Zebu blog

Tag: Compound Growth

  • The Best Lessons From “The Psychology Of Money” – Part 2

    The power of compounding is surprising

    Making versus saving money “To make money, you have to take risks, have faith, and stand up for yourself. But taking risks needs to be stopped if money is to be kept. It requires humility and the fear that everything you’ve worked for could be taken away from you just as quickly. You can’t always count on repeating past success, so you have to be thrifty and realise that at least some of what you’ve made is due to luck.

    Money management is different from money management. To make money, you have to take risks, work hard, and keep a positive attitude. Keeping money is a different skill. It requires you to take less risk, not be greedy, and remember that things could be taken away from you at any time.

    Money is not the enemy

    A plan is only useful if it can stand up to the real world. The truth is that everyone has a future that is full of unknowns.

    If you’re still young and have more income than expenses, the best way to get the most out of your long-term investments is to put most of your money into a diversified portfolio of low-cost index funds. Cash loses value over time, so it’s not smart to keep more than a small amount of your net worth in cash. Instead, you should invest in assets like stocks, which have historically grown at a rate of 10-11% per year.

    Even though it might seem appealing to invest in ways that will give you the best returns, these ideas often don’t take your personality into account. Think about having 95% of your money in stocks and bonds and only 5% in cash. The market falls 20 to 25%. Having such a small amount of cash on hand may make you more likely to sell some of your stocks in a panic when the market goes down, depending on how that drop makes you feel. And if you sell in a panic, you can lose out on a lot more money than if you kept a bigger part of your portfolio in cash and didn’t sell because you felt safer.

    Spreadsheets are not like people!

    Even though the models say you should only keep 1% to 5% of your assets in cash, you may want to keep 10% to 20% to protect yourself from having a bad attitude when bad things happen. It can also be the best choice for your portfolio if having more cash on hand keeps you from making one big mistake.

    Long Tail

    In finance, a small number of events can be responsible for most of the outcomes. This is where long tails, or the ends of a distribution of outcomes, have a big effect.

    Most of the time, your choices about investing don’t matter. What happens depends on the choices you make on a few days when something important happens, like a severe downturn, a frothy market, a speculative bubble, etc. Warren Buffet has held between 400 and 500 stocks over the course of his life. Most of his money came from just 10 of them.

    Highest level of wealth

    Having the freedom to do what you want, when you want, with who you want, and for as long as you want is very valuable. This is the best return that money can buy.

    Being more flexible and in charge of your own time is much more useful than staying up late or making risky bets that keep you from sleeping just to boost your returns by 2%.

  • The Best Lessons From “The Psychology Of Money” – Part 1

    In The Psychology of Money, Morgan Housel shows you how to get along better with money and make better financial decisions. He doesn’t try to make people seem like machines that can maximise their return on investment. Instead, he shows how psychology can both help and hurt you.

    Main Points

    The real world isn’t a theory – the problem is that studying or having an open mind can’t really make us feel the same way that fear and uncertainty do.

    We’re not like mathematical equations. Reading about historical events like stock market crashes or how stocks have gone up and to the right over time can teach us a lot, but it’s not the same as actually going through them. So be careful. You might think you can hold on to your stocks during a 30% drop in the market because you know that only fools sell at the bottom. However, you won’t know what to do until you actually go through a drop of that size.

    Risk and reward

    It’s easy to think that the quality of your decisions and actions is the only thing that affects your finances, but that’s not always the case. You can make smart decisions that lead to bad financial results. You could also make bad decisions that turn out to be good for your finances. You have to think about how chance and risk will play a role.

    To make it less likely that people will stress how much individual effort affects results:

    Be careful of the people you both look up to and look down on. Those at the top may have gotten lucky, while those at the bottom may have lost money because they took more risks.

    Pay less attention to individual people and more attention to larger trends. It’s hard to copy what successful people have done, but you might be able to join larger patterns.

    But what’s more important is that even if we agree that luck plays a role in success, we shouldn’t be too hard on ourselves when we fail because risk also plays a role.

    Be kind to yourself when you make a mistake or find yourself in a dangerous situation. Since the world is unpredictable, if something goes wrong, it might not even be your fault.

    What Buffett Says

    According to legendary investor Warren Buffet, there’s no reason to put our needs and resources at risk for something you don’t need.

    It’s easy to make a goalpost that can be moved. When you reach one of your goals, you move on to the next one. The cycle will never stop. Often, you do this because you’re comparing yourself to others, and most of the time, you’re comparing yourself to someone higher up on the ladder.

    Someone else will always have more money than you do. Not a problem. It’s fine to look for ways to make more money, but don’t risk what you already have to get something you don’t need.

