The Contented Investor

Published: April 18, 2013 at 8:15 pm

Last Updated on September 5, 2021 at 8:24 pm

One of my teachers once told me, “stare at every graph and every equation you encounter. Milk all the possible information you can out of them before you move on.” This advice helps me on an everyday basis: to teach, research and learn personal finance. Most importantly it allows me to be a contented investor. When it comes to personal finance one graph and one equation does this more than anything else.

The Graph: Take a look at this graph. It represents the growth of a SIP corpus (monthly investment of Rs. 1000) compounding at the rate of 8% per year.


The gaping difference between the invested and maturity amount as the years increase of course reflect the ‘power of compounding’. Nothing new there. Look at the blue arrow around 3.5-4 years. To the left of the arrow the red and back points are close to each other. To the right of the arrow they branch off. What does this tell us?

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
  • Define short-term goals as anything below 3-5 years approximately.
  • Define long-term goals as anything above 10 or more years.

For short-term goals:

  1. Effect of compounding is small/negligible.
  2. Therefore returns do not matter. Inflation is manageable if not negligible!
  3. Capital protection is crucial. So no risk of capital and no volatility in returns.
  4. Tax outgo could optionally be minimized. If returns are not important neither is tax


  • Don’t waste time selecting the perfect debt fund. Just pick one which matches the above conditions: Liquid funds or Ultra-short term funds. Analyzing if funds like a dynamic bond funds or income funds will do the job is time not spent well. Such funds,  in my view, do not meet the above conditions (which ones?)
  • If you are uncomfortable about debt funds use a FD for a lump sum and a RD for small periodic investments.
  • Key take-away: Don’t waste time and effort worrying about short-term goals. If returns are not important, where you invest also does not matter as long as it is safe.

For long-term goals:

  1. Effect of compounding is crucial.
  2. Therefore inflation is also crucial (inflation is negative compounding). So returns must beat inflation.
  3. Volatility in returns resulting in short-term risk of capital is necessary to get returns that can beat inflation.
  4. Since risk is inevitable, lowering risk is crucial.
  5. Lowering risk  can achieved by diversification  and rebalancing. These enable capital protection.
  6. Tax outgo must be minimized.
  7. Returns matter but a not a single return but the average of returns from diversified investments.
  8. Near impossible to achieve all of the above by investing in a single product. So child-plan, no pension plan, no money-back schemes.
  9. Where to invest is a wrong question. How much to invest where is the right one. One should diversify across instruments differing in risk (equity, debt, gold etc.) and also diversify among different equity and debt components (large-cap stocks, mid-caps, international equity etc.)
  10. Periodic monitoring and rebalancing necessary to ensure the average compounding is on track.
  • phew! Key take-away: Long-term investing is complicated! It requires a lot of time and effort to learn and monitor. Spend this time after you begin investing and not before. Getting started with some basic knowledge (can be obtained within a week) as early as possible is important.
  • Don’t invest to get good returns. Invest to get returns that beat inflation.
  • If you are risk-averse you must invest in equities! (the risk referred to is inflation risk)

What determines the  % of equity and debt investment, debt etc. ? We need ‘the’ equation to determine that.

The equation: 

Future value of a sum = (Present value of a sum) X(1+return)(No of years invested)

The good old compound interest formula. It is well known that if we begin investing early then

  • we will end up with a large corpus.
  • we need to invest a much smaller sum to reach our goals

What is often not made explicit enough is

  • we could afford to take much lower risk than someone who has started late.

Consider two friends A and B. A is going to be a father next month while B has a 7 year old daughter. B realizes that he has not saved anything for his daughters education and begins to do so. To ensure A does not make the same mistake, he urges him to start investing right away. They both decide to use a goal planner. Here are the numbers:

  • Present cost of degree: Rs. 10 Lakhs
  • Inflation: 10%
  • Due to their personal circumstances both can afford to save no more than about Rs. 10,000 each month.
  • A has 17 years before his child reaches college
  • B has only 10 years before his daughter reaches college.
  • Due to inflation B has to save Rs. 25.9 Lakhs and A Rs. 50.5 Lakhs
  • Although A has to save about twice of what B has to, because he begins early he could afford to invest in instruments which gives about 9% return each year.
  • B must ensure he achieves a return of about 13% each year

Thus A can afford to invest in very little or no equity while B has to have much more equity exposure in order to get close to his goal. The numbers may appear unnatural and fixed but the message is clear:

A persons risk appetite (how much risk he can take) is relevant only if he begins investing early. For the late starter, the goal requirements will dictate how much risk he must take. The risk appetite becomes irrelevant in such cases.

  • We can’t take it with us but we better ensure we have enough when we need it.

Can you tell me why I titled this post, ‘the contented investor’?! 🙄

After I received a couple of interesting comments on who is a contented investor, I read this quote by Benjamin Graham in Hemant Beniwal’s latest post

“People don’t need extraordinary insight or intelligence.

What they need most is the character to adopt simple rules and stick with them.”

To me this perfectly sums up the attributes of a contented investor. Do you agree?

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

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.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)