Anangsha Alammyan

5 Expert Tips to Get Started on Your Journey in Personal Finance

Anangsha Alammyan -

Become a smart investor and watch your money grow

All of us want to make our money grow, but when it comes to investing in the stock market, we are clueless where to start. We look at the risks involved and shy away, thinking it is best to keep our money in the bank.

“It might not grow,” we convince ourselves, “but. at least, it is safe.”

Recently, I had the good fortune of interviewing an established personal finance practitioner. This was a conversation that completely changed my mind and motivated me to start investing right away.

Manish Bhattacharya is a security engineer by profession and personal finance evangelist by passion. He has been writing about personal finance since 2016 and has spoken on the same at World Quora Meetup, Bengaluru. Manish has also given a TEDx talk on Personal Finance For Millennials. Currently, he is part of EF (a London based accelerator), and in the process of starting his company. In his own words:

Personal finance is something I’m passionate about, I can pursue this field without even getting paid.
Image: Author (published with the consent of the interviewee)

When Manish finished school, one of the criteria for choosing a college was “Whichever has the lowest fee”, and even for that, he had to take an education loan. He started working from the second year of his college and discovered investing and saving on his own.

Before getting started, here are some of Manish’s credentials: as of July 24, 2020, his portfolio return is 114%. He is one of the few successful investors who has doubled his money in less than three years.

This article is about the important lessons regarding personal finance that I learned from this self-made smart investor. The interaction with him helped me a lot and I am confident it would be useful for anyone looking to stop living from paycheck to paycheck and have a substantial passive income from investments.

1. Mutual Funds in Layman Terms

For someone who is just starting out, getting their head around big words like “large-cap” or “middle-cap” mutual funds can be a bit tricky. I asked Manish to explain the world of mutual funds like I was five. Here is what he said:

Mutual funds are basically money collected from people and a financial expert (fund manager) investing money on their behalf. The investment philosophy and assets in which a fund manager is investing can vary. For example: Equity mutual funds are where the money is invested in equities but that can be further divided in growth (where risk is high) and index fund (where the underlying asset is indices like Nifty50, BSE, etc.)
There are also funds which invest in debt, government bonds etc. This is a huge topic; I can go on and on about this for an hour.

2. Getting Started in the Field of Personal Finance

According to Manish, knowledge and the right information are your most powerful weapons in the market. First of all, you should educate yourself about the options you have, and then check your appetite for risk. Investment is always about finding the right balance between risk and reward.

There is a famous quote by Larry Hite, a hedge fund manager considered as one of the forefathers of system trading, that states:

I have two basic rules about winning in trading as well as in life:
1. If you don’t bet, you can’t win.
2. If you lose all your chips, you can’t bet.

How much is too much?

When asked how much percentage of one’s income should they invest in the stock market, Manish said even this can vary depending on the investor’s risk appetite.

I play very safely, my exposure is 20% of my total net worth. High risk, high reward, high volaity, possibly high loss as well — up to you, how much risk you want to take.

Investments in today’s times

With the unprecedented volatility in the market due to the current Covid19 scenario, I asked Manish if it a good idea to invest in a systematic investment plan (SIP) or stocks. Here is what he answered:

If you have extra cash or already have an SIP, then yes! Otherwise, save some cash as times can be tough going ahead. Continue your SIPs and you’ll get more units during these days. This is because most of the stocks are trading at a discounted price. You can buy them for the long term.

Resources to get started

Manish recommends Khan Academy’s full course on Personal Finance. The contents are not specific to any country, and the core concepts are relevant and applicable all over the world.

Other than that the books Rich Dad Poor Dad by Robert Kiyosaki and Sharon Lechter, and Your Money or Your Life by Joseph R. Dominguez, Monique Tilford, and Vicki Robin are valuable resources for any person looking to get started in the field of stock market trading.

3. How to Book Profit and Stop Loss

Despite the many benefits of investing in stocks, this can be a tricky question because it is impossible to tell with 100% accuracy whether the value of the stocks will rise or fall, even for an expert.

“Every once in a while, the market does something so stupid it takes your breath away.”
~ Jim Cramer

It all comes down to the risk appetite of the investor and how much they are willing to invest in the hopes of making more money in the future.

Manish confessed that he does not use stop-loss as he only invests when he is 110% sure after reading about the companies, their balance sheets, and, of course, his own intuition. That doesn’t mean he hasn’t lost any money, but, he has made a lot more than what he lost.

Profit booking

Similarly, profit booking is recommended when the stock is trading at its 52-week high, but it can rise above that value. Manish said it was difficult to advise when to book profits as everyone has their own investment philosophy. In addition, there are some things one can master only by experience.

Mostly, when you invest in the stock market, you should plan for the long-term. As this popular quote by Jim Rogers suggests:

Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.

4. All About Fixed Deposits

For the uninitiated, Wikipedia defines Fixed Deposits as:

A financial instrument provided by banks or Non-Banking Financial Companies (NBFCs) which provides investors a higher rate of interest than a regular savings account, until the given maturity date.

The special thing about FDs is that they are seen as “good” investments even when the market seems to be so fluctuating and the saving interests so low. I asked Manish’s take on FDs, and here is what he said:

The simple answer is safety. FD gives you a guaranteed return irrespective of the market fluctuations. You don’t lose money and there’s no volatility. It comes with a cost of low returns, TDS, and more taxes on the return, but, you won’t be losing your money. Yes, interest rates are low, but in India, they are way better than in other countries like the UK or USA.

Non-banking FDs

There are certain NBFCs which outperform banks in terms of the interest rate attached to fixed deposits. Despite the high-interest rates, non-banking FDs are not so popular among investors. When asked about the reason behind this, here is what Manish had to say:

They have high interest for sure but trust is a big issue. I don’t trust most NBCs with a large sum of my money. Their interest rates are just 1–2% higher than the bank’s FDs and that does not serve as a very big motivator either.

5. Smart Investments and Tax Saving

I think the whole world wants to know about the ways in which one can save tax and invest smartly. Here is what Manish had to say when asked about how to save taxes:

I am not aware about the rest of the countries, but, in India, 80C (PPF, PF), insurance, and 80D are the most popular ways to save taxes. Other than you can save taxes by investing where the capital gain is 10–15% (depends on long/short term) while FD returns are subject to your tax bracket.
There are tax-saving FDs and Mutual funds as well but that comes under 80C where max limit is 1.5Lakh.

Investing smartly

Manish suggested that there was one word to always keep in mind: diversity. Add a little bit of everything: gold, real estate, FD, mutual fund, equity, crypto etc. This quote by Sir John Templeton becomes relevant in this regard:

“Diversify. In stocks and bonds, as in much else, there is safety in numbers.”

What about cryptocurrency?

As mentioned above, Manish’s full-time job is security engineering and bug bounty hunting. He says that in India, probably bug bounty hunters were the first to get access to cryptocurrency as they received their bounty in the form of crypto.

Crypto, especially Bitcoin, has given an amazing return (in 4 figures) for me and I think after it’s legalisation, exposure will grow, and so will its value. I have promoted Bitcoin since 2017, and referred many users to Coinbase and Unocoin.

Closing Notes

The world of investing can be intimidating, especially if you are just starting out. But, thorough research and seeking help from the right people can go a long way in increasing chances of long-term success.

When in doubt, you can always refer to this quote by Warren Buffett:

I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.

Chatting with Manish gave me a lot of clarity and inspired me to start my own journey in the field of personal finance. I hope these tips from an expert were useful for you too.

Resources Mentioned in This Article

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.