We just don’t get the big picture. The more I talk to people about money, the clearer it is that we compartmentalize our money lives so tightly that we totally fail to see the big picture. Every conversation with whoever I meet now swings around to money. People share their stories, their worries and their fears. They share the power equation within home that money causes. While housewives have always shared stories of the skewed power money equation, working women have equally scary stories. That’s because those who earn more than men have a triple burden—to manage work, home and the male ego. But most often the usual story is the fuzziness about how we think about money and how we simply are not able to see the whole money story.
The year 2018 taught us that buying last year’s winner is not a good idea. Several years of good returns, a successful ‘mutual funds sahi hai’ campaign and the spread of the SIP culture brought plenty of first-time investors into equity mutual funds. The SIP book grew 50% over calendar year 2017 and another 20% in 2018 despite choppy markets. New investors rushed in and some of them went straight to the winners of 2017—the mid- and small-cap mutual funds. Some of these funds had given returns of over 40% in 2017 inducing investors to throw caution to the winds and rush to the risky part of the equity market. Investors made two errors. One, bought last year’s winner in 2018. Two, allocated all their equity investment to the past winner.
n this episode of Money With Monika, personal finance expert Monika Halan talks about the benefits of choosing a mutual fund over direct stock investments. Investing in mutual funds is far safer than putting all your money in one stock, she says, as the chances of failure of an entire basket of stocks are next to none. In short, hedge your bets for maximum returns at minimal risk. Monika Halan is consulting editor of Mint and author of ‘Let’s Talk Money’.
The year 2018 was when we all learnt some hard money lessons. We learnt that stock prices that go up very fast can zoom down too. We learnt that debt funds are not fixed deposits and returns are not assured. We learnt that real estate revivals can take years and years, and 2018 was not that year. We learnt that governments can change the rules of the game around taxation making it better or worse for you. 2018 was the year in which we learnt the meaning of risk.
There were four kinds of risks that we took home this year. First, the risk of chasing high returns. Many of you may be holding a portfolio that has mostly small- and mid-cap funds. That’s because you saw the 40% plus one year returns in 2017 and went all out to harvest that return. I can remember plenty of conversations with first-time mutual fund investors who had jumped right into the deep end with all their money in the risky part of the market. Warnings would fall on deaf years as the return chasers thought the SIP was their safety belt. 2018 saw a bloodbath in both the mid- and small-cap categories. Investors are staring at an average loss of 12% in mid-caps and around 18% in small-caps. The worst small-cap funds have lost almost a third of the invested value—or ₹1 lakh has become ₹70,000. If you had your entire money in small- and mid-caps, your portfolio is bleeding. But if you had a mix of large-cap, multi-cap and ELSS funds, the red will be less stark. Just buying last year’s winner is not a good strategy for mutual fund investors. 2018 told us that. Understand what a ‘diversified portfolio’ means and implement it in your money box.
There are two kinds of parents I meet. One kind talks about their children’s spending habits, the peer pressure-linked expenses, the lifestyle costs. The other kind talks about how difficult it is to get their children to spend, how they actually have to set a minimum limit to their spending when they become young adults and how reluctant the children are to accept financial help after a certain age. What’s going on? How does one set of children grow up to be financially prudent and the other set will take hard knocks in their lives before they learn the importance of respecting money and what it can buy? The short answer is parenting. It’s what we do and not what we say as parents. Children watch keenly what we as parents do and say. They watch our behaviour and words. And at one point they begin to see the contradictions in what we say and what we do. That’s the time that most teenage rebellion sets in. And that’s the time money related issues too become another point of conflict.
You may have already got this very enticing WhatsApp or email. It goes like this: “Initiative Q is building a new payment network and giving away significant sums of their future currency to early adopters. It is by invite only and I have a limited number of invites. Click this link to sign up…Initiative Q will succeed only if many people join. The more people invite their friends, the greater the likelihood of reaching the goal of each Q being worth around one US dollar.” You can see the site here: initiativeq.com.
What’s the deal? This start-up aims to replace the current payment systems (currency, credit cards, cash, wire transfers) because they are clunky and costly. There are newer technologies ready to replace them, says the material on the site, but this does not happen because not enough people switch to the new currencies. If a platform was created that enough people in the world on-boarded, then $20 trillion of transactions a year will flow on this new payment system. “Initiative Q is reserving this Q currency for people who join today—the earlier you join, the more Q you can reserve”. And then the killer line: “Think of this as getting free bitcoin seven years ago.”