Congratulations!
We have just experienced the biggest crisis of our lifetime and good to see you sailing towards the post-pandemic era.
On one fine evening, I received this email from my Bank.
What instantly caught my attention was the part where they mentioned that Savings account interest is dropped to 2.5% per annum.
This started a chain reaction in my mind and I informed my wife as even she held the same bank account but with a lot of liquidity in the savings account. My wife has been traditionally a risk-averse investor and very cautious in money terms. I am blessed that we always have a contrasting opinion on our personal finance journey as you need someone to curtail your wings a little bit when you are all ga ga about Equity.
P.S: The only thing that gets me annoyed during our conversation is her trust and faith in banks and with the recent fiasco with YesBank and Lakshmi Vilas Bank, we have to embrace the reality that Banks are not always safe-havens.
We both discussed at length the above topic and agreed that with such a low-interest rate, keeping a large sum would not earn us any good in a savings bank account. Given her risk-averse nature, I started my research on low-risk options of investment.
P.S: It is her money and I am only a medium who thinks of himself as an expert when I don't even get paid any brokerage. LOL
My first action was to identify which Bank is giving the highest interest rate in FDs. Naturally, it had to be a small and upcoming bank as their primary focus is customer acquisition and with recent blunders of NPAs in Indian corporate sectors, all the banks are looking to increase their CASA ratio and move their majority business towards retail banking.
I hold an account with IDFC First Bank and I was sure they were giving the highest interest on FD. To my surprise, the 1year FD rate has come down to ~5.75%. If you don't know why then just read about RBI repo rate change etc. and you will get the picture.
My next move was to start looking for Bonds since I was keen on a safer option. I started researching on CRISIL and ValueResearch websites. Eventually, with the kind of complexity, lock-in period, and longer investment horizon, I wasn't convinced. Do know that in recent times we have seen all forms of investments fail and no investment instrument is 100% bombproof.
As usual, my research led me to endless/mindless YouTube surfing where I found this interesting philosophy of American Billionaire Ray Dalio and his investment strategy.
To become financially independent, Ray Dalio has suggested diversifying and investing in an All-Weather Portfolio. The break up of his investment is as below:
I found this video by 'The Better Men Project' on YouTube very insightful and you can pause and take notes while he goes on and on with his explanation.
My energy was at the next level but again worry seeped in thinking of the complexity involved in such investments in the Indian scenario.
Here comes the best part…
My research further led me to this awesome but less known instrument called as smallcase which is nothing but bucketing your desired stocks and building a mutual fund like a portfolio. I will let you do your own research as all the information is available on their Website.
I found this smallcase named ‘All Weather Investing’ and this is exactly what I was looking for. This smallcase has a pre-created bucket of instruments that diversifies and invests your money in three segments namely Debt, Equity, and Gold. Remember this is not a get rich faster strategy but a slow and gradual upwards move. I am sharing their article 'Introducing All Weather Investing' which will give you further clarity.
As per the latest data, their segment weightage is Debt ~27%, Equity ~44%, and Gold ~27%.
As you can see their weightage in Equity is on the higher side although these are top 50 and 100 listed companies on stock exchanges which are assumed to be safe, I would wait for few days before investing as I feel that the market, in today’s scenario has gone overboard and on slight correction, will make my entry. Yes, this is how conscious I am because buying at a lower value of 1-2% can make big difference in the long run.
This was the nearest match to the principle of Ray Dalio which is low risk, moderately gaining, and better than the FD option available to me as per my knowledge. The fact that it diversifies your money in the different asset classes and still gives above 10% CAGR is such a relief and now that we have seen all the shades of the market during the pandemic, we have a proven theory if you can recall to what level the equity market crashed and where the gold price stands today.
P.S: This is not a promotion and I am not paid for writing this article. I am just a commoner like you who is trying to make better decisions and improve in his FIRE journey.
I would sincerely suggest that you do your own research when making any financial decisions as these are my view and I am only sharing my personal lookout and journey with you, my readers.
Happy Investing!