Is your spouse your partner?

For most Indian men and women, financial planning often feels like a solo endeavour. The men, for whatever reasons often lead this. I see the role of women growing in recent years but financial planning is still a men led activity for most Indian families. I have written a post about women in financial planning a few years ago which you can read here.  Men pore over spreadsheets late at night, consult apps for investment tips, discuss with colleagues etc. as we work towards our retirement.  But here's a sobering truth: if you're married, your finances aren't just yours. They're belong to the family. Yet, too many couples treat money like a forbidden topic, with one partner—often the man—calling the shots while the other nods along or tunes out entirely. This isn't just inefficient; it's a recipe for failure

Make your spouse a true partner in the financial planning process. Not an onlooker. Not a rubber stamp, but an active collaborator. And yes, this means discussing every decision, even if they're "not interested." Spousal partnership is non-negotiable

Financial planning must reflect the partnership that marriage is supposed to be. Think of it as co-piloting a plane: one person might handle the controls, but the other monitors instruments, navigates weather, and shares the flight plan. A joint approach to managing finances also ensures a deep understanding of the situation at all times, especially when the financial journey becomes tumultuous. A joint decision making process allows both sides to put priorities on the table. The man may have certain priorities like planning for retirement. The woman may have more urgent priorities like the renovation of the house. And frankly any one can be argued to be more important than the other. However, here is the point. Financial planning needs to put all priorities or objectives on the table.  Discuss all priorities from every angle. This will sometimes lead to conflict. Nevertheless, despite the short term disagreements, the decisions need to be made jointly. It allows a frank discussion around the immediate and longer-term objectives. Not just for the purpose of taking the right decisions.  Research shows that managing finances jointly also means higher satisfaction in the relationship

Most men take it as their sole responsibility to manage the finances and to provide for the family. Often men operate like self-appointed CEOs of the family. Often, the investments are completely out of sight or awareness of the spouse. And what happens where the markets tank? Or the man passes away suddenly? If you are not involving the spouse in the planning process, you are putting the family in the way of risk and challenges. Unilateral decisions also cause suspicion and erosion of trust. 

Every decision, from refinancing the mortgage to choosing a mutual fund strategy, ripples through your shared ecosystem. Discussing them isn't micromanaging; it's safeguarding the fortress you build together. 

The risk with ROCE focussed investing

As an investor, understanding the profitability of a business is a key measure to track. We need to know if the business is profitable and preferably measure it over a longer period of time. It is in fact a critical metric in the analysis of a company, providing insights into its financial performance from an investment perspective.

ROCE or Return on Capital Employed is defined as earnings before interest and tax (EBIT) divided by the value of the capital employed. It essentially represents the value of the capital (typically total assets minus current liabilities) that the company uses to generate the EBIT. It quantifies how adeptly a business is deploying its capital to generate profits. A higher ROCE signals a machine firing on all cylinders, signifying a more efficient use of capital to generate profits. This makes ROCE an indispensable filter to screen out mediocre or inefficient companies.

While this is the best point to filter out companies, it can often be a blind spot in the process. It can be a myopic trap. It is excellent for validating past performance but woefully inadequate for spotting the big winners of the future. Screening companies based on a certain ROCE score also means weeding out some potential winners of the future. Especially for new-age businesses that require a lot of upfront capital investment in order to build scale and momentum. And that brings us to the key point: will over-fixation on ROCE take our eye off the multi-baggers of the future? ROCE is an excellent metric when analyzing mature industries or categories. But in high-growth new-age businesses, there could be an extended period of low ROCE followed by exponential growth. It is during this period that investors face a challenge when using ROCE as a key metric.

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Investing is not about rewarding past efficiency; it is about identifying and getting into the game early, thus capturing future value creation. Estimating the future performance of a company requires a forward-looking lens that ROCE just cannot provide. ROCE tells us how well the company has done in the past, but estimating the future is the crystal ball that needs to inform us about how well the company will do in the future. Despite an excellent ROCE, a forward-looking view can identify future disruptions to the industry or company. It is often subjective, based on several what-if scenarios and one’s view of the possible outcomes in each scenario.

In summary, over-fixation with ROCE could blind us to multi-baggers. But ditching it also brings its own risks. It makes sense to use ROCE as a baseline filter in the case of established industries. However, in the case of new-age businesses, using ROCE may be dangerous. New-age businesses need to be viewed differently, with a higher emphasis on future scenarios and assumptions. 

