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How to ‘actually’ plan retirement ft. Pattu @PersonalFinanceCalculators | CRED Jagruk Talks S2E5
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I want to say something to you but allow me to clarify first I wouldn't wish it on my worst enemy yet I feel I have to say these words because words are powerful your parents will die your loved ones will get hospitalized you are not immune to accidents and you were never born special whatever can happen will happen it's Murphy's law what I mean is do not wait for something bad to happen to finally get the motivation to prepare for life this is a story of a physicist who studied 14 more years after school to finally land his first job a physicist who never imagined something like this would ever happen in his family this is the story of Dr M patta bhiraman also known as pattu hi I'm pattu from previous [Music] true wealth has nothing to do with money but I told myself I'm never going to be in that position again but two is a professor of physics at IIT Madras who started learning personal finance out of fear his interest in the field of finance and his background as a researcher allowed him to dive deep into it in 2012 he launched his website called freefinkel.com shot for free financial calculators but two has developed several smart financial calculators that are used by not only common people but also used by sebi registered financial planners his Flagship product is the robo advisory template that helps anyone build their financial plan for retirement in a smart Excel sheet he also teaches personal finance through his in-depth data-driven research articles and his YouTube videos and as a matter of fact I personally learned majority of my personal finance lessons from his content and finally I am traveling to Chennai if you have a beautiful sunset to meet him and talk to him about life investing about the mistakes that we make unknowingly that have huge repercussions and how can we successfully build wealth it is truly an honor and a privilege to be able to do this with him so we are in Chennai so yeah number one um foreign but it's taking a little getting used to it and yeah hello sir hello before we proceed unnecessary disclaimer a podcast English because Hindi is not pattu's first language however subtitles this is talks season 2 episode 5 powered by cred let's listen to the conversation [Music] [Applause] [Music] so firstly I'd like to ask you you are a physicist you teach at IIT Madras what was your childhood like so I'm trying to you know understand how did you move from uh being a physicist now you are a finance educator how did it turn out to be yeah so first of all thank you for this opportunity pleasure is awesome so I grew up not too far from here in a big mansion and a huge joint family in fact the my extended family stays with me in a system of flats even today so for me my cousins are my brothers and sisters I was the only child okay I spent a lot of time alone in fact I believe that too much socializing is bad for you because it doesn't allow you to become creative so you know my parents allowed me to do whatever I wanted to do I always wanted to do something creative and the physics seemed like a good idea and they did not have any second thoughts about me doing physics it was in the early 90s there were many friends and relatives who said um you have only child how can you allow him to do physics you should you know get a loan and put him in an engineering college or you know in a mbbs seat or something like that but they let me do it they let me follow my dreams and one thing led to the other and I soon became physicist so uh what was your early career so the path to becoming a physicist is very long so I finished school in 92 1992 and I got my full-term job in 2006.
So okay so three years of BSE two years of MSE five years of PhD then a couple of postdoctoral stints and then you get a job so it's a long drawn process okay so uh have you have you seen a show called Big Bang Theory yes I have seen a Snippets of it not too much the main character of that show Sheldon is a theoretical physicist yes yes it helps kids understand that science is accessible to them yeah they can also do what they are doing yeah exactly so uh after your job how did you become a professor at IIT Madras so um I had these two research stints one in Germany one in Indira Gandhi Center of atomic research in kalpakkam after that I became a assistant professor in IIT in 2006 and since then I've been there okay so how did you get into investing I mean you create so much in-depth data driven content so you're probably the only creator that I have seen who believes in data and other people can feel it that you have done some research behind it and you bust a lot of myths around investing so how did you find that passion oh it's a long story I wouldn't call it a passion I just did it out of fear I would say because um I got my first tenure job uh in the Indira Gandhi Center for Atomic research in early 2006 five days after my first salary that was my first ever full-time salary my father's uh leg broke on its own okay because of uh he had a rare form of cancer and then after one month his other leg also broke so it was like until that time I was I knew nothing about uh Family Life Family responsibilities nothing I was a head in the clouds guy I all I knew was my lab I've just come home to sleep oh and so I knew nothing about a responsibility that then everything fell on me so I had to take care of it I and I knew nothing about money management and the hospital bills started piling up thankfully um I was married by then because I had a very nice brother-in-law who gave me a interest-free loan of about it amounted to three lakhs at relaxed in 2006 is a lot of money today true and uh uh so I realized that I was doing something wrong I had my father had no health insurance so I ran and got health insurance for my mother yeah and so that policy still continues to this day okay so three lakhs in debt basically that was my net worth minus three I started with that I it came to such a point that like you see in the movies my mother actually told me you can sell my mangalsutra if you want to you know make have money for treatment and so on I was because of a technical glitch I was out of salary for about three months okay so before I switched jobs yeah so it became to such a point that I mean I was all the money was just going away and thankfully I was able to get into IIT and this thing stabilized a little bit but I told myself I'm never going to be in that position again where I am going to be borrowing because I don't have money and therefore I started thinking what is it you need to do yeah so first you need to figure out what are the things you need money for what do you need money for in three months six months 10 months and so on it was uh soon enough my uh I mean we had a family started but I didn't realize that we have this first year ceremony right for the child so the first birthday is always celebrated it's a big but I did not uh know that I had to plan for it after the child was born okay it was oh I realized oh in three in the next two months we're going to have this big birthday coming up so I need where am I going to get money from so I told myself never again I'm gonna plan I'm gonna make sure when I need money I'm gonna have it and that's how it started and uh because math is not a you know it's not scary for me because I need math for physics so I started doing the calculations in Excel when I started doing Excel I mean I did not even know how to punch one plus one equal to two there I just learned and thankfully there are so many good resources available online there are so many forums you can learn as long as you know what you want to type in Excel you can find it many people just want to learn Excel yeah that doesn't work yeah you should know what you want to do then it works very well so that's how it so I mean uh both our careers Rohan is our editor he's just 18 right now and I also started as a video editor he also started as a video editor