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 .

Investing Large Sums in Mutual Funds

Investing Large Sums in Mutual Funds

Quite a few times I am asked by our Mariners about investing money in lump sum.

Sometime this arises from the desperation of FOMO or fear of missing out in the markets, and sometimes simply because a person has not been investing in the past, and has reached an age when he realized that he should have started earlier.

In both cases, I try my best to wean this person away and to satisfy his desperation.

I tried to tell them that at Best if they want they can increase the amount of their SIP or Stp (systematics as I call them ).

Only once in a while, I come across people who have come into large sums of money by selling real estate or by virtue of inheritance after the parents have passed away .

what our Mariner does not really understand is that the sums that they contribute as systematics is more than what other people would be investing as bulk . e.g. your single SIP of 25,000-50K May actually be the bulk investment of a person earning ashore

So it is the definition which changes in the context.

Still, to answer the question whether one should invest in bulk if one has the money or should one follow the SIP I will suggest following hybrid route:

1. When will you come into large sum of money which is more than your 1-2 month’s salary please treat it as a modest sum, and continue with your SIP. At best you can make 3 to 6 bulk purchases of not more than 5% of your amount at hand..
2. If you have acquired an amount which is more than your above salary and you wish to make some bulk purchases, then do so in their existing funds only, if they are doing well and do not try to increase the number of funds.
3. For the purpose of bulk purchases, try to not make a single investment of more than 10% of the available funds with you. Try to continue with your existing Systematic or increase them if you like.
4. If You are fortunate and you find that while continuing with the above ,the market has taken a correction downwards, then invest up to 10% of your total corpus for first 5% fall in the market. if you still have appetite for risk, then invest 15% for the next 5% and 20% for the next 5% fall.
5. The above is a formula which I adopted in 2020 when the market melted ,as most of you know. this allowed me to make my investments in a hybrid mix of Stp, SIP and bulk from the month of February to September 2020. However, I did not stop the systematics before this amount actually depleted and my fixed income portion came down to my pre-reset 25%.
6. There are a lot of calculations by financial advisors, floating in the market about investing more in bulk when the market goes up and Vice versa. But I am not tempted to follow any of them. Our investing journey should be long and our test is in retaining that investment for as long as possible while maintaining our asset allocation..

I hope this will satisfy you and your future queries, and you will be not tempted to time the market and continue with systematics.

Financial Crimes and Punishment

When a thief or a dacoit steals from a person there is a law against it to protect the common man because it is recognized as a crime.

Similarly, if someone hurts any person or kills him whether by accident or intent .

Then, again, there are different punishments, depending upon the condition, because it is obviously recognized as a crime.

But if a person is defrauded by any other person, or a group of people or an organization, and because of which he becomes unstable mentally and commits suicide, or with an accident, because of his mental state, there can be no punishment for the perpetrators, because it is not recognized as a crime.

This was my stand all the way, and I have said so openly as my strong protest against mis selling.

An old person in his 70s being sold ulips with a premium going into lakhs of rupees every year is a similar crime beyond imagination and explanation.

When you walk into a bank to simply open the bank account or fix the deposit and you are persuaded to buy insurance policy that you do not need or investing into some plan which is not regulated or septic or you do not need any such plan is actually Financial Crime being committed The punishment of which has not been spelt out so far because it is not considered a crime.

All those smart people at the bank, wearing creased uniforms or coming into your homes having your coffee and consuming your precious time and nothing less than those the quiet or financial fraudsters who run Ponzi schemes.

Therefore, is not only your responsibility to protect yourself from any such plans , which is too good to be true, but also protect your family members relatives, and colleagues by at least warning them about such incident that happened before.

The financial system in India has streamlined a lot, even though the penalty for various demeanors have not yet been spelt out .

Any such scheme, which appears too good to be true most probably it is .

It is not only the schemes which we are commonly faced with, but also the financial fraud being done everywhere nowadays-are something that we need to be wary off .

You just need to be off guard once and the damage could be something that you cannot forget in the lifetime and might affect your mental health.

Therefore, do not be in a hurry when any such plan is offered to you, because any such plans are always accompanied with the feeling of urgency by the seller telling you that this offer might be over .

Not just monetary schemes, but selling of real estate,  loan against Gold, and many other things fall into this category of economic offense, which so far has not been defined properly in the country, and even if it gets defined unscrupulous elements will always find something new to keep their system lubricated .

Importance of Debt Funds

Importance of Debt Funds

As I have often said, debt funds are an integral part of one’s portfolio and the fixed income genre of asset allocation . However, lately I have stopped playing stress on it for  few reasons:

The new taxation introduced on debt funds from first April, 2023 has taken away the tax advantage, because now you do not get any indexation benefit, and even for long-term capital gains the gains are taxed at the slab rate, without any deduction that comes with the income .

