One good thing about having rich and some uber rich friends (in my definition, net worth exceeding Rs 150 crores is Uber rich) …is that you can learn some good lessons:
- Frugality is good, but it should not be an obsession! I know some of the rich friends who will try to pinch money and pay a price. At the lower end of the chain I have seen a young couple miss a train because they choose Uber share instead of Uber! Saved Rs. 100 perhaps and lost Rs. 5400 worth of 2nd ac tickets and had to go by EXPENSIVE flight tickets bought on the day of the travel. Among richer people of course there cannot be a greater example than Hetty Green of course! She was super duper rich. One of the richest women – self made – to put things in perspective, she died in 1916 – and had a networth of US $ 100 million. When her son had a problem in the leg she tried FREE MEDICINES…and later the leg had to be amputated. Of course she is the greatest example of frugality – Google her – and you will find. However, one learning is clear – if you are NOT frugal, the amount you invest will be so small that what return you get will not matter. After all, the amount invested is the most important thing in the compounding equation, is it not? So be frugal, but don’t lose a leg. Literally.
- Give your children freedom: Invest in your children’s name so that at the age of 18 or 21 they are able to say “Ok dad, Goodbye, thanks for the nice portfolio worth Rs………”. Many rich people hold on to their cash and give it only at their death. Makes no sense. If you live to the age of 92, your kids will be 60+ and the inheritance will not be of much use. Instead offer to pay off some home loan, or invest in a pension plan for them, or offer to pay for a bigger medical insurance, or for their children’s education. Let your money be useful to your kids when they need it, not when they are 68 years of age and done with life.
- Invest Conservatively, and avoid panic: When a middle aged person has too much financial stress, he might behave irrationally. So a decent amount of money in good quality debt instruments (low duration funds, or funds with modified duration of 3 years) is where about 10-15% of your liquid networth should be available, Sure when I am talking of such percentages, I am talking of smaller portfolios with less than Rs. 5 crores. Once your portfolio reaches say Rs. 10 crores and your kids have settled down, your ABILITY to take risk increases, but the NEED to take risk vanishes. So make asset allocation sensibly. After all if you have 80% of your money in low duration funds and still meet all your goals including expensive end life medical care, shift to 80% in conservative debt In your younger days a conservative portfolio means you will NOT have to panic.
- Live life the way you wish to live: I have no clue what people around me think, but the best advantage of INDEPENDENCE is that you can live life the way you wish to live. You do not have to worry about your dress, telling lies (It was a pleasure meeting you!!!), the time you get up, the hobbies you pursue. OMG ONCE you taste this, you realize how people born in the 1920s must have felt in 1947! Its a huge huge thing. Work for causes you espouse – orphans, destitute women, cleanliness, animal welfare, world peace…..go improve the world, if you wish!
- Keep re-investing – when you receive Rs. 48000 dividend from a company that you own, go and buy the same share from where you got the dividends. In the USA you can ask the company to give you shares instead of the cash dividend (DRIP as they call it). This helps immensely. I know 9 people who are in the 80s who are still doing an SIP or buy direct equity. Sure their Asset allocation does not matter, but they do not let money sleep in the savings account and lose to inflation!
- Make a will, and make sure that it reaches the right charity – if you can give away at your death, fine. However, if you want the money to act as a cushion for your children, tell them in your will that it should be given to charity in 10 years of your death! Of course it is just a leap of faith!!
Something more? maybe later….
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