every employee is responsible for the task assigned to him, this reduces the burden which helps in having a better work-life balance. At MNCs, at younger age you can sometimes visit new countries, meet new people and gain better knowledge of world. Also with job, its possible to have a better lifestyle at younger age. Timely salary and perks are icing on cake.
#7 – S0cial Life & Atmosphere
If you are doing a job, it’s almost a given fact that you have some office friends, a happening office atmosphere, birthday parties of friends, monthly/quarterly eat-outs, and yearly outings once in a while (obviously not in this corona phase)
You are part of a buzzing environment and there are people all around you. Even though you spend the highest time at your desk, you don’t feel lonely. I remember every day in the office we friends used to meet in the cafeteria and engage in silly chit chats while gulping that juice and sandwich. I remember my office friends, colleagues, and the whole ecosystem which used to give me a nice feeling.
Welcome to Entrepreneurship, which is often a lonely world!
You start working out of home, or some shared office or a tiny office which is nowhere close to that swanky office, and on top of it, you are paying the rent. You miss that big-office culture and often that can be tough to handle if you are too used to that kind of life.
A lot of people do not think about this small aspect, but for some people, it can matter a lot.
It takes time to reclaim that level of social life in your own business unless obviously you are starting your business with funding money and get a big team and office from 1st year itself.
#8 – Corporate Perks
When you are in a job, you also get tons of perks
Apart from various small perks, I want to first talk about two major benefits which are health insurance and EPF
One of the biggest perks, when you work in a job, can be the free group health insurance which covers you and your parents from day 1 for all kinds of illnesses. You know how big a perk this is if you are not getting health insurance for your parents or yourself when applying separately.
Another big perk is the automatic investments which happen in form of EPF. For most of the employees, a forced EPF deduction is nothing less than a big boon. At least this way they have some investments happening every month and over years, it compounds to a very big amount.
Let’s see what my long time friend Animesh Gautam who started his own business around 2 yrs back (after 13 yrs in the job) says
For me the most important think I relished about the Job was the PF contribution that were made compulsorily, it helped me at finally arriving at the decision of quitting my job, as the contributions in PF after 13 yrs of work were considerable enough to give me some financial stability and I was then able to take calls independent of financial constraints.
Then there are many small perks and advantages like
Free/Discounted food
An unlimited doze of free tea/coffee/cookies.
Creche
Free office cabs
Free Life Insurance
Corporate tie-ups with restaurants and brands
Gym Memberships
Tie up to get easy credit cards
Tie-ups with various loan providers
Being in the job, people really never appreciate how fast they get a loan by just giving their form 16 and ITR for last 3 yrs for any kind of loan (for business people its a headache to prove that they can repay the loan, we have to give our company balance sheets, income computation with CA attestation and what not!)
In short, there is a good amount of pampering happening which often you don’t realize.
One of my friends who works in the IT sector also mentioned that she is missing the super comfortable office chair in this WFH period. She never realized it, but only now.
I don’t know how true it is, but my Delhi friend said that many people in the North also love the fact that their offices are fully AC which they miss when they are back home (if they don’t have AC at home)
When you start your own business, you often start from a lower base with all these benefits and amenities gone. But once you are established with a nice office and staff to take care of things, you get some of it (still not FREE)
#9 – Set back due to mistakes or external factors is lower
In a job, the impact on you, because making a mistake is much lesser compared to a business.
Any mistake on your end will mean a direct loss to your company and an indirect or a delayed loss to you. It’s not that your next paycheck is at stake.
Even when there is some big mess up from your end, the maximum you can lose is the job, but you still have your skills and years of experience with you. Even when you are too stressed due to some office issue or a mistake done by you, you have an option to leave the job and move to some other company and feel guilty for some limited period. The case is closed for you.
Compare this to your own business, where you have to deal with the mistake and fix it. You cant leave it!. Also, the direct impact is on you.
#10 – No financial Investment
Finally, a very small benefit of a job is that you can do a job without incurring any financial investment. You just need the skill and that’s all. The best example of this is the restaurant business.
Imagine someone took up the job of a restaurant manager in a new upcoming restaurant.
Due to the corona pandemic, the setback for the restaurant manager is only his job. But for the restaurant owner, it may be a loss of huge capital.
So a job gives you an opportunity to earn money without any financial investment.
But if you want to do business, you should be ready to invest money in most of the cases
Apart from the 10 points I mentioned above, I also want to talk about a few more things .. Let’s see those
Am I glorifying Jobs?
When I finished writing this article, I felt as if I am glorifying jobs and giving an impression that one should not attempt doing business and always be in jobs as they are so great. However, I am just trying to put a point that you should love and respect your jobs a lot as they are amazing in certain aspects.
People in jobs will surely have a limited upside on their salaries (apart from exceptions) compared to a business person. Almost all the rich people in India are business owners and not a salaried class. However, there is no written rule that everyone should aim to become a billionaire. You can lead a happy and content life even being a salaried person and that’s absolutely fine.
Businesses even though have their own limitation score on many points which is not the agenda of this article and I am not going into it for now.
“Entrepreneurship is always better than just a job”
This is surely not true.
When we hear about entrepreneur stories, we often hear about the big success stories which are worth billions. We will hear about Bansals who used to be in a normal job in Amazon and who are now worth billions of dollars. But we will not hear about other folks who also used to work for amazon and left their jobs to start businesses which never took off and they had to return back to jobs and no one knows their stories.
No doubt that entrepreneurship has the potential for a very big payoff if things go in the right direction. But it’s not for everyone and should not be attempted just for the sake of trying.
There are tons of struggles in starting your own work and most people fail at it. Also, small successes are often not celebrated enough. You will not hear about the guy who left his job to build a 4 cr company and a team of 8 people after 12 yrs of hard work. You will not hear about the 2 partners who are making 5 lacs a month each after going through the hardships. These all stories are not “success” as per the startup world even though 99.9% of people end with exactly that kind of results.
