Before we get into the benefits of reading about markets for stock or mutual fund investments, we should understand why most of the people in India don’t know or don’t want to know about stock markets. This helps us understand their mindset and make better decisions. Because there are certain situations where you can predict market movements based on behavior patterns, and either save your money, or make a lot more than an average investor.
- 1 Why People Don’t Read About Stock Market?
- 2 Why People (And You) Should Read About Stock Market
- 3 Stock Market Investment Can Be Your Second Source Of Income
- 4 Stock Markets Can Help You Achieve Financial Freedom
- 5 Stock Market Can Help You Plan Your Retirement
- 6 Investment Can Make You More Mindful
Why People Don’t Read About Stock Market?
Most of the people that I come across in my daily life are just scared. It’s not like I go around promoting a product like an insurance agent or something but still I have noticed this “fear of unknown” in their mind. The reaction that you get from them is mostly along the lines of “don’t know and don’t want to know”. While I can understand those who don’t know, it is difficult to explain the benefits of investing to those who don’t even want to know (just to be clear they aren’t wrong and shouldn’t be judged). But then there are those (like me) who do want to do something with their savings but need more education in financial matters because they have this feeling inside them.
You see when they are alone they do think about money matters but in front of everyone they don’t want to appear needy as needy are often exploited.
Stock Markets Are Risky
Majority of them are scared because of the risks involved. Have you ever heard about people talking “Mr. Sharma’s son lost Rs. 5 lakhs in some XYZ company”. Well of-course there are risks involved but that can be said about life in general too (people die in accidents). Still the thing is he lost that much money because he put everything in one basket. Just because you have disposable income (when you make a lot more than you spend) does not mean you invest everything in any random company and claim that you have invested in the market. Investment requires detailed analysis and constant re-evaluation of whatever it is that you have invested your money in. Besides you won’t lose Rs. 5 lakhs if you don’t even invest that much. As a beginner you shouldn’t invest anything more than Rs. 5,000 to Rs. 10,000.
Of-course you only need Rs. 500 to buy your first share or a mutual fund (excluding the onetime fees required to open a trading account) but there is a reason why beginners are often asked to invest Rs. 5000 atleast. That way you buy atleast 1 share of 4-5 companies and then get to study many things in the stock market – how to buy stocks, daily price movements based on news, market sentiments, economic condition etc. And then if you want to invest more you simple have to buy more stocks of same or different companies. But by that time you will have learnt a lot. And if the market goes down (which it does) then you would have lost maybe half of your investments (Rs. 2500). You might be able to get half your money back from the market.Important tip : You won’t lose all your savings if you don’t invest all your savings. Start with a small amount and learn how the stock market works.
People Lack Trust In Agents
Another factor behind people staying away from market is lack of trust. Some of the “agents” have a peculiar way of marketing products or investment instruments. They somehow convince people that they will be highly rewarded and there are risks involved, and when it turns out to be risky (which it does most of the times) somehow those agents don’t suffer any losses while you are stuck in the market and lose everything.
People need transparency and clarity on what they are getting into. And this is where blogs come into picture. If you check my portfolio you will notice that I have made a list of all the stocks that I am holding right now. And if I talk about some other stock I make it clear that I am not holding that. So all my readers know that I am transparent about what I am buying or holding or selling and when I am doing that. Of-course I can lose money and maybe if you follow me you will too, but you won’t think that I looted you or tried to scam you. This transparency helps build trust between me and my readers.
Lack Of Awareness Or Education In Financial Matters
This is quite understandable. Most of the people don’t know what markets are and coupled with fear of unknown and lack of trust don’t even bother reading about it. Everywhere they go they come across someone who made a lot (Rakesh Jhunjunwala) or someone who lost a lot of money. They end up getting confused and don’t bother reading about the markets or investments in general.
Bloggers like me try to write posts to spread awareness about the market, and through transparency build trust and help people become independent regarding financial matters.