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Luck versus skill

In the world of investing, stories abound of overnight millionaires. Take the case of Jiten, who struck gold with his investment in Bharti Airtel. Over the last five years, the share has grown 6x, giving Jiten a sense of expertise in picking shares. It may well be skill, but all too often, it is luck disguised as skill. That Jiten did badly with some other investments is unlikely to change his opinion about his investing skills. Often, the wins are not from a secret superpower. They are just luck. And when we mix up luck with skill, the consequences can be dangerous.

The investing world is full of such examples where random luck often masquerades as expertise. This confusion doesn't just lead to overconfidence; it sows the seeds of ruin. Understanding why this happens requires peeling back the layers of psychology, probability, and market dynamics. There are blurred lines between fortune and finesse, between mere luck and skill.

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I am not downplaying the role and importance of skill. The ability to read the numbers, understand the strengths and weaknesses of a business, and make assumptions about the future of the business is an important one. I am a fan of fundamental analysis; a business needs to have strong performance data to back it up. A growing business with a strong ROCE is likely to perform well over the years. But the share performance itself is driven by several other factors, including the narratives managed by the participants. The performance of a share may, despite the robust performance of the business, be guided by sentiment and general market conditions. But luck? That’s the wild card. So, was the last success down to skill or luck? It is often difficult to tell them apart. Markets move fast, and one lucky call can look like genius.

When a decision leads us to strong gains, our minds play games with us, making us feel awesome. We hunt for proof we were right. And this leads to overconfidence. Overconfidence is not just cocky—it is dangerous. It makes us make bigger decisions. The thrill of being right with the next investment decision is heady. And it does not stop bad decisions. In fact, we start taking many bad decisions.

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Luck is part of the game. The dangerous part? Thinking that the luck you had was all due to your skill. We all try to interpret data; we guess. Sometimes we get it right, and often we get it wrong. And it's very difficult to know if it was all down to skill or just luck.

So the next time you feel like the next Warren Buffett, take a pause. Was it really your brilliance, or just one of the many unpredictable market moves? We will never know. 

Still keeping up with the Kumars?

Do you feel the pressure to spend money and buy things just to keep up with your friends or neighbors? If so, you’re not alone. This urge, often referred to as "keeping up with the Joneses," can make saving and investing incredibly challenging. Managing money is deeply psychological—how you think about money and the way you use it profoundly influences your financial journey and ultimately to your financial freedom.

One of the most critical habits for financial success is saving. Over time, this single habit can become the most profitable and life-altering practice you adopt. However, it often clashes with the subtle yet powerful temptation to match the lifestyle of those around you. In the Indian context, this might mean trying to keep up with the Agarwals or Kumars next door. Our spending habits are quietly shaped by this unspoken need to compete, often leading us to purchase items that don’t truly enhance our happiness but simply mirror what others have.

This societal pressure is a significant stumbling block to building financial success. Each time you buy something just because your neighbor has it—a new car, a bigger TV, or the latest gadget—you’re diverting resources away from your financial freedom. These purchases often stem from comparison rather than necessity or joy, trapping you in a cycle of spending that undermines your ability to save and invest effectively.

The psychology behind this behavior is rooted in social comparison theory, which suggests that people evaluate their own worth based on how they stack up against others. In a world amplified by social media, where curated lifestyles are constantly on display, the urge to "keep up" is stronger than ever. The Kumars’ new vacation photos or the Agarwals’ renovated home can subtly nudge you toward spending beyond your means, even if you don’t consciously intend to compete.

Breaking free from this cycle requires a shift in mindset. First, redefine what happiness really means to you. Is it owning the same things as your neighbors, or is it the security and freedom that come from a robust savings and investment portfolio? One practical step is to create a budget that aligns with your values and goals, not someone else’s lifestyle. Track your expenses to identify areas where you’re spending to impress rather than to fulfil a genuine need. For example, do you need the latest Iphone 17 Pro, or is your current one sufficient? By questioning each purchase, you can redirect funds toward savings or investments that compound over time, creating a snowball effect of wealth.