In the end, it’s a decision between what you want to be – a “Small-time entrepreneur” or a “Big-time employee!”
You can be an “entrepreneur” while being in a job
Think of it like this.
An entrepreneur exists only because of the people who do the job. No entrepreneur wants to work in isolation.
He wants to have a salaried team that will help him grow his work. Salaried people are the backbone of any company. What you need is the mindset of entrepreneurship to make tons of money and command lots of respect.
Do your work as if you are the owner. Think from a business angle and contribute. You will become a valuable part of the organization and your compensation will also grow and be linked with the business.
Aditya Puri of HDFC bank was an employee, but his attitude was of an “Entrepreneur”. He retired with 800 crores worth of company stocks.
Sundar Pichai is also a salaried employee of Google. But he acts and thinks like an “Entrepreneur”. Last year, Pichai was granted a $240 million stock package on top of a $2 million annual salary.
If you create value and work with a giving attitude, then you automatically become an “Entrepreneur”, you don’t always have to start your own business.
I hate my job, so I want to start my own business
“I hate my job” is the worst reason to start your own business.
Most of the people who succeed in their “business” are those who were quite happy in their jobs.
They didn’t leave the jobs because they hated it. They left it for a bigger reason. Maybe they wanted to be in a commanding position, maybe they wanted to experience the tough path, maybe they want to execute an idea which they were not able to do in the job. Maybe they wanted more flexibility in their life which job was not providing them. Maybe they wanted to earn a lot of money, which they didn’t see happening in their job.
If you don’t like your job or are unhappy. Check out what is the reason is and then fix that.
Maybe it’s your boss
Maybe its the company environment
Maybe it’s your salary
Maybe it’s the lack of freedom.
Fix that.
Leaving the job is not a solution.
Don’t devalue the money you earn for the sake of “passion”
Pursuing a passion is highly overrated and full of fizz.
Most of the people who seem to be following their passion are just lucky people who started something and it clicked and they don’t hate it now. It was not a planned path they took.
Often, the stories of “he/she left his job to pursue his dream” don’t look at life realities and the importance of money in life.
You cant pursue your passion with worries of paying the next rent and thinking from where your kid’s fees will come next year. If you have studied well and got your hands on a well paying job, do value it and the money you make from it.
There is no problem is pursuing your passion, but do it with some good planning and once you are financially stable. Else things can go in the wrong direction.
I once came across an NRI who wanted to come back to India to pursue teaching. He had a decent networth. I asked him if he can stretch a bit more and work for 5 more years? He said YES.
I asked him to do that and delay his entrepreneur stint a bit late. That way he would be around 1.5 crores richer because he was able to save close to 3 lacs a month while in the job. I asked him to not devalue that.
I want to end this article with this point that even though I tried to share many benefits of a job in this article. I definitely don’t want to portray that the business world is bad or should not be pursued. All that I have said above is keeping in mind a larger population. There are times in life where all the logic does not work and doing what your mind tells you is the right thing to do.
A job even though has many benefits often puts you in your comfort zone and you are not able to explore your full potential. But anyway, I just wanted to make sure that people love their jobs and respect what it provides them.
We often don’t appreciate what we have in hand and just feel that we are missing out on something which others have.
I hope you will start seeing your job with a new perspective and become more valuable going forward.
There is good news for those loan borrowers who didn’t opt for the loan moratorium benefit which was introduced by govt due to the pandemic. The govt has decided to pay the interest on the interest of the loan outstanding and pass on the benefit in form of cashback to loan borrowers.
Let me explain
So those borrowers who have opted for loan moratorium benefit will only be paying the simple interest on the loan outstanding and not the interest on the interest. This means that all those who paid their EMI’s are in a way getting penalized for not taking the benefit. Hence govt has with this benefit where all those loan takers who have paid their EMI’s on time will also be just paying the interest on their loan outstanding and not the compound interest for the period of 6 months (from Mar 1 to 31st Aug 2020)
Note that the interest applicable for calculation purpose will be as on 29/02/2020.
However because the EMI payments have already been made, the govt will pay back the difference to your bank account in form of a cashback in a few days. Let me summarize it
What you have to pay : Only the simple interest on the loan outstanding as of 29th Feb, 2020
What you paid : Compound Interest on the loan outstanding as of 29th Feb, 2020
What you will get back : Difference between Compound and Simple Interest for 6 months
Example Calculation
Here is a sample calculation for a loan outstanding of Rs 50 lacs (as of Feb 29,2020) with an interest rate of @9%
So you will get back this amount in form of cashback
This benefit is available on
Housing Loans
Automobiles Loans
Credit Card Debt
Education Loans
Consumer Durable Loans
MSME Loans
Other Eligibility Criteria to get this benefit
The Loan Outstanding should be up to Rs 2 crore
The Loans should not be NPA as on 29/2/2020
This benefit will also be passed to someone whose loan is closed during the moratorium period. Do let me know if you have any questions on this and I will be able to answer that.
Do you have a daughter? Saving in gold for her marriage?
Nice! .. Nothing wrong with it.
Just that I wanted to tell you what your daughter wants?!
Yes, that’s exactly what we did. We ran a survey with around 1,996 people which was a mix of men and women and tried to get a perspective of how women (and men also) see the gold which is given in our Indian marriages.
Check out this 20 min video below where I have shared the results of the survey in detail and also gave my commentary.
Indian marriages are not complete without GOLD.
Every parent tries to give enough gold to their daughters in form of jewelry which is worn by the bride in marriage and it also kind of becomes a scorecard for others to compete. But do daughters really want gold from parents to that extent?
Here is what females replied to our question when we asked them “What is the main reason why you want GOLD for your wedding?”
Check our more survey results in our video above..