Then there is the language barrier. There are atleast 8-10 major languages in India (Tamil, Telugu etc.). People do try to create content in different languages but the majority still finds it difficult to understand investments in general and that is because of lack of quality. The content creators start with a photo of a well-known personality and sell dreams which usually shouldn’t be done. You cannot just tell a beginner that he should learn from Warren Buffett. Pickup someone who is not that famous and with whom people can connect. This is the reason why I usually present myself as an example – I am a beginner (experience of 2 years in the market), recently started investment and put everything in front of my readers.
Another issue is gender biased approach towards decision making. People assume that women don’t invest which is just not true. There are so many women who invest in mutual funds. So the content creators should stray away from using too much technical information and discuss fundamentals and help them understand the market.
People Think It’s Too Much Hassle Or Want A Simple Life
Most of the people still think that they have to stand in line somewhere to buy stocks and keep the paper safe otherwise they will lose everything. Right now it usually takes few days to open your account online, transfer money and then buy some shares or mutual funds. It’s not much hassle to invest Rs. 5,000 online nowadays.
And lastly there are those who just want to live a simple life and do not worry about finances (maybe because they are well settled or someone else is managing their money for them). You cannot do much about them but for the rest of masses they should be made aware about markets and investments.
Why People (And You) Should Read About Stock Market
How I “Could Have” Made Rs. 1.8 Lakhs In Just 6 Weeks
Before I list down various benefits of investment, I want to show you how I could have made Rs. 1.5 Lakhs in just 2 months time in 2017.
You see I have been reading about stock markets since late 2016 (demonetization period) but even during the rally of 2017, I couldn’t make much. The main reason was fear. I was always on the lookout for news which could take the market down and I could lose a lot of money. So I had this habit of booking whatever profit I could in short time span (also I used to do more trading and less of investment).
However during November 2017, I decided to stop trading as it wasn’t giving me much returns. I was making only Rs. 15,000-20,000 per month with Rs. 10 lakhs. So I got fed up and thought about just putting my money in few companies for a year.
My initial picks didn’t do much in 30 days (I know it’s not much waiting but still). I decided to diversify more and invested Rs. 10 lakhs in 18-20 companies during November 2017 last week.
Within 1.5 months (6 weeks) my portfolio was up by 16% (January 12 2018 (+16%)). If I had booked my profits (Rs. 1.8 lakhs at peak of 2017 rally) I could have made Rs. 30,000 a week from the stock market.
Of-course I didn’t and that’s a different story (and a lesson learnt) but this is how much return you can get during a bull rally (there are bad times too so don’t get too excited).
How I “Could Have” Tripled My Investment In Just A Year
2017 was a gold rush for Indian investors. For those who are new to the markets, take a look at these companies :
1. HEG went up from 200 to 3000+ in a year. Rs. 10,000 in this company would have become Rs. 1.5 Lakhs
2. Rain Industries went up from 40 to 400+ in a year. Rs. 10,000 in this company would have become Rs. 1 Lakhs
3. Titan went up from 300 to 900+ in a year. Rs. 10,000 in this company would have become Rs. 30,000
I have seen many other companies which tripled or quadrupled investment in just 12 months. So it is my assumption that if I had invested my money in well known brands (Maruti, Titan, Reliance etc.) during 2017 Jan and exited by Jan 2018, I could have doubled my money. If I had invested in companies like HEG, Rain, HSCL, Titan, Graphite India, BEPL etc. I could have tripled my investment easily. Of-course I couldn’t but I learnt a lot.
This is how much return you can get from a very good bull run, although people are skeptical about another 2017 type rally. But even if you don’t get such crazy returns, you can still manage to make a lot over a period of 5 years. Check some cases below to see how much you can get from stock markets if you start with something as low as Rs. 50,000 :
Case 1 : At avg. return rate of 15% per year (mutual funds and not stocks) Rs. 50,000 will become Rs. 100,567.86 after 5 years.
Case 2 : At avg. return rate of 20% per year (through stocks because very few mutual funds can give you 20% or more returns) Rs. 50,000 will become Rs. 124,416.00 after 5 years.
Case 3 : At avg. return rate of 30% per year (through stocks) Rs. 50,000 will become Rs. 185,646.50 after 5 years.