and that's how we learned video editing we did not have to pay any money to someone and we just you know uh searched on YouTube how to make a card how to color grade how to roots and that is a very uh good point because a lot of people say that we want to learn video editing so they are always looking for a defined chapter wise course but sometimes you you may not need that you just need to do one thing simple thing and you can figure out the rest later so that's a very good approach so while while learning investing I mean investing learning investing and learning video editing are two very different things and I feel latter is very difficult so what are the challenges that you faced uh because you were determined that you won't ever have to find yourself in that situation but then how how much time did it take you to uh firstly get to that comfortable situation and what what what were the challenges because you obviously had a science background uh you had you knew math but you know investing is a whole different area so how did you navigate that see um first of all the math and the analytics they are useful to certain points to understand certain truths about or practicalities about investing but day to day daily investing doesn't need that yeah otherwise only the super intelligent or you know super nerdy people who make money that's thankfully that's not the case so what I did was I was reading a lot all I did was I let my I had NPS so I was one of the first set of government employees who had NPS and at that time the uh the money The NPS account was not even set up it was not put into the market so it was basically held at the employer at earning some eight percent so what I did was I was just that was my only investment okay I did not invest anything so I just learned the mistake people do is they first invest and then ask questions yeah they first do something I want something for saving tax so let's just you know I want to give some proof to my employer yeah next week so I'm going to invest something and that's how the portfolio becomes cluttered it's a with a mistake start piling up thankfully I did not do that I didn't do anything I was just learning and then I slowly started uh buying my first mutual fund in fact there are two mutual fund offices in this road HDFC mutual fund is right next to us okay and there is sundara mutual fund right in the next street okay so I used to come to these offices and buy I did not even know at that time aside from my first investment that you have to you can buy things through a distributor and at that time it was the fall the 2008 the market was falling I did not know anything about all that I just started on a 1500 rupees Sip and slowly it started from there I would say I didn't do anything but learned that time of 6 months 12 months where I learned without doing much help me not make mistakes make big mistakes where I could not come come out from I did not buy an LIC policy or that kind of but the one thing is I probably I did not have my father was not around at that time to tell me to do those things probably if he had never got sick and if he were alive today I I would not be here I would have been that guy with the only fixed income in my portfolio with the 10 LIC policies or whatever so it's just I would say luck that's how it it's life yeah so uh after you witnessed the 20 uh sorry 2008 crisis how did you navigate because a lot of people you know pull out their money at times like this so how did you handle that situation so first of all I did not know it I did not know the market was falling I never eat to this day thankfully I don't see the nav or I don't see the market levels I just invest ah but what I did notice what was my the after the the the markets fell and then it recovered yeah but it required in 2009 sometimes yeah but from 2009 onwards to 2013 late 2013 the market went nowhere it was just up and down during that period I noticed uh that every day I would login my portfolio was always red yeah it was always in losses yeah so I was wondering what to do I I used to tell this to my wife and mother and they were scared they said what are you doing I mean you're probably making a big mistake here but I thankfully I learned to be emotional about retirement I always tell people that you can't remove emotions from anything everything that we do whether it is science or investing it's all some emotions are always going to be there too right so it's better to uh exploit those emotions in your favor instead of being emotional about my investments being read all the damn I thought of of being emotional about my retirement I told myself if I pull out now I will again find myself in that debt situation I was just a couple of years ago and I don't want that I want to build money so that I'm never going to be dependent on anybody ever again so that helped me through those five years of sideways markup for the first five years my returns were zero yeah then suddenly the market picked up and I had to learn my I looked at my portfolio one day and I thought what is this it's too much money then I had to learn units Place tens place and I had to count and then I realized that every day the market was gaining what I was investing every month yeah and then I that's when it hit me that's how Equity investing is you have to keep investing without worrying about when the market is going to move up or not it will someday when it changes your life will change and then just like that my life changed yeah so so during uh the four years that four or five years the market did not move a lot of people find it very hard to maintain patience so do you think being emotional about retirement and you know remembering your past days uh made you patient yes I would say I I actually had a very good piece of advice when I went for my IIT interview I met my teacher and he asked me how I was and I told him sir my father has come and Dad and said but to be happy that you're getting all these problems when you're young yeah I was like what are you seeing I mean come on man I mean I'm I'm in trouble and you're telling me to be happy he said 10 years later you will know that you have enough experience to handle problems later very well yeah so it is that experience that so it's it's somewhere it's lucky I mean that's how Okay so I've seen your logo uh free thin Cal logo what is the story behind that logo it's really uh it's an inverted percentage sign it's like saying that we can't get rid of our shadow our shadow is going to always move around with us yeah so if the ah just like that the risk is the shadow of return you can't get rid of risk whatever return you get whether it's fixed or not fixed there's always going to be some risk yeah so I wanted to have some kind of a so the percentage stands for return the inverted percentage is a way of saying you have to look at risks okay okay so uh talking about risks especially during 2009 to 13 uh obviously some you know some sometimes that thought must have crossed your mind okay how much risk am I taking yeah will it ever move up so how did you manage risk uh at the initial levels and how do you manage risk now see thankfully I had some time looking at inflation I had a I mean I was looking at my expenses and I projected my expenses down the line how how much my expenses would increase yeah um that told me that look there is no other way to handle my lifestyle in future or maintain my current lifestyle in future if I don't get a return higher than that because you have to pay taxes so my entire portfolio has to have a return or a growth rate higher than that of inflation after tax yeah so that was the thing that kept telling me hold on hold on be patient be patient and when I look at the past data and if you look at the sensex and plot it in let's say a logarithmic chart you can see that there is a step and then there's a this flat yeah it's for years and years it's flat and then it moves up so you don't know when it's going to move so you got to just paint so looking at past data has always helped me understand that the future is going to be at least like that yeah if not