Retirement !

Over the weekend, my financial consultant called me over for a seminar on financial planning. Me? Retirement? That’s 30 odd years away. Why? But me & my wife went. We were making some conscious choices on a few routine savings, but we didn’t know where we were.

He began by asking us how many hours we work.
“50-60 hours a week”
How many hours do you spend on what you are doing with money that’s hard earned like this?
“Close to 0”
“What happens when you have stopped working ? When you retire…? “ Well, not many had answers.

It was thought provoking to say the least. And as usual, I am just summarizing some thoughts over here. As much as it is for you, for my own future reference too. Read on or switch off. Am more than sure that not many of you are going to go beyond this. But that’s ok. My father always used to say, “Lets ring the church bell. All those who came out to pray, will pray for the others too”

So, here I go.

Mike Tyson used to earn 30-35 million dollars a fight. Today, he is freak exhibit in casinos. Bjorn Borg wanted to sell his Wimbledon trophies so as to be able live a decent life. In his hey day, he was a millionaire too. Did they plan for their futures or for their retirement? If they had, something went awfully wrong with the plans.

One of the most important concepts is the concept of inflation. Inflation happens to be the shadow that you just cannot catch. And inflation continues to act on your savings, whatever they are. Therefore, a base benchmark could be to ensure that the rate of return earned is more than the rate of inflation. That’s a tough one!

Some of the paradoxes of our life are

# Long life Vs Short career spans
# Investment Vs Complexities associated with it
# More comforts Vs Cost of living
# Choices Vs index of happiness

As our living age increases, the importance of financial independence cannot be stressed. “Wise men dig wells before they become thirsty”. An interesting concept he spoke of which I found to be particularly interesting, is to have one or two specific investments for each stage of life. That was something that I would definitely consider.

Another golden nugget was this: “Not taking risk is the biggest risk”. He went about defining risk as the chance of expectations not materializing. That was an eye opener as well. An interesting way to define risk.

Parts to an investment:

For any investment, there are three parts.
# Risk
# Returns
# Cost.

It is the interplay between these three factors that determine the attractiveness or otherwise of these returns. Plus converting one form of asset to another always involves a switching cost. The switching cost could also play a role in the asset and it performance.

When do you start planning for retirement ? Well, as early as 25 or 26 ! When one starts that early, there are multiple benefits.

The power of compounding of money, will take effect, and will have a great bearing on the amount available finally. Starting early would also give a lot of discipline. Essentially, one is saving up more when one can, for the times when one cant ! Good habits give great returns !!

The three things that you have to bear in mind while investing in any asset are

# Liquidity ( how much of ready cash would you have )
# Return ( what will the investment do for you ?)
# Safety ( how safe is the investment)

Quite obviously different individuals will have different requirements which would impact an investment pattern. I think it might be a good idea to list out the various asset classifications over here.

# Cash
# Fixed Income
# Equity
# Real Estate
# Gold / Silver
# Art / Paintings

Other guiding principles in the making of investments are as follows:

* Have financial goals
* Improve knowledge of finance
* Keep plans simple
* Keep in mind the context and review the investments made regularly
* Stay invested for a long time!

It was a good thought provoking discussion we had. And if the thought, even crossed your mind, while reading this, that perhaps must speak to a financial consultant, well, I would be a happy man!


5 thoughts on “Retirement !

  1. Fancy Laces says:

    My bank balance is a big great ZERO. What specific investments do you recommend to someone like me who’s going through this gruesome stage of life in which she’s penniless and has nothing to lose? 🙂

    Have a great week-end.

  2. indianangel says:

    Thank you for sharing this post with usKavi! I’ve not made any investments as on date today, and Im kind of confused on where or how to start! If you can brief me more on what are the different kinds and options available(equity,mutual funds or anything else) I’d be more than happy! Though Im quite early in my career I still agree to your say on planning for ur retirement right when you are 25-26.

  3. Kavi says:

    Prasanna: I guess i will put in a separate post on the specifics of getting started. I was in your shoes some years ago ! The most important element is to think about it and get started ! Will do so quickly !

    Flora: Well, well, am not sure if you have nothing to lose. Think it through !

  4. seriously this got me thinking of how unprepared most of the current generation are. Inflation would almost surely eat up most of the savings. Then we can only buy gold and diamond to keep and good property. Hemm…the future is confusing, scary and beautiful at the same time.

  5. ashok says:

    useful post buddy…

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