There is enough for me to talk on this on this topic, but I would save that for another day and rather point you to this excellent article which talks about GOLD, Dowry and what women have to go through in our country
My parents, however, decided to give me — a person who does not wear any jewelry, not even a wedding ring — a pound or two of gold jewelry. A matter of pride.
“Your father is a doctor and mother is a professor; people will expect you to wear some gold,” an aunt explained.
“What you do today will reflect on your sister and will affect her wedding,” another aunt said.
Weddings are hard, and I had no fight left in me. So I went along with it. I wore an armor of gold. The numerous chains were stitched onto my sari to keep them in place. I never saw that jewelry again after the wedding. My mother-in-law has it safe in a bank locker somewhere.
One of the first conversations I had with my mother-in-law was when she told me that her son had certain responsibilities to his sister. She then asked me to not stop him from fulfilling those.
Years later, I decoded that cryptic message.
She was trying to tell me that when the time came, I should support my husband in paying his sister’s dowry.
But I don’t think I can support a system that turns women into bargaining chips.
I would really love to get your comments and opinion about this topic. Please share that in the comments section.
Disclaimer: The survey results don’t claim to showcase what the whole of India thinks. The survey was taken by only 1,996 people and its not a very big same size as such, however it’s not very small though.
Congrats! – Health Insurance just got a lot better
IRDA has recently come up with some major changes in health insurance guidelines which are extremely customer friendly. These changes will reduce a lot of confusion that customers used to face while buying health insurance and will also help in smooth claim experience.
These changes are really good and it’s suggested that you should be aware of all the changes if you have a health insurance policy. It will take some time to understand these changes, but please read this article fully.
In case you like to listen, rather than read – here is a 35 min video discussion I did with Mahavir Chopra of Beshak.org who is an expert on this subject and a good friend too. While there are many big and small changes in the guidelines, the video talks about the top 10 changes which matters to you.
Change #1 – Standard definition of 18 exclusion
There are various exclusions in a health insurance policy and wordings for them differ from policy to policy. This confuses the policyholders while their decision-making process. Now IRDA has standardized the definitions and wordings for all kind of exclusions
One of the examples of this is the wordings for a pre-existing illness, 30 day waiting period, maternity, obesity, and many more. In various policies, the definition is different for these terms and it leaves a grey area many times.
Now with the new rule, every policy will have the same wordings and definition of the exclusions along with a CODE for each exclusion.
Change #2 – No ambiguous wordings or definitions
Apart from this, IRDA has also said that there should not be any ambiguity in the wordings which can create confusion in the future. For example – “Obesity is not covered, and any other illness which is derived out of obesity is also not covered”.
If you look at the example above, how will an insurer and the policy come to an agreement is something was because of obesity or not? There may be a disagreement in the future and companies can deny the claim citing some unreasonable thing.
Now, this practice ends…
Change #3 – Many Exclusions are disallowed
Now many exclusions which were part of policies earlier are disallowed, which means that companies will have to cover them. Some of the examples are as follows.
Treatment of mental illness
Behavioral and Neurodevelopmental Disorders
Genetic diseases or disorders
Puberty and Menopause Related Disorders
Injury or illness associated with hazardous activities
So the coverage of the health insurance policy widens now and you will be able to get coverage for many more things. This is wonderful news because mental illness or psychological related hospitalization will now get covered which was a big requirement.
Check out our youtube video on these 10 changes if you want to listen to the whole conversation
Check out this video
Change #4 – The definition of “Pre-existing” diseases is standardized
This is one area that was quite confusing for customers.
Till now, it was not very clear what exactly is a pre-existing illness? So the onus was completely on the customer to remember his symptoms and go back in past to dig out all that had happened. If he had forgotten anything and it came up later in the future which was not disclosed in the policy, there was a good chance of rejection of claims.
Now, the IRDA has made it clear that a pre-existing illness is an illness for which,
A doctor has advised you a treatment
Or Doctor has diagnosed a disease
Only in these two cases, it will be treated as a pre-existing illness, else not. Hence, it has now become a much-focused definition now which will remove all the confusion.
So now just because you have some mild symptoms or an indication of an illness, does not automatically become a pre-existing illness going forward.
Another example is let’s say you are obese and have had bad eating habits and you are not sure if you are diabetic or not… In this case, a lot of people wonder if the insurer can reject the claims in the future because of hospitalization due to diabetes.. but with new rules, unless it was diagnosed by the doctor officially, it will not be treated just a pre-existing illness.
Change #5 – No claim rejection after 8 yrs. of premium payment
This is a big relief to policyholders.
Now health insurance companies will have to settle all the claims once a policy has been active for continuous 8 yrs. In case you increase your sum assured in the same policy, another 8 yrs. of moratorium period will be applicable on the increased limit. Apart from this, the permanent exclusions will always be excluded.
Only in case of a Proven fraud, the rejection can happen after 8 yrs. However, in case of a genuine claim, the policyholder doesn’t need to worry. Check out the reply by Mahavir Chopra on twitter timeline to one of the people who asked a question on what is a fraud and what is not.
Change #6 – People with serious illnesses to get cover with permanent exclusions
A lot of people who had some serious illnesses like cancer, epilepsy, Chronic Kidney disease, Alzheimer’s Disease were denied any kind of health insurance. They were not even provided cover for other things with these things put as permanent exclusions.
However, this has changed now.
IRDA has said that now people with these kinds of illnesses also have a right for getting health insurance for at least other illnesses. So health insurance companies will now have to give them health insurance for at least the other diseases with their pre-existing illnesses as permanent exclusions.
This is important because if someone had Chronic Kidney disease, they can still be hospitalized due to a completely different illness like a brain illness, mental illness, accident, or cancer .. You can’t just completely reject them and deprive them of health insurance.
This clause is not applicable to lifestyle diseases like diabetes, hypertension, etc. because insurers can’t put permanent exclusions on these things as they have almost become part of our life these days, and people like their whole life with these things. More on this in the next points.