something very different so are there uh some people in your life who have influenced you in a great way they may not be from uh your field but uh you know it they made a turning point in your life there are many of them for example I had a wonderful teacher Mrs Bina gokla in 11th and 12th standard she thought as English and she made the subject come alive she taught us so many things about uh living loving hating and so on and that is when I realized my calling my calling is to teach I realize that's that's when I'll be happy it doesn't matter what I teach whether it is physics or Finance or the movies of gurud or whatever it is the subject is doesn't matter I just like to connect to an audience she was one who kind of made me listen to my passion okay my calling I should say then there have been so many people in finance as well one is PV subramaniam of subramani.com yeah so he has been in the markets for 43 44 years so he's been investing in stocks before the sensex even began I mean even the data began before 1979 so whatever analysis or inferences I make from hours of date data crunching he knows by just living through the markets yeah and he talks about risk and many people today don't give him credit but he was the one who was the first to say put it in an index fund don't today we have all these index investing and that's all popular but he was the one who first said don't spend too much time worrying about which mutual fund to buy just buy an index fund you're done okay so he's been a big influence for uh on me and also he is he had this audience uh ah trying to do DIY ready to do DIY and when he referred my blog at the early stages in 2012-13 so that audience you know also started following me okay so that so PVC Romanian is one influence the other is uh inspirational person is Melvin Joseph Melvin Joseph he's in uh he's a Regis semi registered investment advisor he's a fee only advisor working in Navi Mumbai so he's one of the first in the country and he had left a cushy insurance job and started out on his own doing this and he helps ah you know people he helps the Common Man Okay many financial advisors work with only High net worth individuals nris and so on but he has placed his uh price uh you know at a level so low that anyone can access it ok and he also helps children ah empowers children ah he helps other people pay for their education and so on through and initiative called key kids education and you okay so more than three thousand kids are being benefited by this so he's a guy because of his own Enterprise he's he's also very compassionate and he's also helped so many couples um with their finances and also uh widows and widows with their term insurance claim okay if there's any problem with the claims they go to him he does it pro bono all that is done proposed so he's a very inspirational wonderful wonderful especially with the insurance claims uh it's an ugly situation in India unfortunately true so that's one and also anybody who works without expectations inspire me for example I have at home the caretaker of my mother she works very hard she's very sincere and she works without expectation and that's always something that drives me uh that's been that said in our scriptures in Gita you work don't expect rewards when you expect rewards that's when all the problems start true true so though that's what inspired wonderful so this is a very simple and straightforward question what do you think is more important saving investing or earning I would say now I would say life has taught me that earning is the key okay first you earn because if you if you don't earn you can't invest or save but just don't spend too much okay then only you can do both because saving and investing you should know when to save and when to invest you save for short-term goals and invest for long-term goals you take on Market risk so that's fine but earning is the key so I would say young earners should focus on their skills and they should focus on trying to increase their income over the long term the problem with young people is I mean there's always been a problem with young people I've had problems when I was young that's when that's just the generational thing but they just wanted fast they want results too fast that's a problem you don't get that with money true true last night I got a message from my junior his one year Junior to me and I always sends me screenshot of his mutual fund portfolio and he says why is it charging me expense ratio I want to withdraw it I asked him why do you want to withdraw it he said it's been months it is stable I don't know it will ever go up so please suggest me some other Mutual then I wrote to him that that's not how mutual funds work so now he's asking me how does how do mutual funds work and that you know brings our first point people invest and then start to learn that is a very big problem I mean the today we have a serious problem because most people in the capital markets if they either direct Equity or Equity mutual funds they all come in in the last three four years almost 70 percent of them and they have all been influenced by the bull run that we have seen prior to March 2020 and then after from April 2020 to October 2021 that is so that's been their experience they think that's how their future will always be it will never be like that the worst thing see a crash is not a problem you don't have to worry about a crash because a crash is like too many people believing that something bad is going to happen and pulling out money yeah so thus at the same rate they will come back in yeah if the big crash will always be required followed by a big record worry but after the recovery there will be a Slowdown that happened in 2009 to 2013 that's happening now and that's the scary part because you're losing time yeah you lose five six years of your time if you don't plan well that time is lost forever because there are so many people who say I want returns in three years I want returns in four years that's and they don't have asset allocation all the money is in equity yeah you don't do that for three four years that's I mean it's just potluck you will get any return you want that's very dangerous that's where the planning is not there so what would you advise people uh who are in this phase of investing when the market is moving sideways it is going absolutely nowhere and you know maybe it will stay like that for two or three more years and that's what happened with you back in uh 2009 uh to 13.
So what would you advise such people who have entered the market after 2020 let's say uh now they will be they'll be disappointed like my friend is so what what do you suggest them to do I think first a pause and look at your own needs yeah so personal finance starts from us yeah why are you investing when do you need the money if you want the money in the next five years seven years don't invest in any form of equity okay stick with ordinary fds RDS that's fine nothing much is going to happen in five years have a long term view English money iniquity only for your retirement in your financial Independence for 15 years 20 years then you don't have to worry about what happens in the market in the next few years yeah so you have to plan so that and make sure you have enough money for short-term needs and then put a money away for long term needs that's what yeah but the the concern most people have is they want to you know do something with that money after let's say four years now they'll come to you and come to anyone with some experience and they'll ask them I want to get my money back in four years tell me some mutual funds there tell me some stocks when you suggest them that you should not go in equity they'll say that how else can I you know collect that much money in four years then there's a bit of wrong planning in on their part right so either you should increase your time duration or you should decrease your goal you can't do both at the same time that's the problem there they are punching above their weight all the time yeah it doesn't work you have to lower your dreams and lower your standards of