A guide for Retail Investors to invest in equity

A guide for Retail Investors to invest in equity

Enough has been spoken about the markets in last few months, including the never-seen-before kind of drops and recoveries. In such times, one would have assumed that retail investors would have beaten a hasty retreat, hoping to come back when markets seem a bit saner.


Surprisingly, that is not the case. The below 2 published data points indicate otherwise.

  • New demat account openings for most brokers have surged, with anywhere between 50 to 200% increases being reported, many of them first-time users.



What this seems to indicate are 2 things

  1. Retail investors took advantage of the available time (due to the lockdown) and the valuations (in March & April post the ~ 35% crash) to enter and invest in the stock market to make some “quick” returns


  1. Considering that the bulk of these new additions are online, it can be presumed that the average new investor is young and technology-savvy, while not afraid to take risks while seeking to make a quick buck


Is this good news? Well, it depends on how one looks at it. History indicates that institutional investors are generally smarter than retail, who usually enter late to the party. The average holding returns of mutual funds is significantly higher than the average investor returns in the same funds, underscoring this fact.


On the other hand, the fact that the market participation is broadening and that too in times of market distress is heartening and shows some maturity in the mind of the average retail investor. This millennial generation is possibly different and smarter than its precursors. They are also adopting the new “do-it-yourself” way, already popular in developed countries.


That said, trading in the stock market for short term gains is fraught with risks, and can result in substantial capital loss, if one doesn’t have a good hang of what one is doing. Having an Investment Framework based on the following 4 levers can possibly help today’s investor to increase his or her chances of success in the stock market.


  1. Strong Knowledge-based Investment Hypothesis

Know each stock you invest in. Spend time on research, make sure you understand the company and its prospects, and do not get lured by tips and penny stock advice. This is fundamental to your framework and dilution here is akin to having a rotten foundation, leading your structure to fall, sooner or later.


  1. Laid-down Investment Horizons & Goals

Even the best race-car driver needs a destination, a target. Similarly, map your purchase to an outcome based on your investment hypothesis, with a time-horizon in mind. Tie it to a goal, so that neither does your horizon become a moving target, nor are you tempted to exit early during adversities, impacting your goal.


  1. Clear & Documented Process for Exits

Based on your investment hypothesis, you will know when you need to book profits, in case your target/goal is met. Similarly, however good your investment hypothesis might have been, factors change and hypotheses fail. So have a clear plan to exit in case things don’t play out the way you saw them. Having a documented process for both value-based and time-based exits, with clear rationales, is a good way to both, limit your losses and not fall in love with your darlings.


  1. Diversify Adequately

However good your stock selection maybe, expecting each to be a winner is unreasonable. Diversification is a hedge against both, failed hypotheses as well as capital loss. Build a portfolio of 15-20 stocks over time and have a cap on each stock as a % of your portfolio. 6 winners out of 10 is a good enough ratio for the portfolio.



Dear retail investor, Success in the stock market is an outcome of 3 factors – Relevant Knowledge, Robust Process and Resilient Temperament. Please use the above-mentioned levers to build a personal Investment Framework and whenever you feel swayed by emotion, go back to it and read it. You will find that not only is it helpful in the stock market, but in everyday life too. Happy investing!


Image credit: MayoFinance, Unsplash


Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families invest for their financial needs, follow their passions and achieve financial independence.

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A slightly modified version of this article was published recently on fpstudycircle.com.

10 money steps to help you stay prepared in case of a job loss

10 money steps to help you stay prepared in case of a job loss

As the impact of the COVID-19 crisis takes a further hold on the economy, its impact is beginning to be felt on its foot soldiers as well. Over the last few weeks, more and more news about planned salary cuts have been percolating, and over the last few days, the dam seems to have broken, with large job cuts also being announced.

This is likely to be wide-spread, and in the last few days, we ourselves have seen cases of 25% salary cuts, work without pay for the next 6 months, and finally, job-losses.

How to handle such a crisis is something someone impacted would be struggling to grapple with. And in case you are not hit by it as yet, count yourself as lucky and prepare for an eventuality like this. The below 10 steps should hopefully help you plan for it and address much of the impact.

Please read our latest article, published on Moneycontrol.


Image credit: Moneycontrol

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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Millennials – 7 mistakes to avoid in your wealth creation journey

Millennials – 7 mistakes to avoid in your wealth creation journey

For people in their middle-years, what would have been their biggest or deepest aspiration during their early working years? If I were to hazard a guess, I would think that for most people it would be “being wealthy”. The reasons for wanting to become wealthy may vary, since every person’s needs and wants are different, but it would be fair to say that for most people, their significant aspirations in life would be around money and what they could do with it.


A lot of young people think that wealth creation is something that requires tremendous smarts. That it requires access to knowledge not easily available to most, as well as huge skills that help apply the knowledge and convert it successfully into wealth. And that it requires some “big ideas” that will help one break out of the rat-pack. It may gladden you to know that not having access to all of the above can still make you wealthy.


Actually, the fail-safe way to having enough wealth to take care of all your (including your family’s) aspirations for your entire lifetime is in not doing a few basic things in life wrong, and in case you already have, correcting them as soon as you can. So, let me put down 7 mistakes that you should not make in order to build adequate wealth in your lifetime.


