Retire Rich Retire Young…- An effort to make your money work harder…

Presented by:-

Vishal Thakkar M.Com, CA, MBA(fin)Managing DirectorBrianna Knowledge Resources Pvt. Ltd.

Time & Money• Let’s begin with a story! There was a village with a drought. The

Chief of the village found the two smartest men he could find and gave them each Rs.10,000. Their mission…..bring water to the people.

• The 1st man was a hard worker and started a business.• The 2nd man was an investor and built a pipeline.

And the winner is……• Not only did the second man win the contest, but he

found a way to have water (money) come in even when he wasn’t working.

• Both men started from the same background, with the same experience, and the same amount of money. The only difference was that the 1st man worked hard for his money and the second man had his money work hard for him.

“The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.”

– Rupert Murdoch

Retire Rich & Young…What?

• Different People have different meanings –– Some say good lifestyle, no pressure to earn

money etc.– While others say pursuing hobby, not going to

work.Retire Rich & Young, to us, means,

“subscribing to an increasing standard of living, without having increasing effort to maintain it.”

Retire Rich & Young…Why?• To do what I like to do & not just work for

money.• To pursue my hobbies, interests which were

left behind in Rat Race.• To spend more times with Loved ones, family

& friends• To help people, take up a social cause & to

make this world a better place. Whatever be the objective, we all agree that

there is a need….

Retire Rich & Young… How?

That’s Precisely what this program is all about…

Lets first Unlearn a few Concepts, that we have gathered during the course of our learnings in Life…

Let’s Get a Little Practical…

Job Earnings

Monthly Expense

Other Income

Lets See what Robert has to say on this one…3 Types of Income

You need a little help…• House Rent• Milk• Petrol• Electricity Bill • Clothing• Household /

Monthly Expense

• Weekend Getaways

• Habits• Traveling

Expense• Eating Outside• Movies• Mobile /

Telephone Bill.

Freedom / Wealth Ratio…

Freedom Ratio = Other Income* Monthly Expense

* The one which your money earns & you do not.

3 Types of Education

Academic

Professional

Financial

Lets See what Robert has to say on this one…3 Types of Education

What Are Assets?• Dream House• Sports Car• Gadgets• Diamond

Jewellery

“Anything that puts money into my pocket is an asset.”

INCOME

EXPENSE

ASSETS LIABILITIES

What Are Liabilities?• Housing Loan• Car Loan• Personal Loan• Credit Card

“Anything that takes money out of my pocket is a liability.”

INCOME

EXPENSE

ASSETS LIABILITIES

What Is Wealth?• Dream House • Sports Car• Foreign Trips• Shopping• Diamond

Jewellery

“Wealth- Number Of Days You Can Maintain Your Current Standard Of Living If You Lose Your Main Source Of Income.”

Lets See what Robert has to say on this one…Assets V/s Liabilities…

Why Middle Class Struggle?

INCOME

EXPENSE

LIABILITY

ASSET

Let’s Take a Break…

Savers Are Losers… How many of you have a Savings Account…?

What is the Rate of Interest that you get on your Savings Account…?

What about the average Inflation Rate…?

Do You recommend Fixed Deposits…?

“If Savers are Losers, Borrowers would Win”

Lets Look at borrowing…Lets See what Robert has to say on this one…Savers are Losers

Arbitrage• Your Re.1 at work at the bank. • Rs.10 for every Re.1. By RBI Rules, banks can lend out

Rs.10 for every Re.1 that you give them. Meaning they have made up Rs.9 of borrow able money out of thin air. Where do I get some of that?

• They say open an account with us and we’ll give you anywhere from 1% to 5% interest. We’ll even give you stuff!

• Then they then turn around and lend you the money right back saying borrow money from us and we’ll only charge you 10% to 27% interest.

• And that is why banks have beautiful fountains, golden chandeliers, and marble floors. Your money paid for it!

Your Expense, Bank’s Income

INCOME

EXPENSE

ASSETS LIABILITIES

YOU

INCOME

EXPENSE

ASSETS LIABILITIES

THE BANK

Your Mortgage Your Mortgage

What is your interest rate……. really?• Buy Rs.100,000 Home, make a down payment of 20%

(Rs.20,000) and borrow the remaining balance Rs.80,000 at 8% interest with a 30 year term fixed loan.