living future standards of living whatever to do that you are a physicist you used your you know mathematics and analytical skills to learn investing and that's what you brought forward you rely a lot on data so how do you utilize that data to make your investing decisions I mean what are some some discoveries that you made that other people cannot you know discover so I I would say um all this number crunching has taught me lessons about risk about Market risk so people are always talking in the media about the market volatility is high now Market volatility is lower it doesn't happen if you actually look at the data and if you plot Market volatility versus time it will be a flat line Market volatility is always constant okay whether it's five years three years or 30 years there's always been a constant and one of the most important lessons I've learned is there is actually no prove that long term investing in equity will work OK all this power of compounding and stay invested that's all fine but there's no guarantee that it will work yeah all it offers you is that there is a reasonable chance of beating inflation okay that doesn't mean you will get the return you want yeah people expect 15 return yeah that is not the job of the equity Market the past tells us that whatever is the current inflation the equity can offer us premium above that yeah but that is very different from your return expectation so Equity can give you nine percent and if you expected fifteen twelve percent and invested less then you will not have enough money yeah so that's where we must learn that ah when they actually tell you in the disclaimer that the past performance is not representative of future performance they mean it so in the mutual fund industry actually means what they say in small font they don't that mean that much what they say in large font so you should revert our way of thinking but so those are lessons that I've learned from looking at past data but that does not mean if you stay away from Equity people always take extreme reactions when I say this they say oh there are no guarantees then why should I invest yeah then I ask them where is the guarantee that you will be you'll stay married when you marry there's no guarantee or marriage in work yeah when you join a course there's no guarantee that you will pass it there's no guarantee you will you know get a job you want so why are you asking guarantees and investing there are no guarantees in anything you do so that's true for investing as well but there is enough data to tell you that there is the risks are reasonable unmanageable that is all you want the risk should not be so high that you cannot manage it yeah so as long as you give enough time you can manage the risk with Equity investing and that's why people say stay invested for long term and so on that doesn't mean you should have Rosy ideas of you know the graph moving up like that's nice and smooth and and so on so and the other thing I've learned is about sequence of returns that is the same fund you start an sip in January I start an sip in July yeah he starts an sip in December we compare notes after three years after five years our our experiences can be very different true your return can be positive mind can be negative it can be very very high so that's the sequence of returns it's also called timing luck in the market so when you start and when you end depends on what path the nav follows for you and me so it's very very different so we'll have to combat that how do you combat it just like you can't take your marriage for granted anything you have to work on your relationship you have to work on your portfolio people are people are always in this LIC mode they because when you start an LIC policy you know that you're going to pay premium for the next 15 years so people say tell me which mutual fund can I start an sip for 15 years no it doesn't work like that it's not going to be the same mutual fund that is where the index investing makes a difference if you want to do all these gymnastics then you will have to be either ready to shuffle mutual funds actively manage your portfolio or stick with simple index funds you're done you don't need to worry about fund management risks so these are some of the lessons that life and numbers are taught me so speaking of guarantee a lot of people my father's age people may be your age who are who have seen the the government job era the job security era today that thing is almost negligible so I it's okay to hear the guarantee word from those people because though they have lived the guarantee while alive and uh you know they've invested in LIC policies that comes with a sovereign guarantee government bonds also come with a sovereign guarantee but uh do you think it's strange that when we hear the word guarantee from youngsters oh yes that's it's it's it's sad to see that people still want it see um the the problem is many of us don't understand basic economics uh people say that in the 1990s PP of rate was ppf ETF was 12 14 you would get LIC annuities for 13 and so on but that happened because the government was nearly bankrupt yeah the government became bankrupt in the early 90s and uh unfortunately in the debt markets uh the the more bankrupt you are the more interest people will demand from you yeah when you cannot pay more they will want you to pay they will want higher interest rates yeah and that's how it wasn't until the 90s and then the 2000s things changed so India has gradually shed its communist ah policies and it has become more and more capitalist whether it's good or not is another matter it's debatable but what it means is that all our investments have become Market linked known whether it's PP or VP of Guild trades everything has become Market leaks and if you look at the long term it's actually fallen down yes today interest rates are increasing RBI the report rate is increasing but that's not going to be there for it's it's going to increase but it's going to the the trend is going to be down yeah so we have to prepare for that and uh yeah youngster should not look at what their parents did or what their grandparents did that's a different era and most importantly it's not about returns their lifestyle was much more subdued yeah today everybody wants to live it up yeah whatever their income they want to live it up they say and social media they look at all these images of you know oh this guy has gone for a holiday in Thailand I will go further and Australia I'll go Australia and beat him and that kind of mentality is there the spending is too much that is the problem and if you accompany that with the want of guaranteed returns is a recipe for disaster true so uh speaking of uh government bonds and things that do come with a guarantee these days do you think that guarantee still means something I mean uh what if LIC goes bankrupt so will the government be able to pay off everything it's very unlikely that they uh that's what I said there are risks and there are reasonable risks buying an LIC annuity if I need it that's that's key if I need it there's no problem in fact I will have to I have an NPS and I will have to buy an annuity when I retire so I'll probably use LIC assuming it will still be around at that time and I think that that's a reasonable risk to take because that's like they say there are institutions which are too big to fail LIC is too big to fail SBI HDFC I see I see I say those are all institutions which are too big to fail so that's a reasonable risk to manage but but what I am hinting is uh when people say I am I'm buying lse because it has a sovereign guarantee ah that you should that is fine that argument is fine but are you buying it because you need it yeah that is the problem see I can buy an LIC policy after retirement for annuity yeah to get a pension that's no problem there I would prefer that you know instead of a private insurer for an annuity but I should not buy it that when I'm young and say I'm getting guaranteed returns uh and buy a policy and mix my insurance and investing before retirement that's bad true so it's the question the problem