Some Financial Experiences from 2021

The year 2021 might have been the year of most surprises in over the last 50 years. A year of many firsts. A year marked by completely failed predictions. A year full of the most unexpected happening day by day, hour by hour and second by second. A year that started with the arrival of vaccines (another name for “hope”) saw brutal pandemic waves and ended with actually more daily caseload across the world than the one it started with. Just staring at the poor human and making it taste the unpredictable qualities of time: the exact human who spends his entire life just trying to predict the time.

But the silver lining here is that the most unexpected and surprising times are the ones which make you learn the maximum. It makes you stronger than ever and forces you to see the hidden and learn the unobvious. Looking back, you come better than ever, stronger than ever and wiser than ever from these times.

So, here are some financial experiences from the year 2021 from my life. Some can be thought of lessons or some can just be looked as poor judgement in hindsight. Some reaffirmed my trust in few generally available advices and some helped me understand where to draw the line. But all of them helped me grow as a person and these experiences may or may not help me in future in making better decisions. But, for sure, they won’t leave me for worse. So, documenting here, two of those:

Experience 1: Money is underrated.

Society in general goes on to unprecedented lengths trying to underrate money. It does so to prevent people from choosing unethical and socially destructible paths to get money. But the society goes too much far here.

1. Elders in the society and relatives tell you that money is not important. You should instead try to grow as a family person and enjoy being with your closed ones and cherish it.
2. Social media posts tell you how you can be so so happy with less money. You should instead try to grow on a personal level and enjoy your own company and feel how beautiful the life is.
3. Your company tells you that you should not think of your compensation. You should instead try to grow as an employee and focus more on learning and thinking how impactful your contributions are.

I agree. They are right. Family is everything and the ultimate happiness. One should enjoy one’s company and focus of job should be to learn as much as possible. But this can be done without demeaning the value of money. Money, instead should be highly recommended.

My family got severely impacted by brutal second wave of covid in India. A viral microorganism who goes by the name “Delta” wreaked havoc. If it enters your nose, your whole breathing mechanism can get in danger and turn the life of you and your family upside down in seconds.

Three people of my family got severely impacted. This included some of the people who we actually relied on the most during such disasters. The outside world was of little help as it was in way worse condition than we were. But the one thing that was of super help was money:

1. Medicines were being sold at a premium. In the times of emergency, I bought some medicines at 50% more than what was usually charged.
2. We were able to hire some domestic helps to help us with daily chores as we attempted to work extremely hard to provide care to the affected.
3. The earlier infrastructure of having some medical supplies and equipment at home helped. The premium paid for a quality health insurance helped.

We are an average middle class family with a decent lifestyle. We are salaried people with good educational background. Not on any executive posts. Not any rich business house.

Now, what scares the core of my heart is what if we didn’t have even this much money. What if we were not even this well off? Would we have been able to survive such a situation?

See, I am not justifying the situation. I am not saying the medicines should have been sold at higher prices. I am just thinking how me and my family would have survived if we had less resources than what we had at our disposal. Money may not cure your disease. Money may not solve your problem. But it has that enormous power to ease the pain. It is the single most important factor in your capability to fight back when the time surprises the hell out of you.

Getting money is worth it. Working hard to earn more money is worth it. There’s nothing wrong in your desire to have more money as it is the only thing that will help you bargain in this modern world.

Experience 2: The diversification overdrive

Everyone has definitely heard this so many times in life; “Don’t put all of your eggs in one basket”. It’s a very very important lesson to keep in mind. Whenever, wherever I think about it, it always makes so much sense.

Suppose you are passionate about tech and the potential it has for future. You are deeply interested in investing in software companies as you are the believer of the notion that software will continue to revolutionise the future. No one disagrees. You invest heavily in tech but invest only there.

You get the maximum returns when the tech rises. Companies make hefty profits and so do you. But due to any reason, just by the nature of this world, the tech sector crashes. People realise that they have over invested and they take out their money. The whole market corrects to the future that appears to be bleak and red. Even though your wealth was increasing at a great pace, but when something unpredictable happened (you can’t stop that from happening), you left yourself wide open.

Diversification gives you the hedge against surprises. It reduces the risk you expose yourself to and hence it’s always recommended.

I tried to follow this and tried to invest my money. I figured out a few mutual funds and stocks across sector and themes to invest in:

1. Blue chip mutual funds (These are tested, tried and still have potential)
2. Small Cap (What’s life without taking some amount of risk.)
3. Flexi Cap (Let’s have a fund that doesn’t care about small cap or large cap)
4. Sectorial: Tech (Firm believer that software is the future and it hasn’t even scratched the surface till now)
5. Sectorial: Pharma (Covid created immense opportunities here)
6. Some US index funds (Wanted to invest in the big tech)
7. A couple of debt funds (It had scope during a falling interest rate regime)

I ended up investing in a total of 19 mutual funds and 10 different stocks. Invested through both SIPs and lump sump amounts whenever I felt there was a dip in the market. Also, I researched during my weekends to select those mutual funds and stocks.

Over the year 2021, I got an XIRR of around 25%. Now, 25% returns are really good but they don’t appear great when any index fund would have given the same or even better returns. Same returns without any thinking or effort. Looking in hindsight, if I wanted to diversify, I could have just bought the index! FacePalm!

I wanted to diversify and firmly believed in growth of some sectors. When I thought of investing and diversification, every potential dollar seemed so close to me. It was a feeling like if Pharma grows, I should be there to mint the money. If interest rates falls, my debt funds should give me the returns. If the tech results are good, my wealth should the one to grow. Even if it’s US market that shows a record bull run, I should be the one riding the bull.

When we think of potential this modern economy posses and different work that is being accomplished every day, we get overwhelmed. Every growing sector seems to the next gold mine and we with our shovel want to be there at the perfect time. It appears like the the best combo of returns and diversification. But this approach doesn’t even beat the very basic stock market index.

Don’t go into the diversification overdrive. Do your research and choose what you believe in. Listen to what brain says. Play the long term game. And above all, keep your portfolio lean, thin and strong. It just doesn’t help to chase every potential profit. Trying to do everything correctly falls very short of just trying to do a couple of things greatly. This is true even for things outside of finances. Modern organisations try very hard to flatten their management chains, keep teams small and motivated and drive collaboration at a brisk pace.

Over diversification dilutes the potential. You won’t even beat the passive guy investing 20% of his monthly income in index funds through SIPs. The guy who looks at his portfolio once in half a year. Set up your portfolio by keeping it diversified but lean and thin. A portfolio which tries to minimise the maximum risk possible but is very strong at the core.

At the end, I would just like to recognise that our world is consistently changing. The ideas that work in this world will also keep changing. Maybe these experiences will not add much value later on. Or may be these have to be redefined completely with time. Maybe some people had completely different experiences and it doesn’t resonate with them at all. But hopefully, documenting them will not take away any value from the future or the present.