Saturday, August 6, 2016

Passive Incomes of Financially Free and Not Free

How To Generate Passive Income?

Common Folk Work For Money But The Rich Make Money Work For Them

How Do I Invest ₹80,000 to Maximise My Returns?

Only stocks can give significant gains over a very long period of time. Fixed income instruments do not yield real returns in India, in the present market conditions where interest rates are low and inflation presently is around five percent but could go up to 10 percent or even more.
Many people mistakenly believe that stock markets are highly risky. yes they are risky for speculators and people who enter without any basic preparation. Actually risk comes from not knowing what we are doing and the so-called safe investment options can turnout to be not only risky but quite unproductive also.
You have two options before you, as follows:
1. You may learn ‘Value Investing’, in which case please buy the best book, ‘The Intelligent Investor’ by Benjamin Graham and get started immediately. You may visit my blog atValue Investing.
2. If you do not want to spend a lot of time on investing, you may simply invest your corpus in an ‘Exchange Traded Fund (ETF)’ that mirrors a popular index like DAX, Dow Jones, etcetera or any good mutual fund.
Now the most important aspect of investing begins. You simply forget about the investment till 20 years.
Following table shows what your investment could be if it is able to generate a compounded annual growth rate (CAGR) of 15% per annum or 1.25% per month, which is very much possible.
I have assumed an annual inflation rate of 9.96%, which is probable in India, where I live, but in the US it is very unlikely. So, if the inflation rate is 2% per annum, you will end up with a net future value of US$ 911,208, quite a significant sum.
Note: This is a reproduction of the question I had answered on the website ‘Quora’.

Can One Get Rich From The Stock Market?

Yes, everyone can get rich from the stock market. The real beauty is that even a person with humblest occupation, education and income can become very, very rich.


There are following requirements though, as follows:

  1. First, one should start very early in life. 
  2. Second, it will take a 10-20 years of continuous monthly investment of as small as say Rs.1000. The investments need to be made, without break, irrespective of market conditions, with strictest discipline. In fact the investor shall first make the investment and only after that shall he spend. 
  3. Do not disturb or sell investments - just leave them alone and forget them for 10-20 years or even longer.
  4. And finally, one shall learn to live a simple life; desist from borrowing and not possess a credit card.

In what instruments to invest?

  1. Direct investment in stocks and shares, after acquiring sound knowledge of stock analysis
  2. In low cost, well diversified, index mutual funds
  3. Low cost exchange traded funds that track a well diversified stock index like the BSE S&P 500, NIFTY, NIFTY Junior, etc.
It does not require great intelligence or any special knowledge or skills. Just by following these three simple steps, one can certainly become rich from the stock market.

Suggested Further Reading:

In conclusion, the answer to the question, "Can One Get Rich From The Stock Market?", is an emphatic yes. One can certainly get rich from the stock market through prudent, long-term investments in shares, stocks, mutual/ exchange traded funds.

What Is Basis Points?

We, general public use the percentage for denoting the interest. We say that the rate of interest on saving account obtainable in India is 6% or six percent per annum. For us, who deal with relatively small quantum of funds, the percentage measure serves the purpose quite well. However in the bigger financial world of institutional transactions involving millions of dollars, one hundredth of a percentage counts and makes a huge difference. Hence, they introduced a much finer measure called ‘Basis Point’. One hundred basis points make one percentage or one basis point is one hundredth of a percentage or 0.01%.
A two basis point interest on a loan of a billion dollars is $200,000 per annum, quite a significant sum.