Change #7 – Modern treatments to be covered in health insurance
Another welcoming change is that some advanced and modern treatments will now be compulsorily covered in health insurance policies. Here is a full list of modern treatments which IRDA has specified
Uterine Artery Embolization and HIFU
Balloon Sinuplast
Deep Brain stimulation
Oral chemotherapy
Immunotherapy- Monoclonal Antibody to be given as an injection
Intra vitreal injections
Robotic surgeries
Stereotactic radio surgeries
Bronchial Thermoplasty
Vaporisation of the prostrate (Green laser treatment or holmium laser treatment)
IONM – (Intra Operative Neuro Monitoring)
Stem cell therapy
A lot of times, these advanced treatments are advised by doctors but these were never covered by health insurance policies. However, with this, you get access to more advanced treatments going forward.
Change #8 – Waiting period for specified illnesses can’t be more than 4 yrs.
So earlier there was clarity on how much can be the waiting period for various illnesses like cataract, knee surgery, and many other kinds of illnesses. Most of the time it was in the range of 2-4 yrs. and some older policies may have higher than 4 yrs of waiting period.
But IRDA has now made it clear that in no case, it can be more than 4 yrs. of waiting period.
Change #9 – Waiting period for lifestyle diseases only up to 90 days
So the waiting period for lifestyle illnesses like diabetes, hypertension, and Cardiac conditions can be only up to 90 days and not beyond that. Till now the insurer used to keep waiting period for these lifestyle diseases up to 2-4 yrs. Nowadays these illnesses are very common and have become part of life in a way.
This is good from the customer’s point of view.
However, note that the waiting period of 90 days is only in case you don’t have these at the time of taking the policy. In case you already have them, then it’s classified as “pre-existing illness” in your case.
Also note that if you have recently taken a health insurance policy, then at the time of next renewal this 90 days waiting period will apply in your case and will get covered for you.
Change #10 – Pre and Post hospitalization expenses to be covered for domiciliary hospitalization
Another change is that now in case of domiciliary hospitalization (when you do the treatment at home because of unavailability of hospital beds) the pre and post-hospitalization expenses will also be covered which was not the case earlier.
When something improves by a big margin, it’s almost guaranteed that its price will also rise in the same fashion. The same is the case here. Because of all these new changes, the health insurance policies have got more superior and much better & provides more value now.
So you can surely expect that the premiums will rise in the future for these policies
If you already have the health insurance policy, you can expect the premiums to rise on your next renewal. However, you should take it positively and not feel bad about it.
These changes have happened for your benefit and it’s you who will benefit from it in the future. Health Insurance companies are also bound to incorporate these changes as an order from IRDA.
What is your view about these changes? Do you feel it will help customers?
That’s what most of the investors answer when they are asked – “How long are you going to live?”
Truly speaking, no one knows how long will you live!. We may die at 60, 70,80, and 90,100 or may be 47 or next week!. Who knows?
In most of our workshops and even the online webinars, when we asking this question “How long should you plan your retirement?” . The standard reply is 75-80 yrs. Only 2-3 people among the ground of 40 will murmur a number like 95 yrs. or something like that and obviously face the horror from of those who are confident of not retiring with enough corpus.
Today, we are trying to answer this question from retirement planning perspective. When you plan for your retirement corpus, it depends heavily on how long you are going to live!. If you live for a short period, you need less wealth. If you are going to live for a very very long time, you are going to need a very large corpus.
Your answer to “How long will you live after retirement?” will also vary depending on how happy are you with life overall currently. If you are stuck in your job, where you feel frustrated and also have not been able to reach some milestones in life, your answer will show the pessimism and you might say “75 yrs” is enough for me”
However if you are full of life, very happy right now, in a great health and have been doing great in your financial life, you might say “I would love to live till 90 or 95, Life is so beautiful”
But, Most investors get it wrong
Coming to the main question we are trying to answer today, we want to investigate or rather get enough clues on how long we can expect to live in retirement. Finding a good enough answer is critical for every one of us, because then we can design our life, priorities and investment plan for retirement based on the answer we get today.
I want to convince you today, that if you feel that you will just live till 75-80 yrs. only, then maybe you need to change the way you look at it. May be you are planning is wrong. May be you are taking the best case.
The biggest retirement worry most of the people (who are already retired) is “Outliving their money”. Just think of a situation where a person has planned for just 20 yrs. of retirement (retired at 60 and expects to die at 80), but he has already reached 78 yrs. of age and his money is almost finished.
What kind of mental trauma he/she has to go through?
We all want to make sure that it does not happen to us.
We all want to make sure that in our retirement life, we have enough money, freedom to withdraw enough money for our expenses and have a decent margin in case anything goes wrong, so that you don’t have to depend too much financially on others.
Recently we did retirement planning for a 54 yr old person who was an NRI reader and while we created his plan, we made sure that all these elements like legacy, tax optimization, risk-control and growth was taken care while creating his retirement plan and his action strategy. You also have to make sure that if you are almost going to retire or if your parents are about to retire (or already retired) these elements are present in their retirement portfolio.
While we are happy today that India is the youngest country in the world, we also have to remember that in few decades, all we young people will also retire. Many of us may also not have the privilege to live with our children which many senior citizens enjoy. So we need to plan better.
Life Expectancy in India
Let’s start with the basic question – “What is the average life expectancy in India right now in 2020?”
The official answer is around 69.73 in India at birth. For simplicity sake we will take life expectancy as 70 yrs. The life expectancy in India is continuously increasing every year from last many decades (a lot of people have this myth that it’s decreasing)
It simply means that one an average when a child takes birth, He/She is expected to live up to 70 yrs. of age. However we all know someone who died at 85, or 95 and even 53 or 29.
So this 70 yrs. is “Average” – which includes
All the young people who die because of accidents
All small children dying of malnutrition
All people who die of suicide
All people who die of any illness at young age
Old age people who die because of illness in age band of 60-70 yrs.
