Horses and Investing - Lessons from history

In the olden times when it was required to move with speed and strength, a single horse would not do, and in order to harness the power off multiple horses chariot was designed.

In the chariot, the slowest of the horses were kept in the middle, and the fastest at the back . so that the slowest of the horses were edged to move faster, but overall power delivered to the chariot was enormous. It is possible that the fastest of the horses would not have had the stamina which the slower horses did.

Modern mutual funds are almost like that horses .

Six to eight horses are sufficient to give you that chariot for financial journey .

These horses should not be the same type in stamina or speed. They have to be different.

So, just having small cap horse will not be enough,They may be having a good speed, but the stamina is very less.Similarly all the horses cannot be large cap as they would have the stamina, but much less speed to cover the distance in less time. Apart from the desi horses, you may also need some Overseas horses from foreign world etc

But when they would start running, and if the fastest of the horses got tired, the slower ones would still be able to pull them along.

It is possible along the way one of the horses become sick, so you can always remove it and run with less horses, or include another horse who can be young and experienced, and also have the stamina.

In the initial times, you will need to move up the hill for accumulation of assets, and would need the horses which have stamina and speed, but but towards the later part of the journey when you will reach the top of the hill, and the road would become with less gradient, and you would have already covered a lot of mileage….  your Horses, even if they were moving slow would be able to cover your distance and take you to your destination. 

At that stage, if you feel necessary, you may change your horses to more sturdy ones or continue with your existing ones. It all depends upon you because by then you would be an experienced charioteer …

Admission of Omission

@240124 

 A lot of you have pointed out that makes me think that I did everything right with my financial management.

Nothing can be far from truth, because what I pass on to you, are the lessons, more from my mistakes rather than my minuscule achievements.

I may be from the generation when equity investment was synonymous with gambling and speculation and information for investing was non-existent.

Therefore, we made our share of mistakes and getting up and starting to walk again.

But what we want to pass on to all of you is the essence of all those mistakes so that you don’t have to make any of your own.

You will never find any database, stronger and more objective than the collective feedback of my generation, which is represented on this group also.

Balancing out with the mistakes that we made in our attempt to become matured investors is a challenge that the present generation of seafarers is facing .

That is the elevated age of juniors entering shipping as officers.

The loss of 5 to 6 years to join as junior officer from our time to today is indeed a great loss from the point of journey of financial freedom.

Therefore, I implore you again, and again that if you are on this group, then please start your investment immediately, if you have already started investment, make sure the amount you invest per month is at least 35% of your annual income.

If you are already doing it, then ensure that you stay on the path and guide others on board who may not be on this group.

The concept of emergency fund for Seafarers

 

The life and life routine of a seafarer has very curious intricacies which sometimes or rather most of the times are beyond the comprehension of the people who live and work ashore as also the financial planners who are necessarily shore based.

Where will you find a profession in which people get only paid for 6 to 8 months a year for their work?

 Even more, for a work which has no fixed date of starting and ending neither for the short term of each assignment basis or the overall career. Not to talk about the uncertainties and vagaries which make the profession of a mariner not only risky but highly Untenable for most of the people.

Right from the time that a person enters his primary training as a cadet and going up to the level of a senior and top most rank on board ,he finds that he has to continuously and consistently upgrade and reskill himself in form of courses for which he hs to pay from hs own resources.

No other engineer, doctor or other professional is subjected to such rigorous demands from his career.

Under such circumstances one of the major fears that a person has ( most of the time) is - when would he go back on board and start re-earning his salary( which unfortunately is called wages for us). This is a big question which everyone has at the back of his mind because those who become confident or overconfident of having the attention of their employees suffer an ordeal sooner or later because of various misunderstandings between the ship shore interaction. 

Not going into the intricacies of interpersonal relationships between Ship-shore... The question that our mariner faces is about his finances during the interim of his being on leave and obviously without any salary.

So today I would take up this question of the on-leave finances!

