Investing lies you should know | Money Psychology
sir I am going to be rich yeah check this out see I have started investing With Sips the kager is too good I also have four no five mutual funds all Diversified all Diversified and also I just recently bought a life insurance that is also going to give
me good returns see the problem is I have another big problem what’s the problem the markets are at alltime high now what do you think I should do I think yes you should yeah it this is a horrible plan who told you to look at cagr when you’re
doing sip no no why did you buy this when you’re supposed to buy that an endowment plan for insurance that’s what and all your mutual funds look completely wrong so what do you mean diversify sips so what’s the problem actually you’re right the fault is mine and you’re
probably thinking abishek has done a good job the problem is this most people who begin this is a great first step but I think you’ve oversimplified it a little bit and most people who start investing make these exact same mistakes I’ve seen a million times so in this
episode let’s fix this and talk about the biggest mistakes people make when they start investing for you and for you are you ready okay let’s begin so let’s start with the
I went to Google and I searched top five mutual funds to start investing in you searched for top five mutual funds correct on Google yes and you got the best returns funds yes the top returns yes and you invested in the top five that’s what you said now
diversify I didn’t invest in just one I invested in all five okay let me explain yeah here’s you did what does diversification mean invest in many mutual funds because if one fails so you get returns from another one good job okay so basically imagine that these poker chips
are different stocks because it’s easier to explain so you have these different stocks over here now let’s suppose one of these stocks is say I won’t take an Indian company’s name because it’ll be unfair uh let’s say one of these stocks is Enron Enron is this American company
which went to zero and this becomes uh red okay goes to zero okay would you have lost all of your wealth because of this no no right because you have multiple stocks and you have Diversified perfect now when you’re investing mutual funds which is completely fine you want
to make sure this is happening but what if I told you you invested in all these value funds and all of them are investing in the same companies which means you may have five mutual funds but actually they’re investing in the same same set of companies and you’re
not actually Diversified you’re actually concentrated because they’re the same kind of mutual fund it could look like this also this is not diversification no because they’re all the same kind so one way to do it is to do large cap mid cap small cap so there’s some diversification
there another zoomed out way is you diversify between asset classes in the end all of this is equity right so you could probably add say like gold somewhere you could probably add say what else insurance in every debt I’ll come to that you said Insurance what I said
debt if you know what he messed up comment and you could add say another asset class over here real estate real estate and this is completely fine but don’t do it just within Equity so what you’ve done is diversification actually is not diversification so you got it so
top five mutual funds know and you know why you should pick up mutual fund based on returns we made a video on it check it out okay so tell me one thing what do you mean my diversification then I’ll tell you in a simple simple way okay if
someone doesn’t want to put any effort in figuring this out a simple way is to just buy an index like a nifty50 index or any kind of index that index will cover all of these problems and you just think really long term 10 15 years and you’ll do
fine but if I want to put effort then the other yeah the other side is where you put a lot of effort right so that effort requires you to research Industries research companies and make concentrated bets 15 to 20 companies portfolio this is not easy to do because
you have to understand the markets and if you want to begin your journey Varsity is a fantastic place to begin go to Varsity hit the live button where you can take live classes absolutely free and learn in 4K HD you love it and it’s Interactive to check it
out you should also attend I’ll do but once you create such a portfolio that’s where you can create outsize returns out what outside really high returns over a long period of time like Warren Buffett or actually Bill Gates is a better example oh Microsoft Bill Gates made all
of his money from stocks which stock Microsoft correct and another company Burkshire hatway okay ohle so they he invested in these stocks and these stocks did really well of course he was also the founder of Microsoft but think what a concentrated bet that was on just one stock
and I think yesterday dude uh that guy in the office he came to me and he said I’ve been watching this series I love it and I have bought 50 stocks 50 stocks that’s the other side of the spectrum he’s over Diversified so please don’t over diversify because
you’ll get mediocre returns and 50 stocks I don’t know if that makes sense especially if you’re picking them it probably won’t do well so if you’re new to markets index is simple if you want to spend many years understanding markets creating a 15 20 stock portfolio is probably
better what if someone has 35 stocks 35 sounds like a bit much so I think you should fix that how do you know how well you’re doing cagr so you look at cagr to check whether the stocks are doing well correct that’s what you taught me no no
no dude this is the second problem don’t look at cagr it might not be right for you you have to look at irr or xir what let me explain here we have year one J you make 10% in the market Good Year Rich very nice next year you