Old age people who due because of illness in age bank of 70-80 yrs.
Old age people who die of depression and loneliness
Old age people who die because of no access of good health care
Very old age people who die at age 90+ yrs.
So, you now understand that “average” is kind of a fraud number. It gives some idea to you about something, but does not reveal enough to take decision. We also have to look at standard deviation to get a better sense. And people age at death can vary by a big margin.
A big population dies below life expectancy of 70 yrs. and many die above 70 yrs. The average is 70 yrs. Which means that for every person who dies much before 70 yrs. , there is another person who is living till 100 to average it out
You can’t take these 70 yrs. as the base to plan your retirement life.
Moving Life Expectancy in India
A better data to look at is moving life expectancy number, which gives you an idea of what is the expected life expectancy once a person has reached an age. A person who has already reached 60 yrs. of age, won’t have the life expectancy of 70 yrs., it will be much more than that.
And here are the official numbers
So to conclude, a person who reached 60 yrs. of age as per above data can expect to live till 77-78 yrs. (another 17-18 yrs.) and this again is the average. This includes an unhealthy, broke retired person and a healthy, happy and wealthy retired person also. One of them will mostly die before 77 and another one will live longer than that.
You probably will belong to the other side and you know where this whole conversation is going.
Women live longer than Men
Let’s change the track a bit. I want to now talk a bit about Men and Women life expectancy.
Another thing you should know is that women in general live longer than men all over the world. In India also its true, and its truer for couples. You will often see men dying before their wives for simple reason that men generally have higher age compared to women, and men are exposed to more risks like accidents etc. because men mostly drive, get involved into those tasks which often have danger of life.
There are many other evolutionary and behavioural reasons, but it’s out of scope of this article.
So if you are women reading this, you need to understand that you will live much longer and have to plan for your pension. If you are men, you need to understand that while you may not believe that you will live longer, it’s your spouse who will outlive you and you have to do your planning more carefully for her as she may live for another 5-10 yrs. after you on average.
The following memes can give you a small hint (in a funny way) of what we are talking about.
Medical Advancements will contribute to your longer life
Decades ago, people died because of illnesses and diseases/inflections which look very normal today. The medicine and vaccines are available today which were not available few years/decades back (in future people will also talk like this for coronavirus).
Then over time various discoveries and inventions were done in the field of medical science and medicines, vaccines and treatments were available for masses at lower costs. This makes sure that the mortality rate comes down over time.
Check out how the mortality rate for Cancer is coming down (not the number of deaths, but the mortality rate)
Even the other types of mortality rates are coming down from last many years.
If we talk about the current Covid-19 related deaths they are mostly because we have no cure or vaccine available. But very soon, we will have some cure available which will make sure that not too many people die in future because of this virus.
The point I am trying to make is that the whole world is on the mission to make sure that there is further medical advancements and they are constantly trying to find ways to make sure that people live longer and longer.
If you have money with you, it will get tougher and tougher for you to die as no one will let you die easily. Neither your family members nor the hospitals that benefit out of treating you.
India is developing faster
Another angle to the same conversation is that our country is making progress every year and we are on our journey towards becoming a developed nation. India in 2040-50 (When I will be retired) be a different place than today (like its different than 1990)
As a nation develops we have better access to everything. We have more money, we have better healthcare system, we have better roads and infrastructure (imagine less accidents and all the people who didn’t meet accident also adding to the pool of retired people).
If you compare yourself to your parents, you will agree that you have much better access to better housing, quality food (ok this is controversial), quality entertainment, quality travel, quality healthcare, quality roads and infrastructure. They might not have been able to afford a good hospital, but you can!.
All these together contribute to a higher life expectancy. Check out this world map where the developed nations has higher life expectancy
Share of old age people in overall population
If you currently have a look at the share of aged population in developed countries, you will see that it’s very high in developed nations compared to developing or poor nations. For example, Japan has 26% of people who are senior citizen and Italy has 22.4% .. India will reach to that point in next 30-40 yrs.
In Japan, there is a village called Ogimi, where people generally live up to an age of 100 yrs. I am just showing a glimpse of what can happen with a developed country
Here is the data, I found in this report about share of senior citizens in overall population for developed countries. Check below
In India, currently the senior citizen population share is around 8-9%, which is expected to rise to 20% of population, which will be quite huge. This might be a disaster unless we all are prepared for with sufficient retirement corpus. Here is what Google tells me about the future
So if you are 30-40 yrs. old person reading this article, you need to be clear on this that once you get older, you will have much higher chances of living longer compared to our parents or much older generation. It’s a different thing that you live long in reality or not. But you have to plan thinking of the longest you can live, not the “average age”
I would like to conclude and sum up this article now with some points. Here they are
You may live for a very long time. It can be 90-100 yrs. and even 105 for some cases. Do plan better
Life Expectancy is increasing and it will keep increasing in future too.
Don’t assume or plan that you will be living only till 75-80 yrs. It’s not even happening now, forget about future
Plan for a big retirement corpus, so that it can last for your lifetime and also leave some legacy for your family.
Please share in comments section, what you feel about this article and whats your views about retirement phase and how long people will live in future?
Today we will discuss an interesting topic – How many times of your annual expenses do you need as your retirement corpus to retire comfortably?
For example, if someone has an annual expenses of Rs 6 lacs per year, then can they retire with Rs. 1.8 crores (30 times)? This is the focus of the article today!
The current state of “Retirement” Advertisements
From last 4-5 yrs, I can see a lot of conversations, articles and YouTube videos which talk about retirement and its importance.
There are many retirement plans and pension plans also launched these days which talk about importance of retiring with enough money and a secured way of generating pension once you stop working.
There is no doubt that retirement is top most financial goal (and the longest one) for any investor. We all will probably have a much longer retirement life than we imagine today. Our parents also have retired just few years back (or going to retire soon).
