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Retire Rich Retire Young…

- An effort to make your money work harder…

Presented by:-

Vishal Thakkar
M.Com, CA, MBA(fin)
Managing Director
Brianna Knowledge Resources Pvt. Ltd.
Time & Money
• Let’s begin with a story! There was a village with a
drought. The Chief of the village found the two
smartest men he could find and gave them each
Rs.10,000. Their mission…..bring water to the people.
• The 1st man was a hard worker and started a business.
• The 2nd man was an investor and built a pipeline.
And the winner is……
• Not only did the second man win the
contest, but he found a way to have water
(money) come in even when he wasn’t
working.

• Both men started from the same


background, with the same experience,
and the same amount of money. The only
difference was that the 1st man worked
hard for his money and the second man
hadworld
“The his money workvery
is changing hard forBig
fast. him.
will not beat
small anymore. It will be the fast beating the slow.”
– Rupert Murdoch
Retire Rich & Young…What?
Different People have different meanings –
Some say good lifestyle, no pressure to earn money
etc.
While others say pursuing hobby, not going to work.
Retire Rich & Young, to us, means,

“subscribing to an increasing standard of living,


without having increasing effort to maintain it.”
Retire Rich & Young…Why?
To do what I like to do & not just work for
money.
To pursue my hobbies, interests which
were left behind in Rat Race.
To spend more times with Loved ones,
family & friends
To help people, take up a social cause &
to make this world a better place.
Whatever be the objective, we all
agree that there is a need….
Retire Rich & Young… How?

That’s Precisely what this program is


all about…

Lets first Unlearn a few Concepts,


that we have gathered during the
course of our learnings in Life…
Let’s Get a Little Practical…

Job Earnings Other Income

Monthly
Expense

Lets See what Robert has to say on this one…3 Types of


You need a little help…
House Rent Weekend Getaways
Habits
Milk
Traveling Expense
Petrol Eating Outside
Electricity Bill Movies
Clothing Mobile / Telephone Bill.

Household /
Monthly Expense
Freedom / Wealth Ratio…

Freedom Ratio = Other


Income*
Monthly
Expense

* The one which your money


earns & you do not.
3 Types of Education

ü Academic

ü Professional

ü Financial

Lets See what Robert has to say on this one…3 Types of


What Are Assets?
Dream House “Anything

Sports Car that puts


money into my
Gadgets pocket is an
Diamond asset.”
Jewellery
INCOME

EXPENSE

ASSETS LIABILITIES
What Are Liabilities?
Housing Loan “Anything

Car Loan that takes


money out of
Personal Loan my pocket is a
Credit Card liability.”
INCOME

EXPENSE

ASSETS LIABILITIES
What Is Wealth?

Dream House “Wealth-

Sports Car Number Of Days


You Can Maintain
Foreign Trips Your Current
Shopping Standard Of
Diamond Living If You Lose
Jewellery Your Main Source
Of Income.”
Lets See what Robert has to say on this one…
Assets V/s Liabilities…
Why Middle Class Struggle?

INCOME

EXPENSE

ASSET

LIABILITY
Let’s Take a Break…
Savers Are Losers…
Ø How many of you have a Savings Account…?

Ø What is the Rate of Interest that you get on your


Savings Account…?

Ø What about the average Inflation Rate…?

Ø Do You recommend Fixed Deposits…?

“If Savers are Losers, Borrowers would Win”


Lets See what Robert has toat
Lets Look say on this one…Savers
borrowing…
Arbitrage
• Your Re.1 at work at the bank.
• Rs.10 for every Re.1. By RBI Rules, banks can
lend out Rs.10 for every Re.1 that you give
them. Meaning they have made up Rs.9 of
borrow able money out of thin air. Where do I
get some of that?
• They say open an account with us and we’ll
give you anywhere from 1% to 5% interest.
We’ll even give you stuff!
• Then they then turn around and lend you the
money right back saying borrow money from
us and we’ll only charge you 10% to 27%
interest.
• And that is why banks have beautiful
fountains, golden chandeliers, and marble
floors. Your money paid for it!
Your Expense, Bank’s
YOU IncomeTHE BANK
INCOME INCOME