Another strategy is to limit exposure to triggers that fuel comparison. This might mean spending less time on social media or politely declining conversations about material possessions. Surround yourself with people who share your financial values, such as those who prioritize saving and investing over conspicuous consumption. Their influence can reinforce your commitment to financial discipline. I think this is one of the most powerful changes that you can make.  Stop spending time with friends who drag you into a lifestyle that is not defined by the budget you have set for yourself.

Ultimately, saving is not just about money—it’s about building a mindset that values your future self over social approval. By resisting the urge to keep up with the Agarwals or Kumars, you take control of your financial destiny. Each rupee saved is a step toward independence, allowing you to live life on your terms, free from the pressure of comparison. Embrace the habit of saving, and let it steer you toward a future of financial security and peace of mind.

The 50:50 approach

Financial decisions often feel daunting, with a myriad of options and no clear "right" choice. Should you pay off your mortgage or invest the funds elsewhere? Should you splurge your bonus on new appliances or channel it into savings? Are index funds the smarter bet, or should you opt for actively managed funds? Life is full of choices, and the world of personal finance is no exception.

The complexity of investment decisions often stems from two factors: limited knowledge and the uncertainty of outcomes. Many individuals feel ill-equipped to make informed choices, intimidated by the stakes and the potential for significant, long-lasting consequences. So, how can one navigate this uncertainty with confidence?

Enter the 50:50 approach—a pragmatic strategy to simplify financial decision-making. Unlike situations where you must choose one option over another (a life partner, a car color, or even an ice cream flavor), financial decisions don’t always demand an all-or-nothing commitment. If you have to choose between 2 individuals as a life partner, you’d have no option but to choose one fo the 2. Instead of agonizing over whether to invest in index funds or actively managed funds, why not allocate 50% to each? Should you use an unexpected windfall to pay down your mortgage or invest it? Why not split it evenly? Should your bonus go toward equities or a fixed deposit? A 50:50 split can work here, too. Or maybe 60:40 or 70:30?

This approach draws inspiration from the wisdom of investing legend John "Jack" Bogle, who famously said, “Nobody knows nothing.” In essence, no one can predict with certainty which investment will outperform in the future. By diversifying your choices with a 50:50 split, you hedge against uncertainty, balancing risk and opportunity without the pressure of picking a single path.

The beauty of the 50:50 approach lies in its simplicity and flexibility. It empowers you to act decisively without the fear of making the "wrong" choice. By embracing both options, you create a balanced strategy that mitigates risk while keeping you engaged in the financial markets. Whether you’re a seasoned investor or just starting out, the 50:50 approach offers a practical, stress-free way to move forward.

What are your thoughts on this strategy? Could splitting your financial decisions 50:50 bring clarity to your investment journey?

Time waits for no one | Start now!

The journey to financial stability often begins with the daunting task of saving and investing. For many, the initial start can be scrary due to two primary reasons: there is a perception that investing is too complicated and the belief that you will start later as cannot afford to save.  However, overcoming these hurdles is crucial, as time in the market plays a pivotal role in wealth building through the power of compounding. Delaying the process can significantly diminish long-term financial outcomes, making early action essential.

TThe first barrier—feeling nervous about one's expertise —stems from the complexity often associated with investing. Most peope are familiar with bank fixed deposits and gold. But beyond that the investing process can be duanting. One can feel a bit scared with jargon, charts, and endless options. Which is why people feel that such decisions are best left to experts. Many beginners fear making mistakes, such as choosing the wrong stocks or losing money due to market volatility. The recent spurt in financial scams has further complicated the matters. This intimidation often leads to paralysis, where individuals avoid investing altogether, waiting for the "perfect" moment when they feel sufficiently knowledgeable. However, this hesitation overlooks a key truth: investing is a skill honed through experience. Starting with small, manageable steps is critical. Rest assured that if you start without taking too many risks, you will learn along the way.  Hopefully without losing much.  The reality is that you don’t need to be a financial guru to begin; you simply need to start.

The second barrier is the misconception that there’s plenty of time to save and invest later. I often find young people have a philosophical view of things. Many prefer to prioritize immedite experiences like travel, dining, or lifestyle purchases—over long-term financial goals, assuming they can catch up in the future. This mindset underestimates the exponential benefits of starting early. Time is the most critical factor in the compounding process, where earnings gcan grow rapidly over the first ten or fifteen years. Watch this video about the magic of compounding.

