The Tariffs that affect us

 The buzz word for the last few months has been - "Tariffs" In the last few months, there has been so much written, spoken and discussed about tariffs. On the day the tariffs were announced the market tanked. There has been so much drama and thorough entertainment. However, if you look at the actual Nfty movement - Nifty was 23,250 a day before tariffs were announced and today it is 24,750 up roughly 6.5%,that's a full year's interest on my FD! There have been quite a few of us who have taken decision to participate or not to participate due to Tariff  'Trump'-trums. So much for hardly a movement on the needle! 

           Time to remind you that at Droplet we always write about Personal Finance. Given that Tariff is the buzz word, its the perfect time for us to inform our readers about the tariffs that actually affect their personal finances, the rest is - Just entertainment. 

#1 Starting Late Tariff  

    Assuming an investor invests 10,000 for 30 years, he/she will have anywhere between 1.4 Crores to 5.6 Crores depending on his choice of investment. Refer below table - 

More often than not people indefinitely delay the start of their investement journey due to some random reason. This time the reason being tariff war but we have seen the needle has hardly moved. So the first tariff we pay is "Starting Late Tariff". Below is a simple table that shows the lower corpus we would have due to delaying the investment journey

If we delay the investment by just 5 years, we stand to loose anywhere between 50 lacs to as much as 3 Crores depending on if its a Bank RD, PF, Gold or equity related product. Similarly if we delay starting the investment by 10 Years, assuming even a simple 8% return, we stand to lose almost 1 Crore. Time is Money, ain't it ? 

Lesson -  Start saving today, so that you can start investing from tomorrow atleast!

#2 Asset Allocation Tariff 

We are country obessed with the same thing - If its sports then its Cricket, If its food, then its Biryani, If its a job, then its Offshore IT Job so on. One can see the same mentality in our Investment world as well. We either see people loading on too much of Real Estate, meaning all our earnings in initial years majorly go into Buying a home or paying off the Home loan that came with the home or loading too much of Gold - that's because of the perception that Gold never loses value. True but only in long term, Mind you in short term Gold can also go down as much as 30%. Or worse, we just load up too much of lifestlye expenses that we are not able to save any money in any form. 

So one should be mindful of where our money is invested and should maintain a very good asset allocation suiting our Age & Income profile. Here's a simple chart that tells us the difference in returns we can make by either investing in the similar asset class or having a judicious mix of assets - 

Just by choosing a plain-vanilla fixed asset allocation of Equity, Gold & Debt, our end corpus can be higher by anywhere between 1 Crore to 50 lacs for a small investment of 10K every month. But most investors do not pay attention to this but to the external noise and try to time the market. 

Lesson - Invest as per your Age and income profile 

#3 Inflation Tariff - 

No, We are not going to go down the rabbit hole of telling you how inflation destroys your purchasing power rather we want to point out a fallacy that most investor do! That's not increasing their investment as their income increases. We have seen a lot many people just investing a fixed amount for N number years and assuming that all will be well at the end. All will be well but will it be Well "Enough" ? Thanks to Mr. Inflation, it won't be! 

Think of it like this - If you were to buy 10 grams of gold in 2019, you would have shelled out INR 32,000.Today to buy the same amount of Gold, you need to shell out INR 96,000. ask yourselves, if you were saving, 10k monthly in 2019, will the same 10K savings be sufficient? Honest answer is No! you need to up the ante.

Here's a simple charts that tells you the incremental corpus you can create if you increase your investments by 5% every. (5% because I am assuming inflation to be 5%)

By simply increasing your monthly saving by 5% each year, we can make extra corpus of anywhere between 1.2 Crores to 3 Crores. 

Lesson - The 1st expense out of each increment is additional savings

Long Story Short
Rather than paying so much attention to the Tarriff noise created by Social Media war horses and News publishers, One will do good to himself If he pays attention and avoids his portfolio getting hammered by the above three tariffs. This will ensure to make the investor a wealthier and happier person. 

So, 

1. Start Early - Early is not tomorrow or even today, Its infact now! 
2. Have a Good Asset Allocation in place, Don't put all apples in one basket
3. Increase your savings in line with your earnings to beat Inflation.  

For any financial Planning queries, please contact Droplet Wealth at invest@dropletwealth.com.