  1. Not having a check on your discretionary spending

For most young people, the first few years earnings are spent fulfilling their pent-up aspirations, without necessarily caring about keeping something aside. While some of it is understandable, the danger is if it continues without a check. The first principle of building wealth is to save first and then spend. So, keep aside something as soon as you start earning, and then spend on your material needs.



  1. Over-leveraging yourself early in life to buy “assets”

Another thing many people do early in life is take “big decisions”, the most common of which is buying a house. The power of money compounding over long periods of time is magical and early savings can multiply manifold if invested effectively. Unfortunately, these savings instead get locked into EMIs for repaying loans that leave a young earner barely any space to save or invest for most of his early years. In an “uberized” world, having a home as a personal asset is no longer a necessity. And even if it is, you should consider it much later, when it is a smaller part of a diversified portfolio.



  1. Upgrading ever so often to “keep up with the Joneses”

Nearly every device that comes into the house (or driveway) turns old, if not obsolete, in a couple of years. And getting into a constant upgrade cycle, whether it is your mobile phone, cars, smart TV or household appliance, can be quite draining on your finances. It is important to have aspirations and fulfil them, but just make sure that you aren’t doing to it to “keep up” and importantly, that your finances can afford it.



  1. Investing based on “tips from friends” or even worse, your “private banking RM”

This is the easiest way to lose money, and at an early stage in life, can form experiences which impact decisions throughout your life. A basic principle behind taking investment advice is making sure that the person who gives the advice has incentives that are aligned to your needs. If you lack the discipline (most fall in this category), find an adviser who you can trust, and who represents you, not the products on offer.



  1. Confusing investments with tax-planning

For many young people, investing equals tax planning. And hence their quest for investments begins in tax season. And in the hurry, wrong decisions are taken basis faulty advice. Remember, the tax you pay is a miniscule part of the overall wealth you have today and in the future, and hence basing your investment decisions on your tax needs is plain wrong. A good adviser will also help you take care of your tax-related investments.



  1. Not having goals and time horizons for your investments

An investment by itself is incomplete, if it doesn’t have a goal. And depending on the nature or priority of the goal and it’s time horizon, the savings need to be channelized into the right investment. Not having goals in place means that your investments don’t have direction and hence decisions regarding them will get made ad-hoc, basis the vagaries of the market. So, while you deploy your savings into investments, make sure you have a goal in mind, and the investment is appropriate to the goal, basis its time-horizon and your risk appetite.



  1. Not planning adequately for the unexpected

Lastly, while the going is good, not making the above mistakes can put you on the right path to financial security. But over a lifetime of a few decades, there will be a few mishaps. Making sure that you have the resilience (both financial and otherwise) to overcome them will mean the difference between being wealthy and not, at the end of it. Hence, make sure that the unexpected is not unplanned. Take care of not only your insurances (life, health, assets) and contingencies, make sure you are nurturing your biggest source of wealth – your skills, by upskilling yourself periodically, and in time.



So, as I said before, building wealth over a lifetime, is more about not making big mistakes, rather than about getting everything right. For those who are already on the path, use the above rules to review your financial health and for those who are just setting out, make these your cornerstones for your wealth creation journey. As Charlie Munger said, “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”



Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.



Image Credit: Free To Use Sounds, Unsplash

How secure is your job? Decisions by top few can change fates of many

How secure is your job? Decisions by top few can change fates of many

When one heard recently about the shut-down of Jet Airways, the immediate feeling was one of sadness. How could it happen to the airline that was to some extent a great symbol of Indian globalization, and our own MNC airline brand? And what about the tens of thousands of jobs lost, both directly and indirectly?

When one thinks deeper, the question that comes to mind is – how many of these employees ever thought that something like this could happen to them? Even if a few of them imagined it, did they plan for the consequences?

Over the last few years, quite a few large companies, big behemoths in their time, have ceased to operate. Large industries have significantly pared down their operations eg. Telecom, Construction. There has been significant re-trenching in these industries and people have been caught unawares. Many of them would still be struggling to find jobs commensurate to their experience. Most of them wouldn’t have envisaged this outcome and would have been caught short on the need to up-skill and build new skill-sets.

One important reason why people take jobs in the corporate world is because it brings tremendous job security and allows one to have a far more certain future. But remember, no future is certain unless one plans for all the various scenarios adequately. In today’s times, with uncertainty only increasing, the chances of having a long, 30-year career in the corporate world is something that is definitely not a given.

All the more reason for corporate employees, especially at the middle management and lower levels to be far more planned about their financial futures. Its never too late, however old you are. As Warren Buffett said – “The best time to plant a tree was 20 years ago. The second best time is now”. Also read this timely article by Lisa Pallavi Barbora in Mint on how corporate employees and their futures are completely dependent on their corporate leaders decision making abilities. The job security that one imagines one has is to an extent only a façade. Hence, important to have the right personal financial practices and plan to make sure that such eventualities do not put you in a vulnerable position due to no fault of yours.

Image credit: below article, Mint