EXPENSE EXPENSE

ASSETS LIABILITIES ASSETS LIABILITIES


Your Mortgage Your Mortgage
What is your interest
• Buy rate…….
Rs.100,000 Home,really?
make a down
payment of 20% (Rs.20,000) and borrow the
remaining balance Rs.80,000 at 8% interest
with a 30 year term fixed loan.
• In five years you will pay a total of Rs.35,220
to the bank, Rs.31,276 for interest (that is
only Rs.3,944 for Principal Repayment).
• With the loan taken to term, 30 years, you
will have paid Rs.211,323 total principal and
interest (Rs.131,323 paid in interest).
• Rs.131,323 more like 160% not 8%.
• You’re getting the truth, just not the whole
truth.
Top Two Money Eaters…

TAXES & Death are the two things which


we cannot avoid, so we defer them ALAP.

INFLATION is number two evil that eats


away our money like a rodent
Why do we follow the
crowd?
We are going to read your mind. That’s right
read your mind! Ready…..

1. Pick a # between 1 and 10.


2. Now multiply that # by 2.
3. Add eight to that #.
4. Divide that # by 2.
5. Now subtract the # you started with from
that #.
6. Now what ever # you have in your mind,
match
Having it time……….think
a hard up with its corresponding
Europe………….how letterabout
in
the alphabet.
Denmark? i.e. 1=a,
You’re thinking 2=b,you
of D right, 3=c,
did d=4,
get 4?etc.
At
leastO.K.,
7. Now think
you should have ifof a did
you country that
the math starts
right. Howwith
did
we dothat letter. I’ll give you a second.
that?
We follow the crowd because it’s
easy and because we are just
No matter good at it! you were
what number
thinking of the equation would have
led you to the number 4. When we
invest, we are doing the same. The
numbers start out differently, FDs,
Post Office, PPF, KVP, IVP, NSC,
Mutual Funds, yet your results are
the same……...…dismal.
How Do We Get Out?
“Albert Szent-Gyorgyi, a brilliant scientist who won
the Noble Prize twice in his lifetime, stated,
“Discovery consists of seeing what everybody
has seen, but thinking what nobody has
thought.” People often make the mistake of
asking people who are trapped inside the same
box (or way of thinking) how to get out of the
box. What they don’t realize is, the instructions
on how to escape that box are written on the
outside.
Practice What They

Preach?
Ask your banker/financial planner these
questions!
• Where is the majority of your money
coming from? i.e. commission, fees, salary
vs. investments.
• How long did it take you to become a
broker?
• Can you guarantee that return on my
investment? i.e. the prospectus and small
writing.
• You see,
“Wall theyisare
Street thecalled brokers
only place because
that people
theytoare
ride in broker then you
a Rolls-Royce toare.
get advice from
those that take the subway.” – Warren
Time Is Your Friend

• Time: a young person’s biggest


asset
• Compound interest is awesome
• For every decade that savings is
delayed, the required investment
triples
• Example: Rs.500,000 at 65; 10%
yield
– Age 25: Rs. 79 per month
– Age 35: Rs. 219 per month
– Age 45: Rs. 653 per month
– Age 55: Rs. 2,141 per month
Power of Compounding
3500
Difference is quiet significant in
2800 long run. 15%

2100

1400
10%
700
8%
0
0 5 10 15 20 25
Growth of Rs. 100/-
More About Time
• Time diversification reduces
investment volatility