A 60 yrs old person can expect to live anywhere up to 85 – 105 yrs in future. With changing life style, less dependence of kids, increasing expenses at retirement – planning for retirement has become much more important than any time in history.
The problem is that we don’t know when we will die. You CANT plan for just 20 yrs of retirement, because what if you die at 100 yrs? It’s quite a tough thing to predict when you will die, and almost impossible to plan for it.
Hence the best you can do is take the worst case, and plan for a very long retirement.
Retirement Planning is very tough
First thing you should know is, that there are many variables when it comes to retirement. There are things like
Inflation
Returns
Taxation
When will you die
When will you retire
When you do any retirement calculations, you make some assumptions and you get an answer.
One big problem is that in reality there can be a lot of changes in these numbers, and your planning can go for a toss. Hence you need to look at things realistically and plan in such a way that takes care of worst scenarios.
Next 40 yrs cash flow
So let me start with asking how your expenses will look into future? If someone wants to retire today, how will their next 30-40 yrs of cashflow may look like.
Assuming that you want to retire at some point of time and your annual expenses at retirement is 1 unit. Then how this will change over time?
Can you see how drastic the expenses can vary in your retirement life due to various inflation rates? Note that in reality, the expenses might come down a bit once you are old enough like 80-90 yrs, but I have still not considered it because there can be other types of expenses like medical costs which will shoot up.
Is 30x corpus enough for retirement?
Now let’s dive deeper into the main question and focus on this article – “Is a corpus of 30 times yearly expenses enough to lead a long retired life?”
The short answer is YES, but before I go deeper into the answer – let me show you a case study
Imagine a person retires with following numbers
Per month expenses in the start of retirement = Rs 12 lacs (1 lac per month)
Corpus = 3.6 Cr (30x)
Inflation Assumed = 7%
Post Tax Returns = 9%
How long will the retirement corpus last in this case?
The answer is 43 yrs as per excel calculations. For simplicity purpose, for now we have taken a case where inflation, returns are all fixed and the person only needs the monthly expenses as per increasing inflation and no other withdrawals are done till end. In which case, the corpus change will be very smooth.
Here is how it looks like
What if your assumptions are wrong by 10% margin?
Most of the calculators just give you an answer like above graph, but does not ask a question – “What if things go wrong?”
What is the inflation is more than what you assumed?
What if you needed more income in future than you planned?
What if you were not able to generate the returns you assumed?
What if you had less corpus than you originally planned?
How different will be the result now if you are wrong by 10% margin on all 4 variables?
So, lets see that case too.
Corpus is 10% less = 3.24 cr (instead of 3.6 cr)
Monthly Expenses are 10% more = 1.1 lacs per month (instead of 1 lacs)
Inflation is 10% higher than assumed = 7.7% (instead of 7%)
Returns are 10% lower than assumed = 8.1% (instead of 9%)
So instead of 43 yrs, how fast the corpus will finish now?
The answer now changes to 27 yrs
Yes, from 43 yrs .. it now changes to 27 yrs, which is 16 yrs earlier.
However in real life, either all 4 things can go wrong by some margin, or just 1 or 2 or 3 things may go wrong.. so there are various scenarios here..
Nothing goes wrong
One variable goes wrong
Two variable goes wrong
Three variables goes wrong
All four variables go wrong
This in total makes 16 different combination.. We have seen the best case (when nothing goes wrong) and worst case (when all 4 variables go wrong) ..
But when we see all 16 variables together .. it looks like below
Note that these calculations above are assuming an inflation of 7% and post-tax returns of 9%. If you take lower returns or higher inflation, then the results will be different ..
Testing the data for 250 iterations
I assumed that Inflation and Returns will come down slowly over long term as we move towards a more developed economy. We might reach to a 2-4% inflation (starting with 7% today) and 4-6% returns post tax (starting with 9% today). I added a variation in calculations and plotted 250 variations of the same chart and here is the results.
As you can see from above graph, the results can vary a lot depending on inflation and returns combination. On an average the corpus lasts for 41 yrs.
I also took 5000 iterations to see how long the money finishes and here is the plot.
What we observed was that 98% of the times the money lasted in range of 35 yrs to 47 yrs, which is a decent enough planning, but the assumption is that all our assumptions about inflation and returns hold true.
Investing in Fixed Deposits for Income Generation
A lot of investors are extremely conservative and don’t want to invest in anything other than bank fixed deposits. We know that bank fixed deposits are highly secure, but at the same time – they are extremely inefficient in taxation and also provide below inflation returns.
But let’s test that case as well.
Let’s assume that a person is putting all their money in fixed deposits only. In which case the returns can be taken as 4% post tax (30% tax deducted from 5.5% returns)
Below I have shown how long the retirement money will last when a person has 60x, 50x, 40x, 30x, 20x and 10x corpus. I have done 250 scenarios and plotted them to see how the corpus ends.
As you can see, when the returns are lower – you need much more than 30x corpus if you want to last it for a very long term.
With just 30x, it will last for just 22 -24 yrs. The frustration of seeing your money finishing while you are still don’t see your death coming your way might be very horrible experience.
So conclude, Yes 30x corpus is good enough to retire, but the assumption is that you will not be dipping into that corpus to withdraw any big amounts like for buying house, or for your kids’ education or any large medical emergencies.
Better to have those things separate than your 30x corpus.
What if my corpus is less than 30x?
It’s going to be an issue if you are retiring with less corpus like 20x or 10x or 15x. In which case, you will have to make sure that you also have some decent equity exposure to bump up your returns so that your corpus can last longer. We at Jagoinvestor are working on various strategies which can be used to make sure that the corpus last longer using an equity exposure and generating a regular stream of income for our clients.
Do let me know what your thoughts about this article are.