• In five years you will pay a total of Rs.35,220 to the bank, Rs.31,276 for interest (that is only Rs.3,944 for Principal Repayment).

• With the loan taken to term, 30 years, you will have paid Rs.211,323 total principal and interest (Rs.131,323 paid in interest).

• Rs.131,323 more like 160% not 8%.• You’re getting the truth, just not the whole truth.

Top Two Money Eaters…

• TAXES & Death are the two things which we cannot avoid, so we defer them ALAP.

• INFLATION is number two evil that eats away our money like a rodent

Why do we follow the crowd?We are going to read your mind. That’s right read your mind! Ready…..

1. Pick a # between 1 and 10.2. Now multiply that # by 2.3. Add eight to that #.4. Divide that # by 2.5. Now subtract the # you started with from that #.6. Now what ever # you have in your mind, match it up with its corresponding

letter in the alphabet. i.e. 1=a, 2=b, 3=c, d=4, etc.7. O.K., Now think of a country that starts with that letter. I’ll give you a

second.

Having a hard time……….think Europe………….how about Denmark? You’re thinking of D right, you did get 4? At least you should have if you did the math right. How did we do that?

We follow the crowd because it’s easy and because we are just good at it!

No matter what number you were thinking of the equation would have led you to the number 4. When we invest, we are doing the same. The numbers start out differently, FDs, Post Office, PPF, KVP, IVP, NSC, Mutual Funds, yet your results are the same……...…dismal.

How Do We Get Out?“Albert Szent-Gyorgyi, a brilliant scientist who won the Noble

Prize twice in his lifetime, stated, “Discovery consists of seeing what everybody has seen, but thinking what nobody has thought.” People often make the mistake of asking people who are trapped inside the same box (or way of thinking) how to get out of the box. What they don’t realize is, the instructions on how to escape that box are written on the outside.

* Andrew, Douglas (2005). Missed Fortune 101 Warner Business Books, pg. 122

Practice What They Preach?• Ask your banker/financial planner these questions!• Where is the majority of your money coming from?

i.e. commission, fees, salary vs. investments.• How long did it take you to become a broker?• Can you guarantee that return on my investment?

i.e. the prospectus and small writing.

• You see, they are called brokers because they are broker then you are.

“Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those that take the subway.” –

Warren Buffet

Time Is Your Friend

• Time: a young person’s biggest asset• Compound interest is awesome • For every decade that savings is delayed,

the required investment triples• Example: Rs.500,000 at 65; 10% yield

– Age 25: Rs. 79 per month– Age 35: Rs. 219 per month– Age 45: Rs. 653 per month– Age 55: Rs. 2,141 per month

Power of Compounding

0

700

1400

2100

2800

3500

0 5 10 15 20 25

15%

10%

8%

Growth of Rs. 100/-

Difference is quiet significant in long run.

More About Time• Time diversification reduces investment

volatility

• The Rule of 72

– 72/interest rate = doubling period

– 72/doubling period = interest rate

Years YEAR END SENSEX level 1 year 3 years 5 years 7 years 10 years 12 years 15 years