Time will always be your friend.  Delaying investment not only shortens the compounding period but also increases the pressure to save larger amounts later to achieve the same goals. If you sit down and calculated the amount of funds you will require at the time of retirement, accounting for inflation and importantly, to the impact of lifestyle creep, you will realise the value of starting early. 

In conclusion, the barriers to saving and investing—lack of knowledge and the temptation to delay—are surmountable. Investing doesn’t require a lot of  expertise; it demands action. Start now. By starting early, even with small amounts, individuals harness the power of compounding, making time their greatest ally. The process need not be complicated—simple, consistent investments can pave the way to financial security. 

The key is to begin now, as every day delayed is an opportunity lost.The first barrier—feeling nervous about one's expertise —stems from the complexity The journey to financial stability often begins with the daunting task of saving and investing. For many, the initial start can be scrary due to two primary reasons: there is a perception that investing is too complicated and the belief that you will start later as cannot afford to save.  However, overcoming these hurdles is crucial, as time in the market plays a pivotal role in wealth building through the power of compounding. Delaying the process can significantly diminish long-term financial outcomes, making early action essential.

The first barrier—feeling nervous about one's expertise —stems from the complexity often associated with investing. Most peope are familiar with bank fixed deposits and gold. But beyond that the investing process can be duanting. One can feel a bit scared with jargon, charts, and endless options. Which is why people feel that such decisions are best left to experts. Many beginners fear making mistakes, such as choosing the wrong stocks or losing money due to market volatility. The recent spurt in financial scams has further complicated the matters. This intimidation often leads to paralysis, where individuals avoid investing altogether, waiting for the "perfect" moment when they feel sufficiently knowledgeable. However, this hesitation overlooks a key truth: investing is a skill honed through experience. Starting with small, manageable steps is critical. Rest assured that if you start without taking too many risks, you will learn along the way.  Hopefully without losing much.  The reality is that you don’t need to be a financial guru to begin; you simply need to start.

The second barrier is the misconception that there’s plenty of time to save and invest later. I often find young people have a philosophical view of things. Many prefer to prioritize immedite experiences like travel, dining, or lifestyle purchases—over long-term financial goals, assuming they can catch up in the future. This mindset underestimates the exponential benefits of starting early. Time is the most critical factor in the compounding process, where earnings gcan grow rapidly over the first ten or fifteen years. Watch this video about the magic of compounding.

Time will always be your friend.  Delaying investment not only shortens the compounding period but also increases the pressure to save larger amounts later to achieve the same goals. If you sit down and calculated the amount of funds you will require at the time of retirement, accounting for inflation and importantly, to the impact of lifestyle creep, you will realise the value of starting early. 

In conclusion, the barriers to saving and investing—lack of knowledge and the temptation to delay—are surmountable. Investing doesn’t require a lot of  expertise; it demands action. Start now. By starting early, even with small amounts, individuals harness the power of compounding, making time their greatest ally. The process need not be complicated—simple, consistent investments can pave the way to financial security. 

The key is to begin now, as every day delayed is an opportunity lost.often associated with investing. Most peope are familiar with bank fixed deposits and gold. But beyond that the investing process can be duanting. One can feel a bit scared with jargon, charts, and endless options. Which is why people feel that such decisions are best left to experts. Many beginners fear making mistakes, such as choosing the wrong stocks or losing money due to market volatility. The recent spurt in financial scams has further complicated the matters. This intimidation often leads to paralysis, where individuals avoid investing altogether, waiting for the "perfect" moment when they feel sufficiently knowledgeable. However, this hesitation overlooks a key truth: investing is a skill honed through experience. Starting with small, manageable steps is critical. Rest assured that if you start without taking too many risks, you will learn along the way.  Hopefully without losing much.  The reality is that you don’t need to be a financial guru to begin; you simply need to start.

The second barrier is the misconception that there’s plenty of time to save and invest later. I often find young people have a philosophical view of things. Many prefer to prioritize immedite experiences like travel, dining, or lifestyle purchases—over long-term financial goals, assuming they can catch up in the future. This mindset underestimates the exponential benefits of starting early. Time is the most critical factor in the compounding process, where earnings gcan grow rapidly over the first ten or fifteen years. Watch this video about the magic of compounding.