Also, if you are interested in the topic of retirement planning and want to listen to a casual but very detailed talk on this topic, do listen to my talk with P V Subramanyam where we have discussed various aspects about retirement
Disclaimer : Note that these calculations are highly complex at times and there are lots of things which contribute to the calculation. I don’t claim to have done things perfectly from statistical point of view. This article is only a basic calculation with some high level assumptions. Do talk to your financial advisor before creating your retirement strategy.
We all are in lockdown from last 70+ days & this is probably a once in a life event. The whole world is fighting coronavirus and some form of lockdown is there in every part of the world.
People are losing jobs, seeing salary cuts and we all are wondering how the future will be from here. I think that while in short term all these problems will happen, but once things get normal and life is back to same point, things will be back in action. But it will take some time.. It can take 1-2 yrs.
8 Learning’s from this Lockdown
While there is so much of negativity and bad news all around. I want to admit that this lockdown was an experience in itself. It tested our patience. It forced us to do things we didn’t like and also opened new ideas for us. We saw many new creative ways people do business and how even in this crisis, our Jugaad attitude worked well for many things.
The lockdown has also given us a good opportunity to reflect back on many things in our finances and life in general. I want to share some of the things in this post.
1. We need a higher Emergency Fund
One clear lesson from this pandemic is that we need much higher emergency fund. Before the pandemic, I have often said that 4-6 months of emergency fund is ok to have, but I feel that needs to be revised to 12 months now.
Keep a year worth of expenses in a combination of liquid mutual funds and Fixed deposit and earn a near-inflation return.
You may lose the job and not get it for 9 months
Your employer might not be able to pay you.
You might want to take a long break to take care of someone in family.
You may meet an accident followed by a long bed rest.
You might be shifting your industry and might be looking at new job
We may see another pandemic and things can close down again!
2. Count your blessings – we have enough to live a good life
It was shocking to see how millions of people especially migrant workers suffered so much after they were stuck in various cities. They had no food, no money, and no roof over their head. They walked hundreds and thousands of KM on foot with small kids with them. We can’t ever understand how it feels when someone is in that state.
At the same time, we were comfortable at our home with everything stocked up. We had groceries, money in bank, and a nice home. Many of us also participated in dalgona coffee challenge and some also posted (including me) pictures of the various nice dishes on social media to showcase our achievements.
Image Source : Deccan Herald
It’s time to acknowledge that we are blessed.
We are blessed to have food on table
We are blessed to have a good sleep
We are blessed to be with our family
We are blessed to not worry about the next meal
We are blessed to still be employed or employable
In short, while we can point to salary cuts/loss and boredom we faced sitting at home, we have to not forget that we are doing extremely well compared to millions. We are extremely blessed and we need to acknowledge it. We need to be grateful that many seek a life which we are already living.
3. We were spending more than required
Over the last 75 days, I spend ZERO on amazon, swiggy, zomato, uber, flipkart, eating out, any outings ..
I think I am doing fine and nothing has happened to me.
That does not mean that spending on those things is a problem, Infact I will restart it again.
But I think we have got a clear message that we were over-doing it. We can survive fine with less online shopping, less outing, less parties, less eating out and what not.
4. We can surely save much more than we think
So we were spending more .. we just saw.
Which means that we can potentially save much more than we think we can, if we control our self and carefully utilize our resources.
5. It helps to have an additional source of income
Imagine for a second that you lost your job and there is no active income coming in
Now imagine another case
Imagine you lost your job, and no active income coming in.. but you also have another income source which brings in some money. So you know at least the food will be on table.
The current pandemic has seen many people lose their jobs and many of them who had alternate income or another person earning income in house knows the importance of it. Before it happens again with you, its time you get serious about creating it.
I always get this feeling that maids in India are paid extremely poorly. After I have been involved in the household work in this lockdown, my respect for maids has gone up to whole new level.
It’s not just time to acknowledge their contribution in our life and making our life easy, but also to pay them their dues well.
A maid in my society gets Rs 600 per task on an average. That’s Rs 20-22 per day given to them assuming 2 holidays. Even if it takes 30 min to do dishes, we are talking about Rs 40-50 per hour wage here which is one of the lowest in the world.
NRI’s or people who have returned back from US or other countries know very well what I am talking about.
It’s time we appreciate them more, don’t be so nosy about their salaries we pay. I know many maids are over smart and try to extract money out of you and don’t do their work properly, but overall I feel they are not paid well enough.
7. Things can do wrong anytime – RISK is always there
Let’s not forget one thing. RISK is always there .. ALWAYS !
Your company may be doing great
Your industry is booming
Your performance has been amazing.
Still, you can be without the job the next day
You may be healthy, never smoked, never ate oily .. you can still get heart attack. The risk is always there!
This pandemic has shown many people that risk can suddenly turn up and show its ugly face.
As Subra says – “Risk is always there, unless the event is complete”
8. It’s time we learn new skills and become more “useful”
The current coronavirus crisis should act like a final warning to all those, who are just dragging in their jobs without contributing much. Get up and acquire the skills. Go upgrade yourself
I know many people from IT sector who are working with old skills. When they apply for other jobs, there are no takers.
If you are not “useful”, you will be OUT very soon. If not today, may be tomorrow – but it will happen for sure
It also helps if you have additional expertise which can help you change your jobs/sectors if situation arises. Borden your skill set and hone your skills.
Stop moving towards the “Obsolete zone”
What was your biggest learning from Lockdown and coronavirus crisis?
So that was all I had to share today.
Can I ask you to share your own biggest learning from this whole crisis and lockdown episode? Also share what you feel about my learning’s?
I generally come across some very basic insurance related queries like
“I am not a smoker right now, if I buy a term plan – will I have to inform the company in case I start smoking in future”
“My father just got diagnosed with diabetes, Can I get a health insurance which covers that?”
“Why my premium have gone up after medicals even though I am fit and healthy?”