make another 10% let’s make this equal let’s assume it’s equal 10% again how are you doing as an investor smart and Rich nice let’s say the next year it’s – 5% and the year after that again is – 5% leaves me with 10% still Rich what do you
think is your overall return 7% okay M 7% actually it will be in the lower single digits and the reason is that time has gone by year one year two year three year four these two years didn’t earn anything and this did so the average return is much
much lower than what you think balance okay it is how much money you earn through time and it’s an average that’s why it’s compounded annual growth growth rate the cagr but you had put in initial sum at the start of the year and you didn’t do anything you
just held on cagr works well for this okay but is this how you really invest no I have sips you have systematic investment plan and you’re investing every month month that means you’re not investing months a year you’re investing 12 times a year correct and another 12 times
a year and another 12 times and another 12 times isn’t that a little confusing think about it in the first year you will put money 12 times and the value of nifty is going up and down also so there is inflow there is outflow your returns will not
be cagr correct are sir what will it be you tell me so a fancy way of actually calculating that is irr internal rate of return if you want to know how well your sip is returning not the market then you have to use the IR metric not the
cagr it’s also called the xir when you do it on x well the formula is xir if your sip is 10,000 rupes a month every month versus you invest 1.2 lakhs in one shot which is 10,000 * 12 the returns will very different because you spread out the
money right so that depends on the market movements as well and you are putting money taking money out so that changes your return profile so the metric is irr not cagr so how much return will you get xir I am fine with everything see if there is anything
left now to I think my life insurance will give me that return give me returns to I think your life insurance will give you returns exactly on what on uh they’ll also invest my money in the markets now you’ve taken one of those plans yes one of those
ones yes life cover see if something happens to me my parents will get amount right and not so I’ll get returns with the money that these guys are investing perf you want to buy that insurance no please no my God hry so very simply a life insurance is
supposed to take care of your family and an investment product is supposed to give you returns right don’t Club them you know why all life insurance plans which club Investments give suboptimal returns and don’t give you a great cover also no no just just trust me on this
one so basically the returns are from stock markets from fds from different instruments and insurance is for your loved ones in case something happens to you so they don’t give me returns they are not supposed to they’re supposed to give you peace of mind these are different things
got it okay okay so separate it I also wanted to show you something over here I saw this ad recently cool check this out read it small cap returns nice small cap returns returns will it be nice yes but with high risk and it’s investing in what small
caps and hopefully it grows hopefully the interesting thing is this ad is actually not about a mutual fund at all it’s actually an insurance plan disguised as a mutual fund product this poster seems a little misleading because an insurance is a completely different thing and a mutual fund
is a completely different thing how do they bring them together there is a product for this but it’s actually a suboptimal product this is a classic case of Miss selling where they try to bring in returns with an insurance I have a question is is that a problem
what happens if you mix insurance with your Investments it’s a good point so one once they’re mixed you don’t know whether the premium is going to the insurance or it’s being invested second the commission on these is so large that actually what is being reduced is not good
for your Investments compounding so the costs are very high and you can’t see them it’s not very transparent if you look at any Benchmark returns like Nifty Etc versus say uh ulip it will always be much much lower without question and there’s another thing in a ulip you
can’t stop the premium you’re paying you know why why if you stop it then life insurance no insurance gone that’s what insurance is right if you don’t pay the premium it’s not valid but in a mutual fund it’s not a payment it’s an investment you can stop it
when you feel like oh and I’ll get my money yes I mean you shouldn’t but you can does that make sense so just separate the two they’re two different products different purpose pures sir I got it I’ll just do I’ll just do one thing wait wait I’ll just
separate the investing my investments and the mutual fund sorry investment and here’s the thing right I think the entire industry is giving us so many options to make our life easier but it’s actually confused the heck out of us which is why this channel exists to demystify money
in a funfilled way I wish we could all meet each other I should tell this to my friends no they’re all in Bangalore no yes maybe you should visit the Bangalore Fest called the zero 1 Fest so you should come to the 01 Fest which is happening in
Bangalore on the 28th of April we have an amazing lineup and the passes are free all you need to do is prove that you are a fan head on to the website click on earn your pass do a 01 Mission and prove you are worthy of being there
we have the entire world over there from Finance professionals investors nikil Nan kamat are going to be there I’m going to be there we have comedians we have songs lucky Ali is playing two so what are you waiting for did you do the mission yes you also yes
but you also be there yes no no cut this cut this is starting