Time will always be your friend.  Delaying investment not only shortens the compounding period but also increases the pressure to save larger amounts later to achieve the same goals. If you sit down and calculated the amount of funds you will require at the time of retirement, accounting for inflation and importantly, to the impact of lifestyle creep, you will realise the value of starting early. 

In conclusion, the barriers to saving and investing—lack of knowledge and the temptation to delay—are surmountable. Investing doesn’t require a lot of  expertise; it demands action. Start now. By starting early, even with small amounts, individuals harness the power of compounding, making time their greatest ally. The process need not be complicated—simple, consistent investments can pave the way to financial security. 

The key is to begin now, as every day delayed is an opportunity lost.

Winning the race starts with saving

In an era defined by economic uncertainty and rapid change, developing a habit of saving money is not just prudent but essential for financial stability and long-term security. Saving is more than a mere act of setting aside funds; it is a disciplined practice that lays the groundwork for achieving significant life goals. By prioritizing consistent saving, individuals can build a robust financial foundation for the future

Size Matters

The cornerstone of effective saving is consistency. Regularly allocating a portion of income to savings, regardless of the amount is critical. Setting aside even a modest percentage of income each month can accumulate into a substantial fund, providing a buffer against life’s unpredictability. Consistency in saving also aligns with the principle of paying oneself first, a strategy that prioritizes personal financial health before discretionary spending. Over time, this disciplined approach builds a portfolio of sufficient size to support larger financial goals or planning for retirement.

Focusing on building a minimum portfolio size before chasing high returns is a critical aspect of sound financial planning. Rushing to maximize returns without a solid foundation often leads to speculative investments, which carry significant risks. High-return opportunities, such as volatile stocks or unregulated cryptocurrencies, may promise quick gains but can result in substantial losses, particularly for those without the capital to absorb setbacks. By contrast, a conservative approachensures steady growth while safeguarding principal investments. This strategy aligns with the wisdom of gradual wealth accumulation, where the power of compound interest transforms small, regular contributions into significant wealth over time.

The risk of over ambition

The pursuit of maximizing returns often introduces unnecessary risks that can undermine the process. A disciplined saver, however, is better positioned to avoid such pitfalls by maintaining a balanced portfolio that prioritizes stability over speculative gains. This approach does not preclude investing but advocates for informed, calculated decisions once a sufficient savings base is established.

In conclusion, cultivating a habit of saving money is a fundamental step toward financial empowerment. The value of saving is often overshadowed. By embracing consistency and discipline, individuals can build a minimum portfolio size that serves as a springboard for future opportunities without exposing themselves to undue risks. In a world where financial temptations abound, the ability to save diligently ensures not only security but also the freedom to pursue dreams with confidence.

Yes, You can save and invest

 One regular lament that I hear frequently is that it is not possible to save based on the current income. I often hear that by the time the month is over, all the money is gone. Which is a real struggle for many people.  And yet there are many wasted opportunities to do better.   Managing finances on a low income can be challenging, but with careful planning, it’s possible to stretch every rupee.

Budgeting is a powerful tool that helps prioritize essential expenses, reduce wasteful spending, and build a foundation for future goals. Start by understanding your financial flow. Calculate your total monthly income and expenditure. Next, categorize them into necessities (rent, utilities, food) and non-essentials (entertainment, dining out). A good starting point is to tally the income and expenditure. This clarity reveals spending patterns and areas where adjustments can be made.

Once you have made a list of income and expenses, start noting down the actual spend each time you make a payment. This will include every type of expense, even the idle sambaar that you had today. I know this can be tedious and often irritating but there is a reward at the end. Once you keep records of all the expenses and type of expenses, you will be able to identify areas to reduce discretionary spending. For example, limit dining out, and opt for home-cooked meals. Shop at discount stores or thrift shops for clothing and household items. Small changes, like brewing coffee at home instead of buying it daily, can save hundreds annually.

Food is a major expense, but strategic shopping can lower costs. Plan meals weekly and create a grocery list to avoid impulse buys. Cook in bulk for the entire week and store the daily requirment in a fridge. Buy in bulk for staples like rice or atta, and choose generic brands over name brands. Look for sales, use coupons, and shop at budget-friendly stores. Preparing meals in batches can also save time and reduce the temptation to eat out.

A budget isn’t static. Review it monthly to assess what’s working and what isn’t. Adjust allocations as needed, especially if income or expenses change. Stay flexible but disciplined to maintain control over your finances.