1 31-Mar-80 128.57 28.57% 31-Mar-792 31-Mar-81 173.44 34.90% 100.003 31-Mar-82 217.71 25.52% 29.61%4 31-Mar-83 211.51 -2.85% 18.05%5 31-Mar-84 245.33 15.99% 12.25% 19.66%6 31-Mar-85 353.86 44.24% 17.58% 22.44%7 31-Mar-86 574.11 62.24% 39.49% 27.05% 28.36%8 31-Mar-87 510.36 -11.10% 27.66% 18.58% 21.77%9 31-Mar-88 398.37 -21.94% 4.03% 13.50% 12.61%10 31-Mar-89 713.60 79.13% 7.52% 23.81% 18.48% 21.72%11 31-Mar-90 781.05 9.45% 15.24% 17.16% 20.52% 19.77%12 31-Mar-91 1167.97 49.54% 43.12% 15.26% 24.97% 21.01% 22.73%13 31-Mar-92 4285.00 266.88% 81.76% 53.04% 42.80% 34.71% 33.94%14 31-Mar-93 2280.52 -46.78% 42.93% 41.76% 21.78% 26.84% 23.95%15 31-Mar-94 3778.99 65.71% 47.90% 39.57% 33.11% 31.45% 26.85% 27.40%16 31-Mar-95 3260.96 -13.71% -8.70% 33.09% 35.03% 24.87% 25.60% 24.05%17 31-Mar-96 3366.61 3.24% 13.86% 23.58% 24.81% 19.35% 24.39% 21.86%18 31-Mar-97 3360.89 -0.17% -3.83% -4.74% 23.18% 20.74% 20.63% 20.02%19 31-Mar-98 3892.75 15.82% 6.08% 11.29% 18.77% 25.60% 17.29% 21.43%20 31-Mar-99 3739.96 -3.92% 3.57% -0.21% -1.92% 18.02% 18.05% 19.92%21 31-Mar-00 5001.28 33.73% 14.17% 8.93% 11.87% 20.40% 23.47% 19.31%22 31-Mar-01 3604.38 -27.93% -2.53% 1.37% -0.67% 11.93% 14.45% 13.03%22 31-Mar-02 3469.35 -3.75% -2.47% 0.64% 0.89% -2.09% 13.23% 13.63%22 31-Mar-03 3048.72 -12.12% -15.21% -4.77% -1.41% 2.95% 8.32% 14.53%23 31-Mar-04 5590.60 83.38% 15.76% 8.37% 7.54% 3.99% 2.24% 14.71%24 31-Mar-05 6492.82 16.14% 23.23% 5.36% 7.58% 7.13% 9.11% 15.16%25 31-Mar-06 11279.96 73.73% 54.67% 25.63% 17.08% 12.85% 9.54% 16.32%26 31-Mar-07 13,072.10 15.89% 32.73% 30.38% 14.71% 14.55% 12.27% 7.72%

10/28 5/26 3/24 3/22 1/19 0/17 0/1427.85% 19.94% 17.95% 17.36% 17.67% 18.00% 17.79%35.71% 19.23% 12.50% 13.64% 5.26% 0.00% 0.00%

Average ReturnsProbability of Loss (%)

Probability of Loss

As Time IncreasesVolatility & Range

Decreases

Performance of BSE Sensex - Equities not risky in long run

4,285Harshad Mehta

5,001Tech Boom

Sensex Growth from 1979 - 2007After all, in the last 25 years, we’ve seen ….• Two wars• At least three major financial scandals• Assassination of 2 prime ministers• At least 3 recessionary periods• 10 different governments and• An unfair share of natural disasters, yet

However had one invested in the Sensex Rs 1 lacs in 1979 it has grown to 1.30 crs earning a return of 19%

compounded annualized return.

Rule of 72

• If you Put your Money at ‘X’ % then your Money is double in (72/X) years.

• For Eg: 1 Lac Invested for 36 Yrs

Rate of Interest

Yrs to Double

After 36 Yrs

6 12 Yrs 8 Lacs

8 9 Yrs 16 Lacs

24 3 Yrs 40 Crs

Investing is NOT Risky…

What is Risky is an “Investor” & not an “Investment”

• Fundamental Investing• Technical Investing• Buying Insurance

Lets See what Robert has to say on this one…Investing Isn’t Risky

Managing Investor’s Psyche

Zurich India Mutual Fund

The cycle of fear, greed and hope

Fear Greed H ope

Wrong emotion dominates at wrong time

Financial Status of Rich Person

INCOME

EXPENSE

ASSET

LIABILITY

So what do we recommend…

• Take the Steering Wheel in your hand…

• Invest In Yourself First…

• Learn the Language of Money…

• Climb the Seven Steps of Retiring Rich & Young…

• Make an Action Plan to religiously follow them…

• Review your progress at reasonable intervals…

Let’s Take a Lunch Break…

Investment Avenues…

I know all of you have been waiting for this one…

But not too soon…

Let us first understand the difference between good Loan & Bad Loan

“Here are 5 great reasons to carry a big, long mortgage and never pay it off.” - Ric Edelman, Author of The Truth About Money (1997 Book of the Year).

1. Mortgages Don’t Affect Home ValueThe value of your property is going to rise or fall regardless of whether or not you have a mortgage. You wouldn’t keep Rs.100,000 between the mattresses, why would you keep it in your house?

