Monika Halan “Don’t get taken in by get-rich-quick schemes”
On the importance of listing the particulars of your financial life from savings accounts to insurance, real estate assets to stocks, taxes and wills
Considering the significant emotional and financial turmoil that families face after the untimely death of a loved one, what strategies do you recommend to overcome procrastination in documenting financial particulars? How does your workbook simplify this process?
People build assets and forget to tell their families where they are and how to access them. A simple way to leave a money trail for your family is to document your financial life. Starting with basic information like your PAN and Aadhaar, other important parts of your life like a list of doctors, agents, financial planner, lawyer, details of your utilities, your club memberships and so many other business relationships we have, other than just financial details. For the family left behind getting all these details in one place helps to deal with the trauma a little better. The emotional pain nobody can take away, but you can make the transition to a life without you a little easier by leaving a roadmap.
Let’s Talk Legacy is a workbook, a diary that gives you a template of what to record in a systematic manner. Most people intend to do it but don’t know where to begin. That’s where my book comes in to help. It gives you a chapter-by-chapter roadmap to recording your financial life. I recommend that you use a pencil rather than a pen for information that keeps changing like passwords.
Is it not better to do this digitally rather than in a physical book that can get stolen?
I suggest a physical book that is kept at home or in office under lock and key rather than a digital record. Everyone has a place at home where the cash and jewellery is kept and it is locked. Use that place to store this book – not on your bookshelf but in your locker. Digital files can get hacked by strangers and put on the dark web. The book at home is vulnerable to only the people who are in your personal orbit and you can safeguard it better. Also, once a person is dead, how will the family know where to access digital records? Where in the computer or cloud to find it? What is the password? There are practical and safety issues with using a digital road to do this. Therefore, this book. I hope you do document.
What is your investment philosophy and what types of investment vehicles do you typically recommend?
Do lots of work in the beginning to build a strong foundation and then update the story every year. Don’t watch the market at all and don’t get taken in by fads and get-rich-quick schemes. I have used this philosophy personally and so have the people who have read my books. I recommend mutual funds to retail investors who have neither the time nor the expertise to decode markets, trends and geopolitical events that is needed to invest directly in stock markets.
What are the current economic risks you think might impact young people’s financial plans?
There is a global slow down and there are two hot wars going on at the moment. A third can begin anytime in the east with China and Taiwan. But the news at home is very good for the young in India. This is a 1991 moment for this cohort that joins the workforce in this decade. They will see rising incomes, opportunities and markets. They just need to work hard, save and invest regularly and the economy and markets will do the rest.
What are the five golden rules for someone who is starting off with investing in mutual funds?
One, decide your debt-equity ratio. Two, stay with low-risk products in the debt part of your portfolio. Three, within equity make an allocation between large-, mid- and small-cap funds. Four, look for consistency of top quartile performance for at least 10 years when you short-list funds. Five, look at the risk metrics – how much risk per unit of return is the fund manager taking?
Remember, investing is about building a portfolio, determining your asset allocation, sticking to your allocation and choosing funds that are consistent.
A lot of working women today are still behind when it comes to financial literacy. Why do you think that is and what is your advice to them?
My advice is this: put on your money oxygen masks first. Women are vulnerable to economic hardship as they mostly hand over the control of investments to the men in their lives. The daily and monthly spending they manage, but when it comes to large ticket and long-term investing, the decision and control is usually of the men. True equality is when a woman partners with the man on an equal footing on all money decisions. When she is in control of her own money life then we can say that relationship is on an equal footing.
What are the key metrics you use to analyse a person’s financial health?
I look at spending and saving ratios. A saving ratio of at least 20% of the take home is a good metric for long-term wealth creation. The EMI outflow must be capped at 30% of the take home income. I also look at the equity allocation. Indian portfolios suffer from being under invested in equity. A rough rule of thumb says that you must have equity that is equal to 100 minus your age. At age 40, you need to be 60% in equity. And even at age 80, you are 20% in equity. A good metric for me to judge a portfolio is to look at the debt equity ratio and see if there is enough equity or not.
Given the burnout young professionals are experiencing, many are planning early retirements. What would be the best way to go about it?
Early retirement does not mean not working any more. It means that you are no longer dependant on a salary for paying your bills. To all those dreaming about an early retirement I have this to say: target to get financially free as soon as possible and target to work as long as you can. Both these things are not mutually exclusive. Working gives us a purpose in life. A life spent in leisure will get boring very soon. My message to those who want early retirement is that find your purpose in life and then spend your hours doing what you love. Usually playing guitar on the beach will get boring for most people in a day. So think it through before you dream of quitting work.
A great way to get financial freedom is to have a corpus that is large enough to sustain you without any fresh income. This is usually a very large number so some current income is always welcome. Aggressive savings and using the route of equity to build wealth are good habits to target an early retirement.
What are some of the absolute no-no’s when it comes to financial investment?
I find trying to time the market as being a useless exercise. I also do not like to look for signals outside for a sale decision. There are only two triggers in my mind to sell an investment. One, if a goal is reached. Two, if the asset allocation I decided earlier has changed. Suppose I was happy with a 60:40 asset allocation in equity and debt. Suppose a runaway market took it to 70:30. I did nothing, but the value of my stock portfolio rose because of a bull run. This is my cue to sell some equity and invest in debt to bring my allocation down to 60:40. To change your allocation during either a bull run or a market crash is the worst investor behaviour that is harmful to your financial health.
What are some of the trends you’re expecting and how can people leverage them?
There is no leverage in my world. I believe in a sturdy financial plan that is able to withstand both bull runs and calamities like Covid-19. I expect the year 2024 to be a repeat of the past few years – there will be volatility, uncertainty, complexity and ambiguity aplenty. Nobody can perfectly time the markets and build in all the complexity into their investing decisions. It is best that you build a plan for yourself and then follow it rather than react to the market. There is a way to use stock markets to get rich – but it takes time, patience and maturity. Buying a lottery ticket is a better idea than punting on the market. Markets are to be used for long-term wealth creation and not as a gambling den.
Arunima Mazumdar is an independent writer. She is @sermoninstone on Twitter and @sermonsinstone on Instagram.