is people are they they're emotional about the wrong things you should be emotional about the right things for that you need little bit data you should look at all you need to do is look at how your lifestyle has changed over the past five years true some tracking of bear tracking of expenses if you do people you you can see that all our lifestyles have increased at about eight to ten percent at the rate of expenses have increased most of it has come from lifestyle creep lifestyle changes and not just uh you know because of the Dal travel increase in inflation and so on that is okay that is about six percent or so roughly approximately because of fuel costs but that's what we need to be looking at we need to my lifestyle is changing can I get rid of my start smartphone ah just because I've retired can I get rid of my cable connection my Ott platforms just because I've retired then that would be your failure right I mean in terms of planning so we have to maintain our lifestyle yeah or the other thing is don't think twice before spending and don't enhance your lifestyle just for the sake of it yeah so then it's a question of need then it doesn't matter whether you're looking for Guarantee or Capital link Market linked resistance or you made a very good point about lifestyle inflation people when you know when people see the data in the news the inflation uh the new number is 7.1 percent people think okay our mutual fund is you know capable of giving 12 plus percent but uh the the formula that builds the inflation number consists of three major ah ingredients the fuel cost clothing and food all three are rising at 12 so you know people plan with seven percent keeping in mind seven percent inflation but in reality majority of their expenses are being raised by 12 percent every year so we have to at least expect 12 percent and that will only come when we you know reconsider our needs a lower our expectations and manage our risk true yeah true the the thing is that 19 people want to do freelancing they want to do that's a good thing very nice to see but but when it comes to investing I believe when a youngster uh 18 or 20 year old wants to invest there for the wrong reasons they can be for the wrong reasons one reason could be I'll generate this much return and then you know I'll feel good about myself so that is that will ultimately land you in losses true so because a sense of maturity has yet to be developed true the same thing is with that's how I see trading as well many people get into trading and they do it because they want to get rich quick it never works like that trading is a lifetime job you learn you have to learn the markets the markets teach you about its risks the risk in day-to-day trading is very very different from the debate investing long term investing risk because the Dynamics are very different so ah it takes a lifetime to learn it yeah and if you look at if you ask any big Trader they will tell you I have lost most of my money at some point in time I've recovered but I did lose it so you're gonna have to bear those big losses and then only then go through that Evolution but people want they see all these Facebook ads about uh passive income from Stock Market trading I don't know how that works the only person who makes passive income is the guy who sells the course yeah so that is very dangerous yeah because it's not the it's not going to change your social station it's just going to give you some spending money here and there to do something extra I think that is wrong I think people young people should have a long term view like Jeff deso says look at your life over 30 years 40 years and think of where you want to be and work towards that don't think about the next one year yeah that's not how wealth is made yeah I just remembered a great example uh when I was little and whenever I go I used to go out and see there's a bridge being built or there's a shopping mall being built I used to ask my parents or I used to ask my myself that okay in two months if I come come here again I should see this you know fully functional and then I would get disappointed that it's still the same it looks still the same the road hasn't been built the building hasn't risen and then I realized that okay big things do take time they will not be built over overnight but I suddenly remember because that you know kept my expectations in check so whenever there's a new government project around my neighborhood I tell tell myself okay this is not for me maybe this is for my kids true that's a good example yes so um regarding the inflation that you asked me so the thing is that our day-to-day expenses inflation is about seven eight percent maybe but the danger is that many services in India are not regulated Health Hospital expenses in India are not regulated at all they can be anything same with the school fees and so on so these are increasing at the rate of 10 12 14 yeah so there's a point Beyond which you can't expect too much return you can't expect to beat 14 inflation yeah if you're lucky you can but that's not going to be a the risks Associated is no longer reasonable for that so there you have to compensate by investing more yeah that that's something that what happens is financial advisors are scared to tell the two clients invest more because they're scheduled run away yeah so we need to invest as much as possible and that the only way we can do is balance our spending today and so that we have we can fund our needs for tomorrow okay so uh you have a you know good investing experience what are some examples of your best and worst uh Investments um I don't think I have a best investment yet I see my life is not fluctuated like that it's been more or less I always looked at my needs and invested probably I would say that um if I had to do it all over again I'd probably get rid of my active funds and replace them all with an index fund okay the biggest reason is that if something happens to me today my wife can just take over that without worrying about uh you know which fund manager is doing better which active fund is doing better and any advisor can look at that portfolio and continue that without so the investments will not be disturbed yeah it can just continue across and Beyond me that is one and also for me today my I have my wealth has grown a little bit so I don't care about which fund works three star four star I don't care but the The Simple Choice which I keep telling to young people but they can keep asking me why don't you uh invest in active one I mean why are you investing in active funds why are you not investing in passive funds the reason is my portfolio has become so big that if I add a passive fund to it it'll be too small it will not make any impact but I tell young people don't make the mistakes I did yeah I I was still I did the same mistakes that anybody does looking at stars looking at recent performance uh that is the biggest mistake people do and they look at the last one year one and a half year two year performance and then they put in money yeah and if they and after they put in money the fund will drop it's the law of averages you can't ah it's a hot hand fallacy you cannot say that the first five balls have been hit for Force therefore the last Bond will also be hit for four it never works like that but that's the mistake I've made those mistakes and I like to think that uh I mean I could have done better true so uh speaking of picking mutual funds I saw one of your videos where you said just pick any mutual fund uh don't go overboard don't add too many funds in your portfolio and you said uh pickup fund that is not so popular ah why is that see it's like the code from The Matrix where agent Smith says that human beings are like viruses they see something good and they go and heard on it they accumulate and they destroy it and then they move on to that so when this when mutual fund investors see some good performing of mutual fund that outperforms significantly everybody goes there yeah and then the aom increases the fund manager faces the heat yeah and he cannot be as Nimble as before he cannot change talks