This is very important because during leave one needs to spend on acquisition of various goods and assets and also for fulfilling the aspirations of the family and parents which was one enjoys doing in his own presence. While dealing with all these expenses there is a big element of uncertainty of how much to spend where And at the same time also have sufficient assets in liquidity to last for the family till the remittance from on board starts coming through.
To approach this question you must first give up your habit of mental accounting (regarding this term you can read my blog or in the trailing messages on the Telegram Group FinWorld@sea With the title of mental accounting and also two articles on Colour of Money).

What I mean by mental accounting here is to stop spreading your money by keeping it under specific heads like for buying the fridge, saving for going to Vaishno Devi or a foreign trip or any such smaller expenditure. Keep it in one single account.

 We have already discussed that 35% of your annual earnings must be divided into 12 parts and should be invested all along the month and the year. This should preferably be kept in a dedicated investment account which should be a NRE account if you are a non resident.

This still leaves you with 65% of your Earnings to be taken care of.

Out of this you have three things to take care of: 

1. Monthly household expenses including premium of various insurances and Home Loan EMIs.
2. Discretionary expenses like holidays buying  Or changing the vehicle
3. Save in fixed income schemes like NREFD, PPF, Sukanya SC , buying gold etc.

So your and your spouse's art of balancing will come into picture in doing all the above within the 65% of the remaining income.

What will need to be done here is what I have mentioned before also:

1. Transfer To your wife's account roughly Twice the amount of your monthly household expenses every month. After taking into account all the expenses whatever is remaining continue to either invest it in equity and debt mutual funds in her name.
   

OR

  b) In case you are not married then most of the issues are obviously not there and you can continue to contribute to the monthly expenses to whichever family you are staying with e.g. brother , parents etc.

Whichever account you use for the household expenses you need not keep more than three months expenses otherwise.

Anything which remains after paying the premium or contributing to the PPF or Sukanya Samridhi, You may add to the existing NREFD Corpus but do not take the total deposit beyond Rs75,00,000 otherwise this will take away the opportunity cost of investing in equity MFs and also Debt categories where you can get better and tax efficient returns.

Beyond this it is better to build up a corpus in a variety of debt funds starting from liquid funds, short term funds, dynamic bond funds and long term debt funds.

How does this take care of the uncertainty during leave or other periods when there is no income:

This has more to do with the mental satisfaction and makeup. You must realize that whenever it will be required you will be able to liquidate your FD or take a loan against it at justice one percent more than what you are getting as interest, You can take loan against gold at a very reasonable ROI .

What I am implying is that by not spreading your money too thin in too many accounts or schemes from where you may or may not be able to withdraw in case of need you will be feeling lot more confident as you will be seeing a larger amount in your redeemable fixed income schemes.

You have to be very careful in not signing up for long term liabilities like ulips and endowment or money back policies of various insurance companies. The premiums for these companies or any other scheme that you might encounter upon the pressure from your colleagues or peers can actually causeway a big dent in your fragile financial position in the beginning of your career.

 

EMERGENCY CORPUS:

We have already taken into consideration various contingencies like that of loss of life or accident or a medical emergency by taking various insurance policies with due declaration of the factual position. So beyond this there are very few emergencies which can occur or causeway a massive outflow from your finances.

The only foreseeable stress on your finances that might seem could be because of loss of employment or change of employer or an inordinate delay in getting the next assignment ship easily and in time. This can easily be countered by withdrawing money from your fixed income schemes or taking a loan against them wherever applicable.

If you will notice that any of these supposed emergencies have no effect upon your equity investment which is taking place however should you feel uncomfortable in continuing with those investments you may easily temporarily halt those sips or stps till your income stream is restored.

P.S. The above situation is only during the transition period of One's life till one moves to the rank of second engineer chief officer or that of Captain and chief engineer. But since the question came from a person of a rank which does not have much of promotion prospects unless one reskills himself for a higher level we need to address that as well.

I have also experienced that after a certain stage one may not have any requirement of keeping too much money in liquidity as the emergency situation can easily be met by one or more than one credit card also which obviously must be directly linked with your bank account for the cyclical debits.

One must remember however that most of the loans and credit cards must be used by people who are in more than comfortable position to pay them off timely .