    More lessons from the book follow on the next article.

  • If You Are A Student, Here’s Why You Should Invest Today

    Indians are renowned for their sophisticated financial reasoning, yet there is a severe lack of information and investment appetite when it comes to understanding investing and financial diversification. Young professionals find it challenging to file their taxes, learn about the equity markets, or engage in trading and investing since schools and colleges did not place enough focus on teaching pupils about these significant life subjects.

    Less than 10% of Indian families participate in alternative assets like mutual funds or equities, the bulk of which choose to preserve their money in bank accounts. When it comes to stock trading and investing, gold, post office savings, and real estate are favoured.

    While there is nothing wrong with safer investment options like Savings and Fixed Deposits, that money’s value could eventually decline due to inflation. This highlights the necessity of early education in stock trading and investing, educating kids about the ideas of compounding, the stock market, portfolio diversification, and much more that may make them more financially literate as adults.

    College students have an advantage over other adults who begin investing in their 30s since they are youthful, active, and have the passage of time on their side.

    Consider a capital of Rs100. It has the potential to earn 10% a year in returns when invested in Nifty 50 stocks. Rs 110 will be the total sum for the first year, Rs 121 for the following year, and Rs. 133 for the following year.

    For college students, the power of compounding really shines since it gives their money more time to grow.

    Early investment also enables them to take measured risks without worrying about how they would damage their families and livelihoods. In reality, it provides insight into stock evaluation and investment dangers, enabling customers to evaluate current share prices and watch their rise and fall in order to make wise decisions.

    Recently, the Sensex and Nifty both reached their all-time highs when it was thought that Indian shares were valued at their highest ever levels. Although the pandemic has led to a weak economy, negative growth, and the lowest GDP ever, the stock market is shattering all previous records. People who lack understanding tend to label anything as “gambling” or unrelated to reality. However, with the right information and its understanding, you can build generational wealth in a few decades.

    Since students are beginners in investing, even a little investment if done properly, may generate significant returns over time and serve as a reliable source of income. It is a fantastic chance for students or recent graduates to generate enormous returns and support their families. It is crucial to have an accurate understanding of the market before starting to invest, even if it is for a small capital.

    Here’s a quick tip for student investors:

    Invest in businesses or brands that you use frequently, in products that you require frequently and that are in great demand. By doing this, you boost your chances of getting a positive return because you are a consumer of the brand and are assisting them in growing sales and making profits, which will eventually increase the brand’s stock value and benefit you.

    It goes without saying that investing is a wise approach to increasing money. However, investing all of your funds in the market out of a desire to make money is not a good idea. Trade wisely by becoming knowledgeable about the financial market. Being an early investor, especially during the market’s all-time high, should enable you to take advantage of the benefits and see your net worth increase.

    What investing choices are available to college students?

    The most fundamental type of financial investment, a savings account enables you to safely deposit money while receiving interest. On certain occasions, the real rate of return obtained from an investment, also known as the annual percentage yield, exceeds 0.50%.

    Fixed Deposits: These types of accounts are comparable to savings accounts but have a fixed term and a higher fixed interest rate.

    Stocks: By acquiring a stock, you are effectively buying a share of a certain corporation. Depending on how much stock they possess, the shareholder is entitled to a piece of the corporation’s assets and income.

    Mutual funds: Mutual funds pool the money contributed by several investors and invest it in stocks, bonds, and other assets. The “portfolio” refers to the particular stocks, bonds, and assets that the funds are invested in.

    Exchange Traded Funds (ETFs): While ETFs and mutual funds both consist of a group of assets, ETFs are specifically created to track a certain index, industry, commodity, or another set of assets. As a result, you may have an ETF that tracks real estate or corporate bonds. You should invest in low-cost, well-diversified ETFs as a college student since they provide you access to hundreds of stocks without requiring you to individually examine each one.

    Index Funds: An index fund is a similar thing to a collection of assets, but it is tied to an index, such as the Nifty 50 or the Sensex. One benefit of index funds is that they often have cheaper costs as no professional takes the time to choose stocks or bonds for the portfolio.

    Bonds: A bond is, in the simplest sense, a loan from an investor to a borrower, such as a particular corporation. Bonds are an essential component of a balanced portfolio because they may lessen the impact of a decline in the stock market.

    As you can see, there are several options for students to choose from. However, they require a significant amount of knowledge to get started. This is where Zebu School comes in. We have market experts who teach about the basics of the share market and help investors make the right financial decisions. Our courses are simple and pocket-friendly and can help you make the most out of the share market. To start learning today, please get in touch with us now.