“How can an insurance company pay me Rs 1 crore, when they are just charging Rs 15,000 as premium?”
All these questions are very genuine questions and if someone does not understand the principles of Insurance, they will ask them.
So today I am going to share with you the 7 principles on which the insurance industry runs. These are basic principles on which the business of insurance is based on. I hope these 7 principles will clear our all the myths regarding insurance.
Let’s start
Principle #1 – Principle of Utmost Good Faith (Uberrimae fidei)
The principle of utmost good faith is the most basic and primary level principle of insurance and it applies to all kind insurance policies. It simply means that the person who is getting insured must willingly disclose to the insurer, all his complete & true information regarding the subject matter of insurance.
The insurer’s liability exists only on the assumption that no material fact is hidden or falsely presented by the person getting insured.
There is a process called as “Underwriting” in insurance industry which is the activity of studying the risk and assigning the premium value for the case and it’s very important that the person buying any kind of insurance tells all the facts correctly and does not hide it.
If you think about term plan or health insurance, you need to correctly mention things like
If you are a smoker or drinker
Your family illness history
The Industry you work for
Your Income
Your Age
Your current illnesses (which you are already aware of)
If you do not tell these things correctly, you are violating the “Principle of utmost good faith” here and it can impact your insurance claim process in future.
Principle #2 – Principle of Insurable Interest
This principle says that the person who is taking insurance should have some insurable interest in that thing which is getting insured. So if there will be financial loss to the person if the insured object gets destroyed. If this is not the case, insurance cannot be taken
So when a breadwinner takes life insurance for his life, it makes sense because incase the person dies, there will be financial loss to family .
In the same way, you can get your car, bike, home, gold insured because you have insurable interest in that object. You can’t get your neighbor car insured and benefit because you do not have insurable interest in that.
Principle #3 – Principle of Indemnity
Principle of Indemnity says that Insurance is not to make profit, but only to compensate you against the losses incurred. It’s an assurance to restore the same position which was there before the loss.
So the compensation paid cannot be more than the losses incurred.
In term plan, people ask why companies ask for income details. It’s to make sure that a person takes limited insurance which goes with his financial status and is good enough to restore back his family life style which was there in existence.
If a person earns Rs 1 lacs per month. Then Rs 2-3 crores is a good enough life insurance for the person and they cannot take Rs 500 crore insurance even if they can pay the premiums, because then the intention is not to cover your financial loss but to benefit/profit from the insurance policy.
That’s exactly the reason why house-wife does not get very high insurance, because the motive is to profit from the death of non-earning member and not replace the income which that person was earning.
Principle #4 – Principle of Contribution
This principle is just a corollary of the principle of indemnity. As per this principle, the insured company are liable to pay only their own contribution and they have right to recover back the excess money paid from other insurer.
Let’s see how it works.
Imagine you have two health insurance policies A and B , both for Rs 5 lacs sum assured. If there is a claim for Rs 4 lacs, then each insurer is liable to contribute Rs 2 lacs each for this claim.
However in real life, you as insurer can go to any insurer and claim it from them or divide it between insurers. So you can claim full Rs 4 lacs either from policy A or policy B or Rs 2 lacs from A and B each.
However if you claim Rs 4 lacs from company A, in that case company A can recover back Rs 2 lacs from company B as per the principle of contribution.
Principle #5 – Principle of Subrogation
As per this principle, once the insured is paid for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer. So if your car / bike / house / valuables which you have insured is fully damaged and once you get compensation from insurance company, then they get the ownership of the item and now they can sell off the remains to recover their dues by that process You can’t benefit from the remains of that item.
Imagine this scenario : You have car insurance and the car is stolen. The insurance company will pay you the full claim amount. However now the ownership rights are transferred to the insurance company and if the car is found in future by Police, it will be owned by insurance company
Also, imagine a scenario where a car is insured and the car is badly damaged beyond the use. In that case the insurance company will pay you the claim fully. Now you can’t say that you will still sell off the car parts by getting it repaired because you lose the rights to property.
One more thing ..
As per this principle, the insurer will try to recover their losses from other party later as if they were at your place. Let me give you an example
Let’s say your house is insured for Rs 1 crore. Because of some reason, let’s say your neighbor negligence there was a fire in your house and your house is fully damaged. In this case you will claim from insurance company, and get the money.
But after that the company will try to recover the losses from the culprit in the way you might have done it if there was no insurance. So might file a case against the neighbor’s in court claiming for damages.
Principle #6 – Principle of Loss minimization
As per this principle, it’s the insured duty & responsibility to take all actions to minimize the losses if it’s in their control. The insured person should take all necessary steps to control and reduce the losses if possible
Imagine there is a small fire in the car for example. If the car is insured, the insured person can’t just sit and relax thinking that the car is insured, he will get the claim for sure.
If it’s in his control, he can try to control the fire, call the fire department or take first level steps like throwing water etc. If they don’t do it, it’s the violation of this principle.
Principle #7 – Principle of Causa Proxima (Nearest Cause)
This is a very important principle of insurance which an insured person should be aware about.
As per this principle of causa proxima, when a loss if caused by more than one causes, then the nearest or the closest cause should be taken into consideration to decide the liability of the insurer.
The nearest cause should be insured by the insurer, only then the insurer liability comes into picture and policy holder will be paid. Insurer will not be liable for the farthest cause.
One of the common examples given for this is this
A cargo ship base was punctured by rats and because of that puncture, sea water entered the ship. If you look at the events, there are two reasons for damage of ship
Rats punctured the base of ship (farthest)
Sea Water entered the ship (closest)
Here as the insurance company will have to pay because the ship was insured against sea water entering the ship and that reason was closest.
Conclusion
Understanding these principles are a good way to understand how insurance works and how claim process works. Just because you have taken an insurance policy does not mean that it’s written in stone that your claim will be paid. You claim will be paid only when insurer liability arises in a given condition.
