We are having a Q&A sessions after many days.
First question - from Sheik Mydeen.
After reaching the retirement corpus goal, how can we keep it safe?
Here safe is a relative term.
Even if we hide the money under our mattress, it is not 100% safe.
It could be stolen, termites might destroy it, or it could lose its value for inflation.
So instead of using the word safe here, we have to think about where it is less risky to have our money.
Among all, Fixed Deposit has the least risk.
But it has less chance of beating the inflation as well.
So we can keep a 20% of our assets in FD.
Let's say for example that you have saved 25 times your annual expenses as your retirement corpus.
A 20% of that would be expenses needed for 5 years. That money can be in FD.
The next 8 years need will be 30% and that can be in bonds.
The rest 50% can be in equity.
You can leave it as it is to grow till your retirement. There is no need to rebalance it every year.
But after retirement, you should definitely rebalance it every year.
The 5 years savings in FD is your buffer.
It is good to have the cash need for 5 years in FD.
When we do that, we do not have to be dependent on the market volatility. You can continue to withdraw for your retirement needs every year.
When you do this, the short term movement of the market will not impact your immediate needs.
At the same time, it will be helpful for long term portfolio growth as well.
I am giving this allocation as an example.
Adjust the % allocation to your convenience.
If you would feel better having 8 years of cash in FD instead of 5, then do so.
Only you know your comfort level.
But we should stay away from equity to avoid risk.
At least we should have a 30% exposure to equity.
Next question is from Ramchandran. Is it better to follow weighted SIP rather than normal SIP - is the question.
That is, instead of contributing a fixed amount in SIP every month,
contribute little to SIP, but hold back on the majority of cash for a good time to enter the market - is that a better way to invest is the question.
Also, holding cash like this in hand, is this better than investing lumpsum?
The answer to this question is already in lumpsum investment episode.
Let's say that we are holding cash in our hand and waiting for the market to go down 20%,
If we do that, what is the chance of it to give a better return?
When we look at the last 100 years history, the chances of that happening is only 21%.
That means, the chances of lumpsum investment giving better return is 79%.
So a lumpsum investment has 4 times higher chance of giving better return than waiting for a good time to enter the market.
Because bull market length is significantly longer than a bear market length.
When we wait for the market to down by 20%, the market might go up by 40 to 50% and then can come down 20%.
Then its price can still be higher than if we have invested lumpsum to begin with.
That is why it is better to invest lumpsum.
That does not mean that lumpsum investment always ends up better.
But like I said before, the chances of coming out ahead by waiting and investing is still 21%. Not 0%.
So it will happen as well. But it is your choice whether to wait for that 21% chance or invest now for 79% chance.
If you ask me, there is no need to confuse ourselves with this.
All we have to do is, just follow one simple rule.
Do you have money in hand to invest? Just invest.
If you don't, focus on earning that. That is all the rule we have to follow.
Keep it simple. There is no reason to play the waiting game.
Next question is from Jagadesh - What is is your opinion on REITs and InvITs?
REITs are Real Estate Investment Trust.
They are just like Mutual funds. They buy RE properties using investors money and share the profits with the investors thru dividends.
It can be a residential RE like houses and apartments or it can be a commercial RE like office space or storage space.
If you are interested in Real Estate investing and if you do not have enough cash in your hand to buy a house or a land,
then it is easier to buy a REITs.
It is easier thru REITs to get exposure to Real Estate with small amount of money.
Also it is easier to sell. That liquidity flexibility is here in REITs as well.
But don't assume that these are risk free. These carries similar risks just like equity market.
InvITs work very similar to REITs.
When REITs invest in Real Estate, InvITs invest in infrastructure development projects like Highways.
If you would like to have a regular source of income, then you can consider these two.
We will dig deep into this topic in a separate episode.
Next question is from Mohanesh.
Is government job a private job better for getting good returns? is the question.
Good return depends on where you invest the money you have earned.
Not on how you are earning the money.
Watch the "Asset Allocation" episode in our channel. You can learn about investment options and its return potential.
If your question is, whether a government job is better or a private job - then the answer is - it depends.
If you would like a stable job, then government job is better.
But if you want to earn more, learn more, grow in career faster,
also you do not worry about job stability as you strongly believe in your capability, then a private job is better.