Case 4 : At avg. return rate of 40% per year (through stocks) Rs. 50,000 will become Rs. 268,912.00 after 5 years.
Case 5 : At avg. return rate of 50% per year (through stocks) Rs. 50,000 will become Rs. 379,687.50 after 5 years.
Case 6 : At avg. return rate of 60% per year (through stocks) Rs. 50,000 will become Rs. 524,288.00 after 5 years.
Now please understand that it is not a joke to get 50% return every year (and to think that above I was talking about getting 300% return in one year). It takes serious effort but it can be managed. I personally would be happy if I can manage 40% return for 5 years.
You can use this calculator to do different calculations for yourself : Compound Interest Calculator
You can enter initial amount, time in years and interest rate.
How To Make Rs. 50 Lakhs In Stock Market
To make Rs. 50 lakhs through stock market investment you will either need good return rate, large initial investment amount or a lot of time. See different cases below to understand this :
Case 1 : Large Investment Amount – If you had Rs. 5 lakhs to start with you can turn it into Rs. 50 Lakhs in just 6 years at an annual return rate of 50%.
Case 2 : If you have only Rs. 1 lakh you can turn it into Rs. 50 lakhs in 10 years at an annual return rate of 50%.
Case 3 : If you can choose good multibagger companies (companies which give a minimum of 400%-500% return within 2 years – like HEG, BEPL etc.) you can turn Rs. 1 lakh into 50 lakhs within maybe 5-6 years time. Although it is very difficult to find such companies and you should never invest all your money in multibaggers as they are risky.
Stock Market Investment Can Be Your Second Source Of Income
You see an average person (anywhere and not just India) has a job and only saves a part of his money (which is still a lot better than spending everything). But this is usually not enough when you have future plans like travelling abroad, buying a house, buying some property, healthcare etc. On top of this you will also have to consider retirement, child care etc.
Plus each and every job in any industry has risks involved. The world is swiftly moving towards machine learning, artificial intelligence and robotics. We already have self-driving cars. Although still not mainstream, this change can affect a lot of jobs on this planet. And such innovations or improvements in the world of technology can have a ripple effect.
For eg : You have a job in an IT firm (TCS or Infosys). When robots take over, if your firms aren’t equipped with this technology they will fail to get new clients, which will affect their revenue and can lead to layoffs. Same thing can happen to any food company, marketing company, business firms, banks etc. Even governments get shut down (although if that had to happen all your investments will become worthless). But I was just trying to explain the importance of having a second income source.
Savings Are Hardly Another Source Of Income
You see although people do save money, fact is saving is not investment. In very simple words, your savings aren’t going to grow. They just sit there doing nothing. Investments on the other hand grow and provide you with some return every year. For eg : If you put Rs. 1 Lakh in your savings account then that money will just sit there (you will get 4%-5% every year which is like Rs. 4,000 per year). On the other hand if you had to invest that money in mutual funds you might get more than 8%-10% every year, which is like Rs. 8,000-10,000 per year. In stocks you could get more like 20%-30% every year. So you see your investments can give you some return every year which can help you should you lose your job.
Now of course it is a bad practice to put all your savings in the market, because market goes up and down. You need to keep some cash in your bank accounts for emergency purposes, need to get life-insurance and health insurance and then you will pay your monthly bills. But over a period of let’s say 6-8 years of your job, if you can manage to save Rs. 5 lakhs (assuming you make atleast Rs. 2 lakhs every year), then you can invest Rs. 3 lakhs in the market and keep 2 lakhs in savings account for emergency purposes. That sum of Rs. 3 lakhs can give you Rs. 30,000 every year through a mutual fund and Rs. 80,000-Rs. 1 lakh through stocks. So you will have a second income source of Rs. 3,000 – Rs. 7,000 (depending on your investment type) every month doing nothing. Atleast you will be able to afford food.
You Don’t Need Ph.D In Stock Market For Investments
I know the word stock market usually means people either panicking and losing their mind or Warren Buffett. Most of the people think they need to take crash course to invest in the market. This is not “entirely” true. Yes you need to read a little bit about Government policies and market sentiments but you don’t need another degree.
