Republished from http://www.simplerupee.com
Here is a beautiful word. Rhinophobia – the dread of ever having any cash in the bank or in your pocket. Feels familiar. A lot of us suffer from this temptation of buying stocks or mutual funds as soon as we have some cash in the bank. After all what good can dirty cash do when we can buy some nice blue chips and not so blue chips with it. We all have suffered from rhinophobia at some point of time in our lives. A common anxiety is what if the stock market goes up and we are left huddling our cash in some sad savings account or a post tax 6% fixed deposit. What good that can do to us and to the world.
The number one rule and most probably the only rule of investing is to conserve capital. The temptation to put this capital to good use to generate more capital ( capital gains) is maximum when everything is going up. This is the number of reason why some of us are left with no capital at all. A sure sign of times like this is when your aunt comes up to you and say ” Beta, here is your uncles retirement savings, can you suggest some stocks for us”. When that moment comes you can mumble something intelligent like – well the P/E ratio of Sensex at the moment suggest that risk/reward ratio is not in the favour for investors and get the hell out of there.
So how does one conserve capital and hopefully also get some capital gains. Well the trick is so simple that no one actually believes it.
Its to have a plan, put it in motion and do nothing. Yes, just sit tight. I know you won’t believe it so I’m going to repeat to one more time
Its to have a plan, put it in motion and do nothing.
The plan can involve many number of things from simple to complex. But once set it should not involve you having to do anything. For starters you can open a PPF account and start saving some money and tax. If you can take a little bit of risk then start with investing a little bit of money in any large cap mutual fund through the systematic investment plan ( SIP). If you want to take even lower risk and would rather tie your financial destiny to the wisdom of the markets ( vis a vis wisdom of the wizards of the mutual fund industry) you can invest in exchange traded funds. They are cheaper than all of the actively managed mutual funds and just as good as them.
Once your PPF and SIPs are set via the ECS route of your bank just sit back and watch those “Saas bahu” serials. No need to check CNBC and flare up rhino phobia. Yes that is what I said. Put a plan in motion and then get the hell out of the way.