Secondly, most of the officers are heavy weight on NRE, FD, which in the light of above taxation issue is actually beneficial as long as you are nonresidents. but as soon as you give up the NRI status the interest on NREFD becomes taxable. Under such conditions once again, dead funds will become relevant.

Once a person has reached a critical amount in the NREFD one must actually start looking at debt funds to park the long term money for the purpose of asset allocation.

The way to manage the asset allocation ratio, which I usually prefer to keep for myself at 75 equity, and 25 in fixed income and debt funds. It works both ways and used to work better before capital gains on equity was introduced..

Irrespective of the condition of the market, whenever One found that one’s allocation to equity has gone up by 2 or 3% then one could shift excess funds into the debt category of the same AMC. Conversely, when the debt allocation had increased one could shift to equity. Even at the cost of incurring capital gains. This keeps One safe, especially in one’s retirement or non-working times, and it gives an immense peace of mind.

Specially, during the retirement time, when once corpus is adequate shifting from equity funds to the savings account is also considered a wise step.

Usually what happens is that a person gets influenced by external inputs, and mentally starts pegging the market at high or low, depending upon his own short-term and long-term memory ( will write an article on this) whereas in retirement, one should specially look at once short term and long-term expenses, because that is what he has accumulated his wealth for.

Retirement must be used wisely for a person’s Peace of mind, and one must not worry too much about the management of his funds because he should’ve already set up the systems in place.

His discussion about the market or investments, must be only for academic level, simply for social discussions.

The amount that one is expected to accumulate will actually be so high that they would hardly be any possibility of shifting from one phone to another of the same category for better returns

This is because after paying the capital gains on one fund, when would probably not have much margin left in anticipation of making profit in the other fund.

Therefore, it is imperative, that we not only build up a respectable corpus before thinking about retirement, but also set up the systems and inform our spouse about the system that would be practiced during that life.

It must be remembered that doing nothing about investment is also one of the most important things to do.

A new Acronym

Sometimes it is important to use a small acronym, or a term to explain, was condensed a large term or idea for the purpose of brevity…

Just now, I have coined an acronym for the cash that people keep in hand to invest if the market goes down.

In Investment parlance, it is called, keeping your gunpowder dry to fight the markets .

So hence on we will call it as DGP for our convenience.

DGP  or Dry Gun Powder :

A term in investment , acronym formed by @RajeeveKaushik used for spare cash kept by investor to deploy in case of market downturn in addition to his regular systematic investments.

PRAY FOR DIFFICULT MARKET CONDITIONS

 PRAY FOR DIFFICULT MARKET CONDITIONS

Most of the people who started investing in the end of 2019 or even ine 2020 have made handsome returns.
This has nothing to do with their genius but everything to do with their determination and being a good investor. A good investor comes into picture only when the times are tough ,the market is down the environment is gloomy and everyone says the end is near as was the case in March 2020.
A lot of people who were very aware and in touch with the market sold out wholesale. I am very much aware of almost 75 crores INR being pulled out by people who were supposedly closed to me but did not consult me even once.
Instead they were around 47 very new investors who attended the 24th March Webinar and together we decided to put in more money gradually.
There were people who said that they are pulling out because they know that the market will fall further and then they will get a opportunity to invest at a lower level... They're still waiting.
Such opportunities in the market do not come everyday or every year and maybe just once in a decade and if you fail to act on it - it is lost for ever.

Similar sentiment is equal to in the famous Shakespeare play Julius Caesar where Brutus says....
There is a tide in the affairs of men,
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.

Very interestingly what does "act" refer to here?
It may be different in different context but here in the field of investment it may mean...
a) Not doing anything and letting your investments just be there and watch their value fall.
b) It may also mean watching your investment value fall but stopping further investment which should not really happen.
c) It may further mean (for a matured investor) watching their investment value fall and adding more money to it with every fall.

Allowing your investments to fall because of general market condition or socio- political reasons and watch them dispassionately is not only an important part of investment journey but also an important part of your personality which shows that you're maturing and any difficulty in life will not deter you.

So all those who have shared their successes with me yesterday and also in the past need to be congratulated for their astuteness and their self belief and I hope they continue their journey with the same zeal.
They will discover in the times to come that not only there portfolio has grown to unimaginable levels but also their personality and character has become more settled and matured.
They will always be honest citizens going by the law of the land that they live in also helping others whom they don't even know personally.
Remember that, to consume is human, to give away is divine.