You just need to do a reading about how stock markets work, what are mutual funds, how much return you should expect and that is about it. If you can operate a smartphone yourself and do some technical things like sync your Google Drive account with your memory card then you can understand everything about markets within 3-4 weeks. You will be able to make decisions after a month of reading and analysis (you will have to read news daily for an hour atleast).
Remember when I wrote about a second source of income? This is exactly why many people gravitate towards the stock market. It has the potential to change your life quality within few years time, and all it requires is reading and patience (and a little bit of follow up too).
My Personal Experience With Job Loss
I never had a job with any company. I have always worked as an independent software developer (would build softwares and sell to people all around the world). It was like a business, just not registered (never felt the need to do so). I remember making close to Rs. 50 lakhs within first 3 years alone. Ofcourse I was only 24 back then so made some foolish decisions and some mediocre ones.
After a good 4 year run the demand of my software almost died. Income went down from Rs. 1.5-2 lakhs a month to Rs. 30,000-Rs. 40,000. The problem was that something in the world of marketing had changed which made my software useless.
Things became much worse in 2015 and my monthly income dropped to Rs. 25,000. I tried developing other softwares but failed miserably. Good thing is that I had a lot of savings (not in cash though). At the end of 2016 I discovered stocks and started learning about all sort of things like trading, investments etc.
Had I not made that much money things would have been very difficult for me. I can’t think of any company which would pay me Rs. 50,000 a month without any work experience with another company.
Now I did not make a ton of money through stock market (and it’s a lesson learnt) but I still am happy that I was able to discover it. You see after 2-3 years time I should be able to double my investment of Rs. 10-11 lakhs (it can become Rs. 20 lakhs). So I just have to maintain my software business at a steady income of Rs. 50,000-60,000 a month for another 2-3 years (I know to some this might sound a lot but I am 29 years old so It’s not that much for me). After that even if I invest Rs. 20 lakhs in a fixed deposit I might get 6% every year which is like Rs. 1.2 lakhs a year or Rs. 10,000 a month, doing nothing. Ofcourse through mutual funds and stocks I could make more.Important tip : Having a second income source in life can be very helpful, especially if you only need to read, and put your money somewhere in the market.
Stock Markets Can Help You Achieve Financial Freedom
What Exactly Is Financial Freedom ?
In very simple words it means that you don’t have to grind yourself to earn money. Mostly everyone has a 9-5 job. You have to work atleast 7-8 hrs. daily and 35-40 hrs. every week to make Rs. 25,000 to 30,000 a month. Being financially free means you work less and get paid same amount or more. The better the return (or the wage) the lesser you will have to work to make the same amount of money.
Eg : You have a job in an IT firm and earn Rs. 40,000 a month and work for 160 hrs. Not everyone gets a promotion so all you will get is an increment which we can safely assume to be 10% ever year. Now your goal is to find another source of income which can pay you same or more but requires lesser effort, i.e. something like 50-80 hrs. work a month. Investment can be that source provided you have saved a lot in your first few years of job.
How Much Money Do You Really Need To Live A Good Life ?
You need atleast Rs. 30,000 a month to live a decent life in India (this includes rent of Rs. 10,000, food expenses, internet, watching movies etc.). But this is for a single person. If you are a parent you need to earn atleast Rs. 60,000 a month (assuming your partner does not work).
Assuming you get 6% from fixed deposits in bank, you need to have a FD of Rs. 50 lakh-60 lakh. This will give you Rs. 3L-3.6L every year(the return from fixed deposit is taxable), which is like Rs. 30,000 a month. Through mutual fund you can make atleast 8%-50% every year which means you will only need Rs. 40 lakhs. Now of-course a beginner cannot just save that kind of money. So you must learn to grow your savings through stock market investments or find another source of income.