2. Your Mortgage Is The Cheapest Money You’ll Every BuyPeople have a ton of debt, i.e. credit cards, auto loans, student loans, etc. By far, the cheapest loan you can get is a mortgage loan. Why wouldn’t you borrow against your house at 6% acquiring more assets to increase your R.O.I., instead of borrowing with a 18% credit card.

3. You Might Need The CashFinancial Troubles? i.e. retirement, job loss, medical, family, marital, college, etc. Banks only like to lend money when they know it can be paid back.

4. Tax Law Encourages You To Have A Mortgage.Mortgage insurance and interest is tax deductible whereas interest on other loans are not. In essence the government rewards you with cash back for paying interest on your mortgage.

5. Mortgages Become Cheaper Over TimeDepending on the loan you choose, your mortgage payment stays the same over time. However your income increases making the payments easier to make.

Lets See what Robert has to say on this one…Good Debt V/s Bad Debt

Investment Avenues

• Real Assets– Real Estate– Commodities– Oil, Gold and Silver

• Paper Assets– Stocks and Shares– Certificate of Deposits– Government and RBI Bonds– Foreign Exchange– Mutual Funds– Public Provident Fund

The Beauty of Real Estate!1. Phantom Cash Flow (Depreciation) – Make money

and count it as a loss2. Banks Lend You Money – Try that with stocks3. Leverage – Get more for your money4. Sec - 54 Tax Deferred Exchange – No capital gains tax5. The Bigger the Better6. Negotiations – Something is worth only what

someone else will pay for it7. Appreciation

Dolf De Roos’s Four Questions1. Q: How many Rupees worth of stock/property can you buy with

Rs.10,00,000? A: Rs.10,00,000 with stocks, but with real estate a whole lot more!

2. Q: The moment you buy your Rs.10,00,000 worth of stock/property, how much is it worth? A: Rs.10,00,000 with stocks, but with real estate it could be a whole lot more!

3. Q: When you buy your Rs.10,00,000 worth of stock/property what can you personally do to increase the value? A: With stocks pray or write the C.E.O. of the company and ask him to ease up on the private jet trips. But with real estate you can paint, put in new flooring, landscape, or even add a room.

4. Q: Once you have bought Rs.10,00,000 worth of stock/property and it has doubled in value what must you do to enjoy the gain? A: With stocks sell them and pay capital gains, but with real estate you can sell, trade, refinance and enjoy limited and even sometimes no tax.

Commodities

• Buy and Sell Commodity Futures• New to Indian Market• Timing of Purchase• Knowledge and Skills

Oil, Gold and Silver

• Oil Futures can be traded as a commodity• Timing of Purchase• Knowledge and Skills

Stocks and Shares

• Do it on your own• Give in for Portfolio Management Service

(PMS)• Discretionary V/s Non-Discretionary PMS• Let us do a Mass Role Play

• Name of Company: Wise Co. Prudent Co.• Sales Rs. Crore 1000 800• Net Profit 120 200• Profit Margin 12% 25%• Equity Capital 200 500• Debt Funds 200 100• Return on Equity 60% 40%

– There are other financial / non-financial factors that would influence investment decisions.

Which Company will you choose to invest in?

Certificate of Deposits

• Use Rule of 72 for your advantage• Banks, Corporates, Post-Office etc.• Even Indira Vikas Patra and Kisan Vikas Patra

come Under this asset classification• Lacks Liquidity and Flexibility• Yields meager Return post inflation and taxes

Government and RBI Bonds

• Safety of Capital• Lowest Return• Mostly to Balance the Investment Portfolio• Tax Saving at other times

Foreign Exchange

• Hedging Instruments• Now used for Investment because of Volatility• Large in Base, Deep in Scope• Booming because of Foreign Institutional

Investment Inflows

Mutual Funds

• Collective Investment Schemes– Open Ended Schemes– Close Ended Schemes

• Equity Linked Saving Schemes (ELSS)• S-I-P’s (Systematic Investment Plans)• Concept of Fund of Funds.

Public Provident Fund

• Fixed Obligation Every Year• 15 years Lock in• Good for Tax Saving• Introduces Concept of Forced Saving

Let’s Take a Break…

Seven Steps To Retire Rich & Young…

• Step 1:

“Decide your Age of Financial Retirement Now.”

