Micro matters, Macro does not matter in personal finance
Amazing to see how people call / sms / mail me asking the following questions:
1. Where is the economy headed in the next few quarters, years, etc.
2. PPF is tax free what will be taxation when I withdraw in 2024?
3. Where is the Chinese economy (xxxx – replace with whatever) headed over the next quarter?
4. What shares should I buy for the next quarter or 2?
5. Who is the cheapest broker that I could go to?
6. My broker charges too much for trading what should I do?
7. How can I try to time the market?
8. Will the US $ be at 69 by the year end? or will be at 59?
9. My brother in law made money in Deccan Gold. Do you think I should also buy that share?
10. When is the next Fed meeting? Or When will the next inflation numbers be released?
Some more irrelevant things:
Your neighbor’s visit to Switzerland, your sister in law’s diamond set costing $ 100,000 or more, your brother in law’s down payment for his Audi, occasional mistakes in your asset allocation, the daily move in your portfolio, the website on which you have uploaded the data, the occasional loss in your portfolio, the occassional splurge, the number of shares in your portfolio,……..etc. etc.
HONESTLY NONE OF THIS MATTERS.
What really matters in your portfolio are the following:
How early you start investing
How you react to a violent market fall / gain (hey you need to do nothing)
Understanding that a 800 point fall is HUGE when the index was at 4000, but it hardly matters when the index is at 40,000 but the news readers get excited EXACTLY in the same way.
Tele readers read from a tele prompter, NOT from a crystal ball.
Media guys have to LOOK smart, YOU have to make money from the market. Many media people have a full debt portfolio – PPF types.
Postponing tax incidence to the point of withdrawing.
Fact that you can stay on in a debt fund for 15 years to postpone the tax.
Creating a comprehensive and thought out financial plan.
Investing regularly, reading books, and increasing SIP amounts, AUTOMATICALLY, year on year.
Understanding the power of compounding. If you do not, look at the tables and see the growth percentage from the 25th year to the 30th year…
…more points will follow..later…word cap 🙂
moronbuffett
my 2 cents
investing for predictable goals + emergency backup within stipulated time frames (school college fees, marriage, hospital expenses) and allocating assets as per those time frames (debt,equity, cash) is more important
when $ needs arise liquidate assets beginning from the lowest yielding asset class of the portfolio. if for marriage you need $, dont liquidate from stocks yielding 15% but first liquidate your FDs that yield 10%
Deepak Shenoy
Subra,
In a blog, word caps don’t matter 🙂
But great points, though I disagree on macro not mattering. To me there is no “average investor” and there is no “aam aadmi”. They are coming to your blog because they want to learn things, otherwise honestly they shouldn’t even read blogs they should just shut up, put money into a balanced mutual fund and get on with life. While many will overreact, this is how they will learn that overreaction is not a good thing, not by smart people telling them none of this stuff matters and all you should do is allocate your portfolio and forget about the Fed…just my 2p.
In effect, we might see that next big fund manager coming from the bunch of people who have the hunger for knowledge, you never know….
Amit
I didnt know the following two, so request you to kindly elaborate, or point to some links which can..
-Postponing tax incidence to the point of withdrawing.
-Fact that you can stay on in a debt fund for 15 years to postpone the tax.