How To Make Money To Live On Returns
You can do the calculations for savings and investments yourself. Take a look at following example : You are 23 yrs old and making Rs. 25,000 a month. If you invest Rs. 3000 a month in mutual fund which gives 15% return every year, then you will have Rs. 40 lakhs after 20 years (by the time you turn 43). If you invest Rs. 5,000 a month then you will have Rs. 70 Lakhs after 20 years. If your salary increases, you can save more which means more money in your investments and you will have a good amount of money within 20 years.
If you invest in stock market and can get 30% return then with Rs. 3,000 a month you will have Rs. 60 lakhs within 14 years. With Rs. 5,000 a month you will have Rs. 60 lakhs within 12 years.
So through stock market you can turn a monthly investment of Rs. 5,000 a month into a sizable sum of Rs. 60 lakhs within 12 years. By the time you are 35 you will have the required sum of Rs. 60 lakhs. You can ofcourse keep growing it or use to generate monthly income for you. You also need to understand that 30% return year on year is no easy task. It’s not that difficult too but it is challenging.
There are some other things that you can consider to earn extra money :
1) Freelancing : If you are skilled with something then you can sign-up on sites such as Freelancer, Upwork etc. and complete some tasks for which you will be paid. If you think the pay is measly then let me tell you there are people who earn Rs. 30,000 a month just from freelancing. Not everyone can do that, especially if you already have a job but then again you could make Rs. 10,000 a month and invest that. You can do the maths about growth yourself.
2) Blogging / Vlogging : You can write a blog (like this one) or make videos for viewers. Again a difficult job to do but can be done and thousands of people do it. A famous blogger in India (Harsh Agrawal from shoutmeloud.com) makes roughly Rs. 10 Lakhs a month from blogging. There are other famous youtubers too. Of-course not everyone can reach such heights but it is worth a shot especially because of low cost entry. You only need Rs. 4000 a year to maintain a blog.
3) Second Job : If you have time in your hands then you can always look for a part time job. You will have to work for maybe 3-4 hrs. a day, and can make Rs. 5,000-Rs. 8000 a month.
All the above income methods don’t really sound much when you only get Rs. 5,000 a month. But when you do the maths for next 6-8 years and invest that money, they you are able to make Rs. 30 lakhs before you turn 30. This is why I mentioned extra jobs.
A life on return is very different from a traditional 9-5 job. Maybe you won’t be getting Rs. 70,000 a month, but only Rs. 30,000 a month from your savings. But you are not doing anything. You are literally sitting in your home and doing nothing while the bank or the fund house is depositing money in your bank account. And this is assuming you retire early or quit your job for few months to just relax. If you continue with your job then you will be getting money from two sources which is a good thing. You can go on a world tour and not have to worry much about your savings or other expenses.
Stock Market Can Help You Plan Your Retirement
What Exactly Is Retirement ?
I know most people know the answer to the question above – retirement means doing nothing. But the real answer is doing nothing and still getting paid (or maintaining a decent life quality). Of-course if you have a government job then you don’t need to worry much because you will be getting pension. Of course you will still have to think about your future generation but you are in a better position than a person working for private firms.
A person working in a private company does have employee funds and all but they do need a source of income. Once those funds are gone, they don’t have anything to rely upon. Hence both these groups of people do need to analyse their situation, do some calculations and then plan their retirement.
The calculation part is little challenging because there too many variables that you need to look for :
1) Your own healthcare (insurance etc.)
2) Life insurance (in case something happens to you, your family gets some help)
3) House rents and food (or buying your own home)
4) Purchasing a vehicle (2-wheeler or a 4-wheeler)
5) Childcare (school or college education, healthcare etc.)
6) Family Support or Miscellaneous Expenses
So you need to take care of almost all the above things and manage them with whatever savings you have or pension that you receive.
And then there is the inflation part. Inflation means things getting costlier every year. So your house rent, medical bills, food bills etc. will get costlier year after year from now. You might need a basic income of Rs. 50,000 a month to support yourself and maybe extra Rs. 50,000 to support a family of 4.
First Stage Of Calculation – How Much Money Do You Need ?
So taking all these things into consideration you need to have an income source of Rs. 80,000-Rs. 1 lakh from now.