• Step 2:

“Buy Liabilities to the Extent of Need and Not Desire.”

Seven Steps To Retire Rich & Young…

Lets See what Robert has to say on this one…Don’t Live Below Your Means

• Step 3:

“Link Liability Targets to Asset Targets.”

Seven Steps To Retire Rich & Young…

• Step 4:

“Plan Liability Acquisitions at least a Year in Advance.”

Seven Steps To Retire Rich & Young…

• Step 5:

“ Increase CASH by Increasing K.A.S.H.”K = KnowledgeA = AttitudeS = SkillsH = Habits

Seven Steps To Retire Rich & Young…

• Step 6:

“Work Smarter, Make your Money Work Harder.”

Seven Steps To Retire Rich & Young…

• Step 7:

“ Have Targets for Job Earnings and Freedom Ratio.”

Freedom Ratio = Other Income Monthly Expense

Seven Steps To Retire Rich & Young…

Lets See what Robert has to say on this one…Life’s Four Quaters

Action Plan…

Let us begin with a little quiz

25 Years

What is the Average Age when one starts Earning?

What is the Average Retirement Age?

60 Years

Rs.15,000/- p.m.

What is an Average Income of anMiddle-Class House-hold?

Rs.5,000/- p.m.

How much can a personsave on a regular basis?

If a person can save Rs.5,000/- per monthWhat will be his wealth when he retires?

Assuming:

He increases his investments by 5% every year

Invests in an Asset class that gives returns of 20%

At Age 60 his wealth would have been

Rs.27 Crores

Creating Wealth is Easy

We can all be Wealthy

THE TRUTH

Start Saving Early

The longer you save, the more you make

Save in the Right Asset Class

This will dictate how much wealth you create …

Save Regularly

Even a small amount saved regularly, is good

How can you create wealth?

4.90 Crores*

27 Crores*

40 years25 years 60 years

  Ram Shyam

Savings Starting Age 25 40

Savings - Monthly SIP Rs.5,000/- Rs.15,000/-

Saving Years till age 60 35 years 20 years

Total Amount Saved (appx.) Rs.57 lacs Rs.62 lacs

Starting Early

Give time to your investments rather than timing

Assumptions: (a) Savings grows at 5% annually (b) Returns assumed at 20% CAGR

0

1,000

2,000

3,000

4,000

5,000

6,000

1990-

91

1991-

92

1992-

93

1993-

94

1994-

95

1995-

96

1996-

97

1997-

98

1998-

99

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

Sensex

Company Deposits

Bank Deposits

Inflation

Gold

Equity market (represented by BSE Sensex) has outperformed all other investment avenues

Selecting Right Asset Class

In past 27 years BSE Sensex has given about 18% returns

Past Performance (BSE Sensex)

Year Sensex Investment Rs.

1979 100 1,00,000

2006 10,000 1,00,00,000

This is in spite of …

• Two wars• At least three major financial scandals• Assassination of 2 prime ministers

• At least 3 recessionary periods• 10 different governments and• An unfair share of natural disasters

Twin Benefits of Investing Regularly

Disciplined Investing through Systematic Investment Plans (SIPs) is the ideal way to reduce risk

Rupee Cost AveragingAverage Purchase cost

will be less

Automatic TimingAt higher prices – less unitsAt lower prices – more units

Rising Market Falling Market

Market Units Purchased MarketUnits Purchased

Save Regularly

Investing in the BSE Sensex – 25 years

Market timing does not matter over the long term

16.02%02%

Fixed investment on 1st day of every month

16.90%15.07%

Fixed investment athighest sensex value

every year

Fixed investment atlowest sensex value

every year

Data source: ICRA MFIE

Give Time rather than Timing the Equity market

• “We do not need to be wealthy to be an investor …But we can be wealthy if we are investors”

• The Right way to create wealth …

Buying potential big winning stocks

Successfully timing the marketsFollowing Expert Advisors recommendationsSaving a lot of money

• Wealth can be successfully created if we just follow the three basic principles ...

Starting early and saving for longInvesting in the right asset classInvesting Regularly – big or small

Wisdom

XXXX

“Only a fool does the same thing over and over again and expect a different result.” – Albert

Einstein

ConclusionSo the question is………….

What are you going to do with your time and your money?

Questions…

Wish you good luck.

Thank You…