he cannot churn the portfolio and then the performance drops the same thing happened to prashan Jain in 2009 after the Congress government got re-elected the markets moved up OK the markets reacted positively and then there's a lot of inflow into his two funds HDFC equity and HDFC top 200 at that time those with the names and the churn rate the ability in which he was churning the stocks it dramatically dropped and those mutual funds became more and more large cap oriented okay because he that's the only way he would maintain liquidity yeah and handle the portfolio so that's why I said stay away from popular fund managers and popular mutual funds so that you are in a space where uh it's not I mean nobody gets note if the fund doesn't get noticed yeah so you can happily invest that was how paraporic flexi cap was yeah and when I started investing it as an nfo yeah and I thought okay um this is this doesn't have a banking Channel yeah to push fund the fund so it will remain quiet for some time but uh in the last few years it is tremendously grown but now again people are complaining oh they are not investing enough in Google Facebook it's going down so it's it's a I mean they have a short fuse in terms of expectations they just wanted to so my Junior was asking me about the fund that is not performing that was equipment so I'm happy I'm happy if people move away from it yeah so uh speaking about unpopular advice popular mutual fund there's also a point to be considered that if a fund becomes too big people say that it's its ability to generate returns uh gets hindered do you think it's true if yes then how should we invest in a in one mutual fund for a very long term so if if that fund becomes too big what should we do I mean it's very hard to prove it I've tried to prove it that's very difficult to make a meaningful study to say that this because of the aom increase only the returns came down that's not possible because even today there are funds for example HDFC has a mid Cap Fund which has got a very large amount of AUM I forget the name um but it's doing well it's not it's not a stellar performer but it's doing quite well so it's very hard to prove it but it's just a matter of see the the problem is there are faces when all the mutual funds fall down then many people ask why is my mutual fund alone falling down no it's not your fund alone yeah the whole Market is falling so everything will fall that is okay but if there are some reasons where only your fund is falling then uh you should get rid of it so there are two choices one be an active investor yeah and be ready to switch funds every three four years because average it will keep moving up and down today there will be five star tomorrow it will be it'll drop down become five star again back down and so on you should be ready to switch or go through periods of under performance if you have the faith okay very few people have that anyway or simply be an index investor yeah be happy just forget about it you get some return very close to the index and you are happy and I think if the index is if we assume that the index is going to move up over the long term comfortably then all the funds even our average performer would do well yeah so that's why I said don't worry too much about which one you pick because it's not going to be the fund you're going to this is not a marriage yeah I mean it's a it's an acquaintance at best and you're going to change acquaintances for that you need to be professional about looking at a portfolio management the problem I see is that most people don't want to learn portfolio management yeah they don't want to look at it from the top so you should look at your need if you look at your Target Corpus you should look at your asset allocation then you should look at the assets and only then at the fund performance yeah people do the other way wrong yeah but they don't go beyond one performance yeah that is the problem okay so uh speaking of the new investors and considering the fact that more than 1995 percent of Indians don't have enough money to invest what would you suggest them how many mutual funds should they invest into I would say just one is enough just any sensex or Nifty ah not any I would say the ones with a reasonably low tracking error that is the one thing they should be looking at trying to increase income if they the income increases everything is fine in fact um I have seen this in my life and uh if advisor swapnil Kenda has also made this point that is let's say two people start one guy starts earning right after B let's say 22 Yeah and the other guys studies he does other you know higher education qualifies just like what I did when I went through the other guys only starts at 35 or 32.
The salaries will be very different yeah the guy who starts late will have a much better salary yeah and he can actually make up for the time lost yeah so I would say focus on trying to get your skills up make sure you are always employable you should be constantly employable either you should know how to do it on your own be an entrepreneur or you should be in demand if that is ok then you can spend some time without investing focusing on increasing your income you can always make up for it later okay but if you say this much is enough I'm not going to study further then would that would severely limit your ability to build wealth over the long term okay so just one fund uh is enough but the focus should be on increasing your income and when you have enough money then you can you know maybe think about uh adding a fund but no you can always make up for the lost time that's what I mean the point is people want to they are always fomo is a big problem if you look at all Financial ads fomo will be there have you invested in this have you not done this they will always try to push that for more button that is what we have to control it's you should tell yourself I am invested in the Nifty index I don't need to good look beyond that I'm fine I don't I don't need a mid cap I don't need a small cap they don't matter Nifty is good enough that control is the huge thing I don't because my friend is doing trading I don't need to do it yeah I I that control and that maturity is the biggest biggest problem reminded me of what uh Mr Rakesh jinjala said uh in during his last years someone asked asked him why don't you invest in crypto he said I don't have to go to every party so precisely yeah precisely that's a wonderful thing so uh you have a you are a physicist I can't even imagine what it's like to become one you have a job full-time job at IIT Madras and now you are into investing you make content around investing and which is very useful how do you manage both of these it has been a very uneven ride for me it's not been normal in the sense that um 10 years ago I was I started this website in May 2012.
a few months after that I was down with an autoimmune condition for the next one year I was almost bedridden I couldn't do much I couldn't teach I couldn't go to work against one so um learning about finances one way for me to get out of that funk it was I was in a very bad state of mind I thought this is how my life is going to be so it kept me occupied something to think about yeah but then after that I used to work on these calculators whenever I had time we have we have summer vacations winter vacations and so on so most of the content was made around that time and scheduled later on yeah so over the last few years I've learned the power of Delegation now I realized that I'm becoming old I cannot uh you know keep up at the same pace so now I have a team of people who wish to be anonymous there are there are people working in all the big tech tech companies all around the world and they helped me manage my site and they also produce content now most of them are Anonymous some of them they prefer their names they produce some products and so on so they maintain the site so I've learned to delegate it and I'm I'm looking forward to do something else now yeah I'm trying to because my if you look at my life I've done all the things that a physicist should not do I have