• The Rule of 72

– 72/interest rate = doubling period

– 72/doubling period = interest rate


Years YEAR END SENSEX level 1 year 3 years 5 years 7 years 10 years 12 years 15 years
1 31-Mar-80 128.57 28.57% 31-Mar-79
Performance of BSE Sensex -
2 31-Mar-81 173.44 34.90% 100.00
3 31-Mar-82 217.71 25.52% 29.61%
Equities not risky in long run
4 31-Mar-83 211.51 -2.85% 18.05%
5 31-Mar-84 245.33 15.99% 12.25% 19.66% As Time Increases
6 31-Mar-85 353.86 44.24% 17.58% 22.44% Volatility & Range
7 31-Mar-86 574.11 62.24% 39.49% 27.05% 28.36% Decreases
8 31-Mar-87 510.36 -11.10% 27.66% 18.58% 21.77%
9 31-Mar-88 398.37 -21.94% 4.03% 13.50% 12.61%
10 31-Mar-89 713.60 79.13% 7.52% 23.81% 18.48% 21.72%
11 31-Mar-90 781.05 9.45% 15.24% 17.16% 20.52% 19.77%
12 31-Mar-91 1167.97 49.54% 43.12% 15.26% 24.97% 21.01% 22.73%
13 31-Mar-92 4285.00 266.88% 81.76% 53.04% 42.80% 34.71% 33.94%
14 31-Mar-93 2280.52 -46.78% 42.93% 41.76% 21.78% 26.84% 23.95%
Harshad Mehta
15 31-Mar-94
4,285
3778.99 65.71% 47.90% 39.57% 33.11% 31.45% 26.85% 27.40%
16 31-Mar-95 3260.96 -13.71% -8.70% 33.09% 35.03% 24.87% 25.60% 24.05%
17 31-Mar-96 3366.61 3.24% 13.86% 23.58% 24.81% 19.35% 24.39% 21.86%
18 31-Mar-97 3360.89 -0.17% -3.83% -4.74% 23.18% 20.74% 20.63% 20.02%
19 31-Mar-98 3892.75 15.82% 6.08% 11.29% 18.77% 25.60% 17.29% 21.43%
20 31-Mar-99 3739.96 -3.92% 3.57% -0.21% -1.92% 18.02% 18.05% 19.92%
21
Tech31-Mar-00
Boom 5001.28
5,001 33.73% 14.17% 8.93% 11.87% 20.40% 23.47% 19.31%
22 31-Mar-01 3604.38 -27.93% -2.53% 1.37% -0.67% 11.93% 14.45% 13.03%
22 31-Mar-02 3469.35 -3.75% -2.47% 0.64% 0.89% -2.09% 13.23% 13.63%
22 31-Mar-03 3048.72 -12.12% -15.21% -4.77% -1.41% 2.95% 8.32% 14.53%
23 31-Mar-04 5590.60 83.38% 15.76% 8.37% 7.54% 3.99% 2.24% 14.71%
24 31-Mar-05 6492.82 16.14% 23.23% 5.36% 7.58% 7.13% 9.11% 15.16%
25 31-Mar-06 11279.96 73.73% 54.67% 25.63% 17.08% 12.85% 9.54% 16.32%
26 31-Mar-07 13,072.10 15.89% 32.73% 30.38% 14.71% 14.55% 12.27% 7.72%
Probability of Loss 10/28 5/26 3/24 3/22 1/19 0/17 0/14
Average Returns 27.85% 19.94% 17.95% 17.36% 17.67% 18.00% 17.79%
Probability of Loss (%) 35.71% 19.23% 12.50% 13.64% 5.26% 0.00% 0.00%
Sensex Growth from 1979
- 2007
After all, in the last 25 years, we’ve seen ….
• Two wars
• At least three major financial scandals
• Assassination of 2 prime ministers
• At least 3 recessionary periods
• 10 different governments and
• An unfair share of natural disasters, yet

However had one invested in the Sensex Rs 1 lacs in 1979


it has grown to 1.30 crs earning a return of 19%
compounded annualized return.
Rule of 72
• If you Put your Rate of Yrs to After 36
Money at ‘X’ % Interest Double Yrs
then your Money
is double in 6 12 Yrs 8 Lacs
(72/X) years.

• For Eg: 1 Lac 8 9 Yrs 16 Lacs


Invested for 36
Yrs
24 3 Yrs 40 Crs
Investing is NOT Risky…

What is Risky is an “Investor” & not an


“Investment”
Fundamental Investing
Technical Investing
Buying Insurance

Lets See what Robert has to say on this one…Investing


Managing Investor’s Psyche

The cycle of fear, greed and hope


Fear Greed Hope

Wrong emotion dominates at wrong time


Zurich India Mut
ualFun
d
Financial Status of Rich
Person
INCOME

LIABILITY
EXPENSE
ASSET
So what do we
recommend…
Take the Steering Wheel in your hand…

Invest In Yourself First…

Learn the Language of Money…

Climb the Seven Steps of Retiring Rich & Young…

Make an Action Plan to religiously follow them…

Review your progress at reasonable intervals…


Let’s Take a Lunch Break…
Investment Avenues…

I know all of you have been waiting for this one…

But not too soon…

Let us first understand the difference between


good Loan & Bad Loan
“Here are 5 great reasons to carry a big, long mortgage and
never pay it off.” - Ric Edelman, Author of The Truth About
Money (1997 Book of the Year).