Now assuming you can manage 10% return through a form of investment (fixed deposit, mutual funds or stocks) you will need a sum of Rs. 1 crore to make Rs. 10 lakhs a month. Of course you will have to pay taxes too, so you will need a sum of Rs. 1.5 crore to retire with a good source of money.
Remember that while you receive that fixed income of Rs. 80,000 a month (after paying taxes and all), that sum of Rs. 1.5 crore will remain invested. So you will have a saving of Rs. 1.5 crore and receive a monthly income of Rs. 80,000 from it (I say from it, but don”t think that your invested amount will decrease by Rs. 80,000 a month).
Once you reach the end of your life, you can give this saving of Rs. 1.5 crore to your kids who can use that money.
Second Stage Of Calculation – How To Save The Required Amount
You need to do some calculations on saving your money and investing them through mutual funds or stocks if you want to have Rs. 1.5 crore by the time you retire. Let’s assume you are 25 years old and are earning Rs. 25,000 a month. You have atleast 20 years to retire so you need to build a sum of Rs. 1.5 crores within 20 years.
Assuming you manage 15% year on year growth you will have to invest Rs. 10,000 a month to have Rs. 1.5 crores after 20 years.
If you want to retire early then you will either have to earn more, or save and invest more or manage higher return rates. Because at 20% return rate you will have Rs. 2.6 Crores after same period of 20 years. Besides you need to remember that you can invest more when you get increments, bonus, promotions etc.Important tip : The sooner you start investing, the better your future will be because you will have more money.
Investment Can Make You More Mindful
When you put your money in market and see it grow, it changes you – for good (until you become greedy and make bad decisions in life or in market). Investment can make you thinking.
Thinking is like art, cannot be explained in words. There are many variables involved in the world of investing that you have to think about, and this makes you a thinker. You become more mindful and make better decisions.
Specially when you build a portfolio of stocks. Let me demonstrate how it works :
Let’s say you want to invest Rs. 1 lakh in the equity market (stock market). 30,000 in mutual funds and rest directly in stocks.
So you choose 2 large cap funds (more on them later on this blog) and 10 stocks from Banking, Auto, Cement, Infrastructure, IT, Paints and Plantation (tea and coffee ) sector. Let’s assume your final list is something like this :
2) HDFC Bank
3) IndusInd Bank
4) Maruti Suzuki
5) Hero Motocorp
6) ACC Cement
8) Adani Ports
9) Asian Paints
10) Tata Global Beverages
Now that you have invested your money into the above companies, you will go through emotional turbulence (something that you need to control). But there are some patterns like all stocks going up will make you feel better, while your stocks going down will make you feel bad. Now everyone wants to know the reason behind stock movements and starts reading financial papers or watching stock market news.
A good news like company getting government orders, reducing debts, expanding more etc. and bad news like company losing orders, collapsing under debt, losing to innovation etc. affects the person’s mindset. He starts analyzing the effect of each and every news item. Will this hurt my portfolio or help it, should I add more companies, should I remove some companies, should I exit from the market etc.
You then start connecting the dots and every news item with the stock market. For eg: political elections aren’t important for you but should the government at center change, the market could head south. Now this affects you and become nervous about the same thing that you used to ignore till now. It’s the same pattern with other news item : banks writing off farmer debt (means loss for the banking sector), oil companies catching fire (operational loss for such companies), cost of oil going up (again oil companies will get affected), rupee value going down (oil companies and IT companies or any export oriented company gets affected) and so on.
Your whole perspective about your country and the world starts changing, you become more mindful and it also affects your decisions. This is of-course a good change. You become a thinker and such people usually live a better quality life.
All of a sudden you realize that if you had invested Rs. 10,000 in a company 6 years back you would be sitting on Rs. 4-5 lakhs right now. You cut back on unnecessary expenses and start saving more money. You think of losses in terms of compounded loss (you don’t lose Rs. 10,000, you lose future value of Rs. 2 lakhs) and again you want to perform better, save and invest more for a better life. You can also teach your next generation the concept of saving and investing and help them start investing early. That way you will help them live a better life by retiring early or having multiple sources of income.Important tip : Money can make people think.