looked worked in one area in of physics then stopped working on it and done something completely different then after a few years done something else so I would like to move on to something Beyond finance and do something else I don't know what that is I'm still waiting for what that calling is but I'm hoping that's it and so I've delegated it and I want to you know I'm shading my role as in free Finkel gradually okay so uh Matlab if I were to put it you are at the completion stage of a current phase see well I mean you've learned physics you've learned investing now you want to do something else see the thing I would say that completion meaning that I would like to do new things in the sense that um I have covered the basics yeah and if I do it again it will just be saying the same thing over and over and that repetition can be done by anybody I can delegate it to somebody what I I would at the moment like to do is to study more about Market risks okay it would not be uh immediately useful for day-to-day investing or investing in mutual funds whatever but I want to study the nature of the market risk how is it linked to chaos how is it linked to fractals what what can we do can we learn something useful from it okay that is something that the problem is that doesn't translate well into content yeah because very few people will read it yeah it it that's what happens with science and research you know it takes years and years for someone to finally find some conclusion that can be conveyed to the world but uh it's necessary if some some if some nobody will do it then we are going nowhere so those things will take computations and it will take you know I had to set the computer will take weeks to finish so I would rather do that privately and publish separately rather than on frequently help okay that's my plan so so we we got the sneak peek into what you are planning for yourself in the future so you teach some of the smartest kids in this country at IIT Madras do you think they also make some investing mistakes and are those mistakes similar to a common man's investing mistakes uh first of all I don't think the kids in IIT are smart it is just that um those kids have taken a decision to sacrifice their time and effort much more and much earlier than other people in the country yeah whether it comes to working for GE or any other entrance exam related to IIT or in IIT so they're not smart it's just that they've they spend so much time that they have accumulated some knowledge it looks like they're they're smart it's like what you have done if you if you do video editing alone yeah and nothing else after six months you're an expert yeah so that's that's how those kids are but other than that they're as normal as fallible as anybody else they have done they make the same mistakes or no don't make the mistakes as anybody else I don't see any difference okay the uh what I see today is that like I mentioned to you earlier young people are more interested in investing right yeah they don't want to invest the way that like their parents did of course there are many people who are still influenced by their parents but the number of people who want to do it right do it independently have also increased they're they're searching for content and that's how I I knew that was what I do at free even Cal will eventually work I knew that initially it was the many years where nothing happened nobody noticed free Finkel but eventually thanks to Google's machine learning has improved so much and you you don't have that kind of usual keywords stuffing that kind of SEO doesn't work I have been the biggest beneficiary of it and I've been able to cater to these kids who are looking for it so uh that's that's great I mean uh one one very important point that I'd like to discuss I I haven't had the chance to discuss in detail with any other uh expert yet do you think uh our expectations uh of wedding and you know our expenses are on wedding will hold us back will not uh make us achieve retirement plans I think so yes I think I'm I'm scared the uh I I'm scared to go to weddings these days to be honest because I see people are serving popcorn there are candy flosses there are drones flying yeah I mean I I just cannot I cannot stomach it there's too much and I ask about the expenses they say minimum 50 lakhs yeah in certain circles and that's a minimum and they have these huge photo shoots and so on most of it I would say don't spend because how much ever you spend your relatives are always going to find something to complain about the wedding it's always going to say this is this is bad that's bad you didn't do that well forget about that if you have enough money give it to the kids yeah let them start their career or start their family life in a you know solid Financial basis and say spend it well instead of but that's life I mean you're always going to have these pressures and it and it's infectious they I I overheard a conversation in IIT some years back there it is very trivial thing one guy who said that guy had ah two deserts in his daughter's reception so in my daughter's reception I'm going to have three digits that's how it's a very trivial thing but that's how people think and they want to outdo for no reason that's not you don't know that's not a goal nobody cares yeah right so yes it's going to be a problem yeah what is going to be a problem is that people want to change their social station the wrong way yeah they're only earning this much but they want to spend that much although they don't they want to spend that much and they and they borrow but if you want to change your social station you should do that by taking in risks with your career yeah ah it's a reasonable risk the right amount of risks and you should ah you know hold back your spending and ah you know even if you want to work somewhere as an intern without pay you should be ready to do that but people don't want that they want to they get the bonus it's gone and I usually go I go to these corporate meets and I ask them when does your money run out yeah yeah so I I I usually hear some people say some people say 20th 20th is very good these days it's a it's a record yeah okay so um if I go up North it becomes worse some people said one guy said third he said I run I get my salary on the first I run out of money on the third I said what are you doing how are you how are you even manage it that's how it is the spending has become too much everybody wants to change their social station by spending yeah that's never going to happen it you're going to go down that's the biggest problem we have so the reason I ask is because I see a lot of people uh you know borrowing money 20 lakhs 30 lakhs just to facilitate their wedding just to show that they can or you know three three desserts I know yes then the point that you made about kids that people you know they the the people who are spending 20 30 lakhs on marriage after borrowing money will again struggle to you know raise their children and then uh okay it's one thing to spend a lot of money on a wedding then at least people should understand we are not ready to have a kid yet so we should first you know pay our debt we should then start saving because in two three years we'll have to send them school so that whole planning is so messed up and sometimes I feel that why is it so difficult to understand it to me it feels it feels fairly simple to say that okay if I spend money I will not have money but it at the same time very difficult for people to understand yes it's a it's a big deal and if you have two children I think it's very difficult I I often say that inflation should be the best contraceptive one kid manageable two kids you're you're almost crude yeah three if because the second becomes twins you are done for what happens like what you said if you borrow and for a wedding you're going to spend the next five six years repaying that debt so you're scared about starting a family by the time you become old yeah you can't natural childbirth is gone you have all these fertility clinics everywhere now if you go via the fertility clinic minimum is twins yeah you never get one very rare if you get twins and to start with your your life is sealed that's it you can forget about you have to work until 60 70.