1. Mortgages Don’t Affect Home Value


The value of your property is going to rise or fall
regardless of whether or not you have a mortgage.
You wouldn’t keep Rs.100,000 between the
mattresses, why would you keep it in your house?

2. Your Mortgage Is The Cheapest Money You’ll


Every Buy
People have a ton of debt, i.e. credit cards, auto loans,
student loans, etc. By far, the cheapest loan you can
get is a mortgage loan. Why wouldn’t you borrow
against your house at 6% acquiring more assets to
increase your R.O.I., instead of borrowing with a 18%
credit card.
3. You Might Need The Cash
Financial Troubles? i.e. retirement, job loss, medical,
family, marital, college, etc. Banks only like to lend
money when they know it can be paid back.

4. Tax Law Encourages You To Have A Mortgage.


Mortgage insurance and interest is tax deductible
whereas interest on other loans are not. In essence
the government rewards you with cash back for
paying interest on your mortgage.

5. Mortgages Become Cheaper Over Time


Depending on the loan you choose, your mortgage
payment stays the same over time. However your
income increases making the payments easier to
make.

Lets See what Robert has to say on this one…Good


Investment Avenues
Real Assets
Real Estate
Commodities
Oil, Gold and Silver
Paper Assets
Stocks and Shares
Certificate of Deposits
Government and RBI Bonds
Foreign Exchange
Mutual Funds
Public Provident Fund
The Beauty of Real Estate!
1. Phantom Cash Flow (Depreciation) – Make
money and count it as a loss
2. Banks Lend You Money – Try that with
stocks
3. Leverage – Get more for your money
4. Sec - 54 Tax Deferred Exchange – No
capital gains tax
5. The Bigger the Better
6. Negotiations – Something is worth only
what someone else will pay for it
7. Appreciation
Dolf De Roos’s Four
1. Q: How many RupeesQuestions
worth of stock/property can you
buy with Rs.10,00,000? A: Rs.10,00,000 with stocks,
but with real estate a whole lot more!

2. Q: The moment you buy your Rs.10,00,000 worth


of stock/property, how much is it worth? A:
Rs.10,00,000 with stocks, but with real estate it could
be a whole lot more!

3. Q: When you buy your Rs.10,00,000 worth of


stock/property what can you personally do to increase
the value? A: With stocks pray or write the C.E.O. of
the company and ask him to ease up on the private jet
trips. But with real estate you can paint, put in new
flooring, landscape, or even add a room.

4. Q: Once you have bought Rs.10,00,000 worth of


stock/property and it has doubled in value what must
you do to enjoy the gain? A: With stocks sell them
and pay capital gains, but with real estate you can sell,
trade, refinance and enjoy limited and even
Commodities

Buy and Sell Commodity Futures


New to Indian Market
Timing of Purchase
Knowledge and Skills
Oil, Gold and Silver

Oil Futures can be traded as a


commodity
Timing of Purchase
Knowledge and Skills
Stocks and Shares

Do it on your own
Give in for Portfolio Management
Service (PMS)
Discretionary V/s Non-Discretionary
PMS
Let us do a Mass Role Play
Which Company will you choose to
invest in?
Name of Company: Wise Co. Prudent Co.
Sales Rs. Crore 1000 800
Net Profit 120 200
Profit Margin 12% 25%
Equity Capital 200 500
Debt Funds 200 100
Return on Equity 60% 40%

There are other financial / non-financial factors that would


influence investment decisions.
Certificate of Deposits

Use Rule of 72 for your advantage


Banks, Corporates, Post-Office etc.
Even Indira Vikas Patra and Kisan Vikas
Patra come Under this asset
classification
Lacks Liquidity and Flexibility
Yields meager Return post inflation and
taxes
Government and RBI Bonds

Safety of Capital
Lowest Return
Mostly to Balance the Investment
Portfolio
Tax Saving at other times
Foreign Exchange

Hedging Instruments
Now used for Investment because of
Volatility
Large in Base, Deep in Scope
Booming because of Foreign
Institutional Investment Inflows
Mutual Funds

Collective Investment Schemes


Open Ended Schemes
Close Ended Schemes
Equity Linked Saving Schemes (ELSS)
S-I-P’s (Systematic Investment Plans)
Concept of Fund of Funds.
Public Provident Fund

Fixed Obligation Every Year


15 years Lock in
Good for Tax Saving
Introduces Concept of Forced Saving
Let’s Take a Break…
Seven Steps To Retire Rich
& Young…
Step 1:

“Decide your Age of Financial


Retirement Now.”
Seven Steps To Retire Rich
& Young…
Step 2:

“Buy Liabilities to the Extent of Need


and Not Desire.”