By tracking spending, prioritizing needs, and making small, intentional changes, low-income earners can create a sustainable savings and investments that fosters financial security and peace of mind.

And despite all, if you cannot manage to save 10% to 20% of your current income, you clearly cannot afford your current lifestyle!

Habits make you rich

Investing habits are often more critical than chasing the highest possible returns because they foster consistency, discipline, and long-term success in wealth-building. While high returns can seem appealing, they are typically accompanied by higher risks and are often unsustainable over time. In contrast, strong investing habits—such as regular SIPs, diversification, and a focus on long-term goals—create a stable foundation that compounds wealth reliably, reduces emotional decision-making, and mitigates risks. Below, I’ll explore why cultivating robust investing habits outweighs the pursuit of maximum returns, covering aspects like consistency, risk management, emotional discipline, and adaptability.

1. Consistency Builds Wealth Through Compounding

One of the most powerful arguments for prioritizing investing habits is the role of consistency in harnessing the power of compounding. Compounding allows your investments to grow exponentially over time as returns generate additional returns. However, this process requires regular contributions and time in the market, which are rooted in disciplined habits.

For example, consider two investors: Investor A chases high returns by sporadically investing large sums in volatile assets, while Investor B invests Rs. 500 monthly in a diversified index fund with an average 11% annual return. Over 30 years, Investor B’s consistent contributions could grow significantly more over investor A even if the returns are modest. Investor A, despite occasionally hitting high returns, is likely to miss out on compounding opportunities due to inconsistent investments or losses from risky bets. The habit of regular investing ensures that you stay in the market, benefiting from its long-term upward trajectory.

Market timing—trying to buy low and sell high—is notoriously difficult, even for professionals. By automating investments, you develop a habit that keeps you invested through market ups and downs, maximizing your exposure to compounding.

2. Risk Management Through Diversification

Another reason habits trump returns is their role in effective risk management. Chasing high returns often leads investors to concentrate their portfolios in a few high-risk assets, such as individual stocks, options trading, or speculative ventures. While these can yield spectacular gains, they also expose investors to significant losses. In contrast, a habitual approach to diversification—spreading investments across asset classes like stocks, FDs (yes I mention FDs), and real estate—reduces risk while still providing solid returns.

The habit of regularly rebalancing your portfolio ensures that your asset allocation aligns with your risk tolerance and goals.

Historical data supports this approach. Diversified portfolios with a mix of stocks and bonds have historically delivered steady returns with lower volatility than concentrated portfolios. By making diversification and rebalancing habitual, you prioritize stability over the allure of outsized returns, protecting your wealth from market downturns.

3. Emotional Discipline and Avoiding Behavioral Pitfalls

Investing is as much a psychological endeavor as it is a financial one. The pursuit of high returns often leads to emotional decision-making, such as panic-selling during market crashes or chasing “hot” investments during bubbles. These behaviors can devastate long-term performance. Strong investing habits, however, promote emotional discipline, helping you avoid common behavioral pitfalls.

For instance, the habit of sticking to a predefined investment plan—such as contributing a fixed percentage of income or ignoring short-term market noise—reduces the influence of fear and greed. During the 2008 financial crisis, investors who sold in panic locked in losses, while those who maintained their regular contributions recovered and benefited from the subsequent bull market.

Another key habit is focusing on what you can control, such as savings rate and asset allocation, rather than obsessing over unpredictable returns. This mindset shift fosters resilience, as you’re less likely to be swayed by market headlines or social media hype. By cultivating habits like reviewing your portfolio quarterly (not daily) or consulting a financial plan before making changes, you build a framework that insulates your decisions from emotional impulses.

4. Long-Term Focus Over Short-Term Gains

Chasing the best returns often involves a short-term mindset, where investors jump from one trendy asset to another, incurring transaction costs and tax liabilities. In contrast, investing habits emphasize a long-term perspective, which aligns with the reality that wealth-building is a marathon, not a sprint.

The habit of setting clear, long-term goals—such as saving for retirement, a child’s education, or financial independence—keeps you grounded. These goals guide your investment choices, encouraging you to select assets that align with your timeline and risk tolerance rather than chasing fleeting opportunities.

