Thoughtful Thursday #08 – The Ant or the Grasshopper..? Choice is yours..!

We all have heard the famous story of the Ant and Grasshopper in our childhood days. However, its got a new twist this time. Read along to find out..

The story goes as…

Once upon a time, a Grasshopper was hopping, chirping and singing to its heart’s content in a field in hot summer’s day. There was an Ant staying nearby the Grasshopper’s nest. They were good friends. It was springtime and the Grasshopper was having a lot of fun playing, singing, and dancing in the sun. But the Ant was hard working. It was collecting food grains and storing them in its house for the winter.
The Grasshopper did not understand why the Ant was doing so much hard work and keeping for winter. He asked, “Hey,’ Ant! Why don’t you come outside and play with me?” The Ant replied, “I cannot. I am storing food for the winter when there won’t be anything to eat!” The Grasshopper only laughed at the Ant and said, “Why are you worrying now? There is plenty of food!” and continued to play, while the Ant worked hard.
When winter came, the Grasshopper did not find a single grain of food to eat. It began to starve and feel very weak. The Grasshopper saw how the hardworking Ant had plenty of food to eat and realized its foolishness.
The Story could have further continued as…
The Ant saved some food for the short term (i.e. the approaching winter) and also out of the savings she planted some seeds and nurtured them into plants..
Fast forward 10 years…
The Ant and the Grasshopper were now both little older. They could no longer work as hard as they used to do earlier. The Ant looked out of the window and saw the many trees laden with fruits from where she could source food during her retirement days. While the Grashopper still wondered how he would manage his requirements. It saw how the Ant had plenty of food to eat from the trees sown earlier and realized its foolishness.

The Story in Today’s Personal Finance world is not any different..

We see more Grasshoppers and few Smart Ants. We live in the world which believes ‘Zindgi na milegi Dobara’. We believe that savings can wait, Retirement is too far to think and so on. While we may enjoy like the Grasshopper, we must not ignore the Smart Ant. We should not ignore the bitter truth that a time will come when we wont be able work so hard.
The difference between Saving and Investing is not understood by many. This is because we are not taught the concept of Investment from the very beginning. We are only taught about Saving.
In this updated story, the Ant not only ‘Saved’ i.e. it kept its capital in a safe place for the near future but also ‘Invested’ its savings (by planting the seeds and nurturing it) and let the capital (plants) grow.
So while we all ‘Save’ our Hard Earned Money.. Smart people ‘Invest’ their Hard Earned Money.

Savings vs Investment

BASIS FOR COMPARISON SAVINGS INVESTMENT
Meaning Savings represents that part of the person’s income which is not used for consumption. Investment refers to the process of investing funds in financial/ capital assets, with a view to generate returns.
Purpose Savings are made to fulfill short term or urgent requirements. Investment is made to provide returns and help in capital formation.
Risk Low High
Inflation Adjusted Returns Less or Negative Comparatively Higher
Suitable Tenure Short Term (1 to 3 yrs) Long Term (3 yrs or more)
If we don’t Invest our Capital, Inflation will eat up some of it. To know more about how Inflation affects us read Inflation the Hidden Enemy.
Simply, Investments should at the minimum generate a return higher than the inflation.
The below Equation explains that in the beginning of our career we work for money and ‘Save’ for short term and ‘Invest’ for long term. Over time, as we grow older our Investment Income should increase and become equal to our occupational income so as we near our retirement our dependence on occupational income is done away with.

 

Simply put, if you are the believer of ‘Zindigi na Milegi Dobara’, your bank balance is like ‘Kal Ho Na Ho’ and if you don’t want be ‘Devdas’ its time to take a pause and Invest Like a ‘Bahubali’ and be a ‘Hero’ so that will help you in days of ‘Kabhi Khushi Kabhi Gam’ and if you require more help regarding the same ‘Main hoon na‘.. 🙂

CA Nitesh Buddhadev
CA Mitsu Buddhadev
Nimit Wealth Management

You may reach out to us at info@nimitwealthmanagement.com for any queries, suggestions or feedback.

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A tale of Father’s Advice to Fly High..!

This Fathers Day, I would like to share one of the vivid memories I have of me and my father together. I belong to Gujarat, and one of the most important festivals is Sankrant.

As I was watching my father flying a kite, I said, “Pappa aa manjho patang ne unchi udwa nathi detho”

“Dad, Because of the string the kite is not able to go any further higher”

Hearing this, my father smiled and broke the string. The kite went higher after breaking of the thread and then shortly after that it came flying down to the ground. A bunch of kids came fleeting to catch hold of the kite. Amongst all the pitter patter of kids, my father told me to sit down and said “Beta aa manjo j che je patang ne udwa de che”

“Son, it is because of this String that the kite is able to fly”

He further continued,

“Son, in life we reach a certain level of prosperity and then we feel that there are certain things in our life that are not letting us grow any further like Home, Family, Friendship etc. We feel we want to be free from those strings which we believe are stopping us from going higher. But, remember son. Going higher is easier than staying at the higher level. And friends, family and culture etc are the things that will help us stay stable at the high heights that we have achieved. If we try to break away from those strings our condition will be similar to the kite.”