Lets See what Robert has to


say on this one…Don’t Live
Below Your Means
Seven Steps To Retire Rich
& Young…
Step 3:

“Link Liability Targets to Asset


Targets.”
Seven Steps To Retire Rich
& Young…
Step 4:

“Plan Liability Acquisitions at least a


Year in Advance.”
Seven Steps To Retire Rich
& Young…
Step 5:

“ Increase CASH by Increasing K.A.S.H.”


K = Knowledge
A = Attitude
S = Skills
H = Habits
Seven Steps To Retire Rich
& Young…
Step 6:

“Work Smarter, Make your Money Work


Harder.”
Seven Steps To Retire Rich
& Young…
Step 7:

“ Have Targets for Job Earnings and


Freedom Ratio.”
Freedom Ratio = Other Income
Monthly Expense

Lets See what Robert has to say on this one…Life’s Four


Action Plan…
What
Let is the with
us begin Average Age
a little quiz
when one starts Earning?

25 Years
What is the Average Retirement Age?

60 Years
What is an Average Income of an
Middle-Class House-hold?

Rs.15,000/- p.m.
How much can a person
save on a regular basis?

Rs.5,000/- p.m.
If a person can save Rs.5,000/- per month
What will be his wealth when he retires?

Assuming:
He increases his investments by 5% every year
Invests in an Asset class that gives returns of 20%
At Age 60 his wealth would have been

Rs.27 Crores
THE TRUTH

Creating Wealth is Easy


We can all be Wealthy
How can you create wealth?

Start Saving Early


The longer you save, the more you make

Save in the Right Asset Class


This will dictate how much wealth you create …

Save Regularly
Even a small amount saved regularly, is good
Starting Early

Ram Shyam 27
Crores*
Savings Starting Age 25 40

Savings - Monthly SIP Rs.5,000/- Rs.15,000/-

Saving Years till age 60 35 years 20 years

Total Amount Saved (appx.) Rs.57 lacs Rs.62 lacs

4.90
Give time to your investments Crores*
rather than timing

25 years 40 years 60 years


Assumptions: (a) Savings grows at 5% annually (b) Returns assumed at 20% CAGR
Selecting Right Asset Class

Equity market (represented by BSE Sensex) has outperformed all other


investment avenues

Sensex

Company Bank
Deposits Deposits

Inflation

Gold
Past Performance (BSE Sensex)

Year Sensex Investment Rs.

1979 100 1,00,000

2006 10,000 1,00,00,000

In past 27 years BSE Sensex has given about 18% returns

This is in spite of …

• Two wars • At least 3 recessionary


• At least three major financial periods
scandals • 10 different governments and
• Assassination of 2 prime • An unfair share of natural
Save Regularly

Disciplined Investing through Systematic Investment


Plans (SIPs) is the ideal way to reduce risk

Twin Benefits of Investing Regularly

Average Purchase cost


Rupee Cost Averaging
will be less
At higher prices – less units
Automatic Timing
At lower prices – more units

Rising Market Falling Market

Market Units Purchased Units Purchased Market


Give Time rather than Timing
the Equity market
Investing in the BSE Sensex – 25 years
16.90% 16.02%02%
15.07%

Fixed investment at Fixed investment at


Fixed investment on
highest sensex value lowest sensex value
1st day of every month
every year every year

Market timing does not matter over the long term


Data source: ICRA MFIE
Wisdom
• “We do not need to be wealthy to be an investor …But
we can be wealthy if we are investors”

The Right way to create wealth …


X

Buying potential big winning stocks X


Successfully timing the markets X
Following Expert Advisors recommendationsX
Saving a lot of money

• Wealth can be successfully created if we just follow the three


basic principles ...

Starting early and saving for long


Investing in the right asset class
Investing Regularly – big or small
Conclusion
So the question is………….
What are you going to do with your time and your
money?

“Only a fool does the same thing


over and over again and expect a
Questions…
Thank You…

v Wish you good luck.