So that's where these things matter they will pile up that's that's the real power of compounding I would say negative compounding we should say that yes you should that's why I keep telling people don't do anything spend one hour doing nothing every day yeah put all your gadgets away maybe go for walk do some meditation but think about your life what is it I want to do think about all the nightmares that can occur to you it's very easy to dream dream forget it you will get it but think about all the bad things that can happen to you and how are you fighting for those bad things for example men there are I have uh I have a we had a PhD student a few years back in the department he went trekking he lost his footing and fell okay to death his parents were farmers they had no money this guy is the only one spending spending for his expenses and giving them money from his typhen yeah and what would they do so those are the things that those are the risks we need to think about what would happen so I I say that even if you are young and not married doesn't mean you don't need a term insurance policy you should look for your parents are your parents financially independent buy a term insurance policy put your parent answers normally they'll get something yeah so that's that thing that happens only when you think about yourself I'm not saying be selfish but think about all the bad things that can happen to you and how you can fight it but we are always thinking about what the other guy is doing how much return you get here Rama so we are being distracted by uh too much information and I feel uh thinking about bad things is not very well received in the community if you tell your friends okay last night I thought uh you know what if I died you people your parents friend friends everyone will tell you why do why do you always think bad things but I think there's a fine line between you know rationally uh you know imagining situations that are very much possible and overthinking correct so I I don't call this overthinking and I'm I I do this myself maybe not one or maybe more than one hour because that's what my personality has become but I always keep Imagining the worst case scenarios what if this could happen yeah but it's it's such a burden sometimes but I still don't call it overthinking no it's it's overthinking when it ah when you don't do anything when you when it paralyzes you uh negative thoughts should force you into action yeah whatever thoughts should force you into action you should do something to you know as a as an arrangement to fix that risk then you're fine that's currently a minus 50 50 I take 50 action uh yeah but yeah it's very important to think about those things and people people don't do it so any any last piece of advice that you want to give to our viewers oh I one lesson life has taught me is don't give advice even if somebody asks for it the reason for reason is uh I always believe that we are all victims of our experiences my lessons in life are based on my journey yeah and just like the Sip started on different dates can have different returns all of us are different Tom Cruise said something wonderful he said I have never seen a normal human being yeah everybody has a story and everybody's story is different so whatever advice I would give assuming that the mistakes that I made will be the mistakes you make or anybody else make it's always very dangerous so I so only the one thing that I've learned is that we should be ready to course correct at any point in time there are no set plans if things change we change if I mean if that like we say if the if the data changes the opinion changes but don't change opinions before the data so we should be ready to be flexible that's all I can okay thank you so much lastly uh for people who are building their retirement plans let's say some my let's say my goal is 20 years away uh what would you suggest them because if I were to retire today and today is let's say 20 2008 subprime crisis my retirement would be screwed so what do you suggest how do they navigate that yeah there are a couple of ways to do it the the first thing is to invest as much as possible like I like I always say I don't know if I can say it like invest like your assets on fire yeah at all times so accumulate as much as possible and uh decide on what your asset allocation is going to be after retirement years before retirement okay so um when I started out I always thought that 60 Equity is too much for me okay but uh because my net Health has grown today I'm comfortable with 60 equity and now I want to have 60 Equity throughout my life that means that 40 fixed income should be enough right to handle most of my needs in retirement so things change like I said you have to adapt but for that you need to plan uh you must be ready to have my thumb rule is at least for first 15 years in retirement you should have enough fixed income assets to get inflation protected income okay if you do that then you can handle those kind of negative uh market returns uh Market you know sideways markets and so on at least for 15 years but then you'll have to manage the rest of the portfolio actually so one important point is the way Indians are managing retirement money is dramatically shifting so our parents generation 100 fixed income fixed deposits small savings schemes annuities and so on now that's changing to me little bit into mutual funds debt mutual funds so more and more my generation will be having a proper bucket strategy with very little dependence on pension your generation will be even more so we don't have the necessary expertise to cater to that right we also don't have the market history to understand the risks yeah so it's a very dangerous situation to be in so we should Safeguard as much as possible with fixed income assets but also have some Equity Capital let us say 20 to 30 percent not more than that to handle inflationary ah increases in retirement so it's a very tricky situation yeah so one one important point that you made uh retirement planning has been dramatically shifting so people earlier would invest in LIC policies and you know they had fixed job security uh everything uh even today if you look at our parents I mean my parents uh and my parents uh of my friends and family they would you know that the go-to investment that they would pick is either real estate uh or uh you know I need anything FD or something like that but even then if they want to invest in mutual funds they would go 100 in equity so why do you think is that I think that's that's the advice they get is the problem because the people in that generation they want to ask advice to people you ask advice you're always going to be sold them bad mutual fund most of the times and you're all uh that's that's where they need to do a little bit of research or you need to work with a semi registered investment advisor who's fee only without any conflict of interest but many people are not willing to do that they don't want to ah you know spend that money for advice and do that so it's a tricky situation which requires some thought and ah my problem is it's okay if the guy has got a lot of assets elsewhere yeah and 100 Equity being the only fund is okay as long as it's a small portion of the portfolio yeah what is now happening is that that is increasing alarmingly it's a it's a changing face as we speak and more and more assets are going to be in ah in the in mutual funds after retirement and that's going to be difficult managing because if you have these sudden shocks either a crash or a series of negative returns uh the retiree is going to be in trouble so that requires careful careful planning true thank you so much sir pleasure agreeing to do this and uh I hope you have a good investing research ahead thank you so much wish you all the best I hope you got to learn a lot from this episode it is time that I ask you for a favor do 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