10 financial lessons from 10 years of blogging

Published: May 20, 2022 at 6:00 am

Last Updated on May 20, 2022 at 8:04 am

Freefincal was founded in May 2012. So that makes 10 years of blogging, data analysis, research, reportage, call it what you will. These are 10 financial lessons learned over these 10 years. We thank our readers and viewers on YouTube for their patronage.

1. Nothing works all the time, at all places. No strategy, no theme, no factor (including our great “SIP”) will work all the time, across all asset classes and markets. Sometimes growth would do better and sometimes value. Sometimes active and sometimes passive.

2. Never cherry-pick returns; Always cherry-pick risk. Our portfolio must reasonably handle the worst possible outcome at least from the past. Else it is susceptible. See: What return can I expect from a 10-year equity MF SIP?

Each dot in the graph below is a return from a 10-year SIP. Notice that it can just about be anything. If the markets crash, so do SIP returns. If the markets recover, so do SIP returns.

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10-year SIP rolling return of Nifty 50 TRI
10-year SIP rolling return of Nifty 50 TRI

You can expect 10% or 12% or 15% but the market will give you what it wants. If you think your long-term SIP returns will never fall below 10% or even 5%, you are deluding yourself and leaving the fate of your hard-earned money to luck.

Macabre thinking is key to success in personal finance

3 (a). There is no compounding in equity or equity mutual funds. Market returns will always be clumped. Sometimes it will pour and sometimes it will be dry. Yes, the stock market moves up over the long term (so does gold) but that does not mean you will get “high returns”.  Every mutual fund tells you that there are no guarantees but we just don’t want to listen!

People get so worked up when I say “there is no compounding in the capital markets” but they are perfectly fine with “there are no guarantees in the capital markets” or with “stock markets returns are far from uniform”. How these are compatible is beyond me. Something that does not grow at a fixed rate or comes with no guarantees can only confound and how!

If all you have to do is to keep investing a sum each month for years to get returns, the stock market should have no risk. And yet …

See: Don’t get fooled: Mutual funds have no compounding benefit!

And Stock market always moves up in the long term but returns move up and down!

power of compounding vs power of confoundingpower of compounding vs power of confounding

To succeed in the capital markets, we need to have a risk-mitigation strategy. The simplest way to do this is to have a clear goal; a diversified portfolio and a suitable asset allocation that reduces equity well before we reach our goal deadlines.

Note: For those who are new here, I am not against equity or equity mutual funds. Most of my networth is in equity mutual funds and they have helped me achieve financial independence. That does not mean I will blindly invest in taking industry propaganda seriously. That is the least amount of respect we can offer for our hard-earned money.

3 (b). Everyone times the market! Whether we invest systematically or tactically, everyone is waiting for the right “time” when the market would deliver life-changing returns once or a decade or so If we are lucky!). Why “time in the market” is not different from “timing the market”! And Sensex return is 16% plus over the last 41 years but half of that came from just three good years!

4. We need money to make money! Time is important but not as important as the principal! Returns are tertiary. Wealth is created with income streams, not with returns. See The 2016 Personal Finance Audit: Returns do not matter! And How to build the ideal retirement portfolio.

5 Market crashes are scary but a sideways market is the worst! Huge upward movements are typically followed by huge downward gains and vice versa. Time is money and if the market moves nowhere for months or years, the time lost is lost forever. 150% profit but only 9.6% return?! Why you should fear sideways markets and How can a 400% profit result only in an 8% return?! Hodling to the moon Risk!

6 Appreciating the sequence of returns is crucial for investment success. We can analyse all we want; we can expect any return we want but no one can predict how the market will behave after we start investing. Our experience can be quite different from “past performance” (hence the disclaimer!) See: Why Understanding Sequence Risk is Crucial for Investing Success!

7 Fortune favours the disciplined. Discipline (“with a little bit of luck”) will more than make up for a lack of smartness or intelligence even with sub-optimal choices.

8 Humility matters.  No matter how experienced we are, something will always surprise us in a good or bad way. Whatever returns we have got so far, it is only because an intractable beast like the market has allowed us to get it. We should never forget that.

What a young earner is experiencing today is nothing like what we have gone through. Even solicited advice can be harmful as we are all the victims of our good and bad experiences.

9 There are multiple solutions to most problems in life. There are no universally right or wrong; simple or complex moves. Just personally suitable or unsuitable moves. Context is everything!

10. “Salvation lies within” (Remember the double-entendre from The Shawshank Redemption?). All our money questions can be answered if we take a moment to understand what we need. Instead, we chase after what others do; have a tunnel vision of safety, taxation and reward and mess up our finances.

Once again we thank our readers and viewers for their support and encouragement.

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About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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