Next question is from Village Life.
How can we identify a good stock? How should we read the balance sheet?
Though it is not very deep, there are couple of episodes in this channel where you can. start this.
Stock Screener is one episode. You can learn how to identify a good stock using some basic criteria.
Financial Statement Analysis is another episode.
You can learn in depth on how to read a company's financial statement.
Many MBA students themselves have told me that it was very useful for them to learn FSA.
Check it out. Links are in description.
Next question is from Divya.
In US, other than YouTube, what other side hustles can we do?
A lot can be done. You can do baby sitting. More than $1000 can be made by baby sitting just one single kid.
You can do cooking. Many take orders thru a whatsApp group and delivers food at home.
You can do tutoring for kids. Specifically Math tutoring. Many kids here need Math help.
You can do either in person or in remote.
Not necessarily Math, you can teach whatever you know.
Many do candid photography.
There are many parties every weekend like birthday parties, babyshowers etc. That can pay handsomely as well.
You can deliver dough for idly, supplying specific indian sweets to local Indian groceries, or making yoghurt, scented candles etc.
There are 1000 ways to make money here.
Its just that we have to be ready to out in the effort.
Next question if from Rajesh - what is wrong with writing a covered call option?
Nothing wrong with that. But if you are comfortable writing a covered call, you can totally do it.
The problem with that is, we are limiting ourselves on upside potential.
But we are assuming the total downside risk.
That is, if we write a covered call for $100, then the each dollar gain over $100 is profitable only for the buyer.
There is no limit for upside. Just the limit is there for person who is writing the covered call.
But the downside risk, we are taking the whole risk until the price hits 0.
So for the downside risk I am taking, it is not worth to get that extra cash from writing a covered call is my opinion.
If you feel that it is worthy for you, you can definitely do it.
Usually folks write covered call on companies that has stable price movement to make extra money.
But it is not worth doing this in a high growth stock like Tesla.
Next question is from Arunkumar.
When would say, a portfolio is well diversified for 20's and 30's folks?
It does not matter what I think. Your comfort level is more important.
This is personal finance. Make it personal for you.
Understand the risk and return potential of all the assets.
Define your own asset allocation depending on your own comfort level.
There is no right or wrong with any allocation percentage.
If you ask me, you can take risk for maximum return in your 20's and 30's.
You can even have 100% exposure in equity.
But if the market price movement will keep you awake at night, then it is better to have other less risky assets in your portfolio as well.
Next question is from Jaguar Jegan. In India, is index investing better or individual stocks better?
Can you identify a good profitable business?
Then you can definitely consider individual stocks.
"No No. I cannot do that. But I can buy individual stocks based on others recommendations", then
It is better for you stay with an index fund.
Next question is from Anantharaman.
Nifty 50 index itself is offered by many fund houses like Tata, SBI. What happens to our money if they go bankrupt?
A chance of fund house going bust is very small.
Even if they do, it does not affect the assets in a fund.
Let's say for example, that you are buying Motilal Oswal's Nifty 50 index fund.
Even if Motilal Oswal goes bankrupt, it does affect the assets of this Nifty 50 fund.
If the fund happens to be closed, the last NAV price will be returned to the investors.
But as I said before, the chances of this happening is very less.
But usually what happens is, this fund will be acquired by another fund house and they can run it.
Saying that, if you are worried about having all the money in the same fund, you can definitely split it across different funds. Nothing wrong with that.
Next question is from VK.
What can we do, if the market stays flat like it happened in 70's or in 2000 to 2009?
If it stays flat, so be it.
We are focusing on the loss from no growth in 10 years.
But actually, what should we focus on?
If we have continuously bought the index for the whole decade as we earn, then we would have bought the index for cheaper price.
See what happened in the next decade. It has gone up by 4 times.
Same in 2000's as well. If we have bought continuously from 2000 to 2010, the next decade would have tripled that money.
So the lost decade that we see is actually an opportunity to buy index for a cheaper price.
This is history. We cannot say that this is how it will happen in the future as well.
But when we invest, we should not just focus on the negative aspect of it. We should learn to look at the opportunity as well.
There are many other good questions as well. I will answer them in the comments.
Thank you all for participating by asking the questions and giving thumbs up for the questions.
We will soon meet again in another episode. Thank You.