5. The Cost of Chasing Returns

Finally, the pursuit of high returns often comes with hidden costs that erode wealth. High-risk investments may involve steep fees, such as those charged by PMS or actively managed portfolios. Frequent trading to capture gains incurs transaction costs and capital gains taxes, further diminishing returns. In contrast, habits like investing in low-cost, diversified funds and minimizing portfolio turnover reduce expenses, allowing more of your money to compound

In summary, investing habits are more important than chasing the best returns because they promote consistency, risk management, emotional discipline, a long-term focus, adaptability, and cost efficiency. While high returns are tempting, they often come with unsustainable risks and behavioral traps that undermine wealth-building. By cultivating habits like regular investing, diversification, and staying informed, you create a robust framework for financial success. These habits leverage the power of compounding, protect against market volatility, and align your actions with your long-term goals. Ultimately, it’s not the investor who hits the occasional six but the one who consistently shows up to the plate who builds lasting wealth.

Market Volatility

 Market volatility can be unnerving. Some of the most seasoned investors with several decades of experience can suddenly start questioning their philosophy and decisions. Even the best are likley to suffer self doubt where the markets go through turmoil; specially after it follows a long period of a bull market. So how does one navigate these times?

First of all remember that since a long time in history, every fall has been followed by the next bull market.  If you back at the historical data of the Nifty 50, you will observe many occassions when the markets have dropped by 15% - 20% only to recover and move to new highs.  Why will it be any different this time? Remember to trust the capitalists!!!

Remember that the markets will eventually recover, often very quickly and sharply. So stay invested.  The turnaround can never be predicted but it will come eventually. Staying out of the market in times of turmoil is often very risky. If you are not invested at this time and the market turns around you will not have the opportunity to be a part of the recovery. Stay invested

The other common situation is investors trying to time the market. There is that strong fear that the markets will continue to drop leading to increasing losses. There is often the temptation to exit the market, either wholly or partly, with an intention to get back into the market at the bottom. If you follow this approach, you are sure to have a very painful investment journey.  Investors who exit the market and switch to cash during such volatile times mostly underperform those that stay invested. It is very diffiult to time the market.  By the time the market turns around and you try to get back into the market, the best opportunity will have already gone past you. The longer you stay out of the market, the worse your performance will be.

So in times of volatility, tune out the noise. There will be many opinions and recommendations that you will come across.  Shut the noise out. 

Stay the course!!

Temperament is crucial

In the area of investing, temperament is more important than IQ.  As per Warren Buffet, succesful investing does not correlate with IQ. Once you have some basic intelligence, what seperates a good investor from a bad one is the ability to stay calm during the ups and downs of the market. Successful long-term investors have the ability to keep calm and remain unpeturbed when the investment environment around them turns volatile. 

A good or a bad temperament can be reflected in several ways and behaviours.  The foremost is the ability to not get impacted by either sharp changes in the market or the narratives that get built around the changes. This becomes even more important in modern times due to social media and due to the speed at which news and information moves around the world. One's patience with the process despite the volatility is very important. Successful investing often requires holding onto assets for the long term, despite the short-term fluctuations. Impatient investors often make poor decisions based on emotional urges to take decisions. Read my post about staying the course here.  Investing is a marathon, not a short sprint. 

Debt - A good or bad idea

This is another one of those very contentious topics that gets a lot of extreme opinions.  So is debt a good or a bad idea?  And like many other subjects in personal finance; it depends!

Debt comes in many forms.  The most simple kind of debt could be a small amount borrowed from a friend or a family member. Another type and probably the more common type is credit card debt. And then the larger debt like a loan to buy a car or a mortgage to buy a house. So which of these could possibly be good debt?  Well, it depends. My personal preference is to separate debt into 2 kinds; debt that is used merely for consumption and that used to purchase a depreciating asset and on the other hand debt used for a productive purpose or to purchase an appreciating asset.

First of all, all debt needs to be repaid at some point and comes with a cost. So the first and probably the most important consideration is whether you can afford it.  Very often, the start of a serious financial crisis starts with a loan that one can't afford to pay back.  And hence it is important that you have confirmed that you can afford to pay back the loan including the interest. Very often there are variable components to the loan, eg the interest rate.  As time passes the interest rates may increase thus increasing your monthly payments. Moreover, you need to assess the risk to your income that helps you to pay back the loan.  Is there a reasonable risk that you will not be able to pay back the monthly instalments in the future? 