Today when I am grown up, I believe that this is the best piece of advice I have got in my Life. It equally applies to my profession.

We have life goals (responsibilities) and due to which we have financial goals. In our financial journey, we sometimes feel that some one else is flying higher than us, achieving more than us and we always try to look at others kites than ours..

We all want a maximum return on investments say 20 to 30%. We all invest in Equity for outstanding returns. While the story of Equity seems rosy, we should not forget the Risk involved. When I as a financial advisor ask clients to diversify the portfolio among various asset classes, they fear that the returns of the portfolio will average out to be lesser compared an only equity portfolio. But, as seen above, Going higher is easier than staying at the higher level. 

The strings (perceived as restrictions) of asset allocation will help us to achieve our life goals. Our ultimate aim is not only get a higher corpus but to achieve our financial goals with assurance and safety.

If we break these strings, then we may achieve higher results, higher corpus than expected but it may not be consistent and sometimes, the corpus may wash out completely, and a few of our goals may not be achieved at all. Do we want our loved ones to suffer because we were greedy for a higher Corpus? NEVER!

So, friends, all strings attached, Fly High.

Happy Fathers Day..!

 

CA Nitesh Buddhadev

CA Mitsu Buddhadev

Nimit Wealth Management

You may reach out to us at info@nimitwealthmanagement.com for any queries, suggestions or feedback.

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Pear Tree & Equity Investments – If you give up when it’s winter…

I am investing in equity mutual funds since last 1 year and my returns are negative, may be my mutual fund schemes are not doing good, may be I should go for other top performing scheme or dump the existing schemes or may be equity market as a whole is so risky let me stop investment…

Many investors have these thoughts. If you are one of those who have similar kind of questions or doubts, go ahead and read this blog.

Let me start with a beautiful story as Life’s best lessons are learnt through stories.

There was a man who had four sons. He wanted his sons to learn to not judge things too quickly. So he sent them each on a quest, in turn, to go and look at a Pear tree that was a great distance away.

 

The first son went in the winter, the second in the spring, the third in summer, and the youngest son in the fall. When they had all gone and come back, he called them together to describe what they had seen.

The first son said that the tree was bent and twisted. The second son said it was covered with green buds and full of promise. The third son said it was laden with blossoms that smelled sweet and looked beautiful. The last son disagreed with all of them and said it was ripe and drooping with fruit, full of life and fulfilment.

The man then explained to his sons that they were all right, because they had each seen but one season in the tree’s life. He told them that they cannot judge a tree, or a person, by only one season, and that the essence of who they are can only be measured at the end when all the seasons are up.

 

Similar is the story of Equity Market

Lets assume that there are 4 persons A, B, C, D who have invested in Equity Market at different times.

Now, you decide to invest in Equity Market and speak to these people.

Person A – Equity market is very risky. Your capital may wash out, You should invest only in FD, PPF, etc.

Person B – Equity Market is hyped, the returns are almost same as any other investment instruments.

Person C – Equity Market is very much promising and will give very good returns in the next few months

Person D – Equity is the best asset class one can invest in and it will always outperform all other assets classes.

Now, you would naturally be confused as to which person’s advice to follow. Let me make it simpler. Just like in the story above, all of them are right, because they have each seen but one season in the duration of equity market (assume – sensex for simplicity).

If we look at the Sensex Rolling Returns for last 39 years, it has its own cycle of winter, spring, summer and fall but not necessarily in the same order as the natural seasons.

Your Equity Share or Mutual Fund may not be performing well if you have just started investment a year back as sensex is hovering around 32000 to 36000 since last one year and likely to be in this range due to few state elections due this year and general elections due next year.

So like a Pear tree, Equity Market has to pass through different seasons to give you the desired fruits.

One should not judge that Equity is very risky or its the best just by looking at one season (cycle of returns).

Its always recommended to Invest according to your goals and diversify your investment to different asset class and review & re-balance portfolio periodically.

Read more about importance of investing based on your goals here Are you KYG (Know Your Goal) Compliant..?

Lets see the Sensex Rolling Returns for 5 years period.

 

We note that the Green flags have increased considerably compared to the previous table. Also, at certain periods the red flags turn into yellow / orange.

While there may be many other factors, Patience is the most important fertiliser for getting better fruits from the Equity Market.

Its important to understand that:

  1. Equity markets / Equity Mutual Fund are volatile.
  2. Equity markets / Equity Mutual Fund in the long run may give better returns than other asset classes.
  3. Equity markets / Equity Mutual Fund suitable for long term goals.

So be it a Pear tree, Equity Investment or Life always remember

If you give up when it’s winter, you will miss the promise of your spring, the beauty of your summer, fulfillment of your fall.

Don’t judge a life by one difficult season. Persevere through the difficult patches and better times are sure to come sometime.

 

CA Nitesh Buddhadev

CA Mitsu Buddhadev

NIMIT Wealth Management

You may reach out to us at info@nimitwealthmanagement.com for any queries, suggestions or feedback.

Subscribe to the blog series by entering your email id below. Add info@nimitwealthmanagement.com to your contact list to avoid our updates landing in your spams.

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