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An important consideration is the financial impact of the asset that you are buying. Are you taking on debt to pay for a holiday? Or to buy a depreciating asset like a car.  Remember it may feel exciting to go on a holiday using borrowed money but as soon as the holiday is over in a few days, you will be left with the burden of paying off the loan over a period of time. Pleasure for a few days and financial burden for a few years. Will this be worthwhile? Also understand that the value of car will depreciate the moment it leaves the showroom.  And it will continue to lose value over time while you continue to bear the burden of the debt for many years. In other words, these are examples of non productive debt and I advice people to refrain from taking on such debt.

On the other hand there is productive debt.  Debt that allows you to produce more or create an asset in the future. A good example is a mortgage.  A mortgage allows you to build an asset over time, something that appreciates in value over time. Although a mortgage is as risky as any other debt in terms of risk of affordability, if used wisely, it can help you to build a asset over time and hence I call it good debt as long as you use it wisely. Make sure that the monthly exposure that you have in terms of monthly repayment is set in such a way that you can still afford to pay the EMI even if the rate of interest changes over time. Have enough buffer to account for unforeseen increases in the interest rates.  Then again, should you buy a house or rent it?  Read my post here to know more.

The worst kind of debt is credit card debt which should be avoided at all costs. The interest costs associated with credit card debt are exorbitant and the cost can spiral up very quickly if not managed carefully.

In summary, debt can be good or bad depending on how you use it. Any questions? Post your query in the comments section below.

Trust the capitalists

Remember the doomsday feeling of 2008? Or the panic of March 2020? And in between there have been several instances of the market dropping by 10% or more over a short period.  And each time everyone has felt panic.  That feeling of absolute nervousness.  As if the end is near. 

And in every one of those cases, the markets recovered to make new highs!.  Remember this. The next time the market drops quickly and by a large value, trust the capitalists.  They will continue to build value in the market.  And every one of those drops will be followed by a recovery and a new high.

If you look back into history, you will see this happen over and over again.  A quick glance at the 20 year trend of the Nifty 50 will only confirm this.  That markets have dropped sharply in the past, always to recover and go on to make new highs. Remember October 2005?  The Nifty took a sharp drop from 2644 in early Oct to go down to 2316 by  the end of the month. But the recovery took less than 30 days.  The Nifty 50 moved from a low of 2316 on 28th Oct to trace back to 2664 on 25th Nov 2005. Take a look at Myy 2006. After hovering around the 3754 mark  in early May, the market dropped quickly to 2632 by the middle of June, almost 30% lower.  Then again, the market went on to recover to 3769 by the end of Oct, taking a little while longer. Trust the capitalists!

While the above examples may not be in many people's memories, I am sure the events of 2008 and 2020 will be.  Even the investors who have begun the journey recently will remember the big one of 2020. The panic of COVID-19 was jsut setting in. The sense of an upcoming global pandemic was being felt by the market. I remember watching the news closely as businesses started shutting operations. And then the Nifty 50 took a sharp nosedive. From 12,201 in the middle of February 2020, the market collapsed quickly to reach a low of 7610 within a month on 23rd March.  That amounts a sharp nosedive of about 38%!! Several people were predicting the end of the markets.  Emotions were running high as some even pointed to a very long period of pain. At that point and in the following days, many distraught investors fled the marekt. Some making huge losses as the chaos continued for a few weeks.

 And as I have said several times in this blog, trust the capitalists. Despite the doom and gloom of the pandemic, the market recovered back to the 12,200 mark by early November of 2020. It is not just the recovery that begs attention. It is the strength of the recovery and the momentum thereafter!

It is importatnt that I mention an important consideration. The market will always rise. That does not mean every company will. The markets and investors are vicious.  They celebrate the performers and severely punish the laggards.  And hence every few years, some companies will die, while some others will zoom to the top.  What matters is that you have a broad portfolio that is balanced.  Invest into broad and diversified funds. Have some allocation to broad index funds. It is difficult to pin point which company will be a winner. But not too difficult to point to the fact that the broader markets will continue to rise after every fall. You only got to make sure that you stay the course. 

So as we reflect upon the slight nervousness in the market over the recent moves of the Nifty 50, remember this.  Trust the capitalists.