It Is A 2-Minute Read. But, It Is Important

CAGR Meme

Does this ever happen to you? It is problem so common that every 1 out of 5 people experience it (Swear, we didn’t make it up :P)

Jokes aside, it is actually confusing more often than not to understand whether the returns delivered by your investment are good, bad or average. The problem gets acute when your investment has been for a period that is more than one year because you are unaware of how much your investment made year-over-year.

So, what’s the solution?

CAGR or Compounded Annual Growth Rate

While you are obviously aware of acronyms like bff, OMG, ROFL, LMAO and so on, let us quickly decode an absolutely essential acronym that would serve you well for the rest of your life. Yes, CAGR.

To be absolutely precise, CAGR is the best measure when you have to measure the growth of your investment or for that matter, any trend, when the time period is more than one year i.e. multiple periods.

So, how is CAGR calculated? It is a simple formula

[(End value – Start value)/Start value] ^(1/(End date – Start date)) -1 ] x 100

Well, it may look a little complex but to be honest, it is absolutely simple. So simple that, my 10 year old cousin just loves solving for CAGR. Want to see? Let us take numbers from the above meme

[(100000-50000)/50000]*(1/3)-1]*100

Quick tip: The reason I took 3 is because the investment stayed for 3 years (periods).

To clear dino’s confusion therefore, the above investment earned 25.99% per year on a compounding basis which when compared to any instrument is pretty awesome. 

See, it is that easy! 2 minutes over and we are happy you got through till the end 🙂

Cheers,

Small Lessons To Make Your Life Larger & Wiser!

This post has been contributed by Tarun Bachhawat, our guest contributor, with help from the Fintuned Editorial team.

Just yesterday, I was watching the latest commercial from the stable of Royal Stag featuring the Bollywood A-guy Ranveer Singh. Basically, the punchline of that advert conveys the message that the culmination of small moments make your life large and one should strive for the same. Steering past that interesting life lesson, the reason my post begins with this annotation is because I could not think of a better introduction to the post.

Royal-stag-keep-perfecting

I assume that after reading the above paragraph, your instant question would be, “How does this relate to money management or finance in general, at all?”

Truth be told, you aren’t wrong in asking that question. The reason that I started with a synopsis of this commercial is because while watching this ad I was reminded of a short but insightful conversation with my father that turned out to be the best investment advice ever.

How did it play out?

One morning my dad saw my wallet that had some papers, money and my credit cards and said, “Do you carry everything in this one wallet?”  I simply replied, “Yes.” Post this answer, the conversation played out somewhat like this:

Dad: What if you are pick pocketed?

Me: That is sheer bad luck. There is nothing one can do about it.

Dad [Smiling]: There is a difference between hard luck and being foolish at your own will.

This remark did irritate me slightly.

Dad [Noticing the change in my expression]: Have you ever noticed how I keep my cash?

Me: Yes you keep some in your shirt, some in your right pant pocket and some in your inside pocket.

Dad [Smiling again]: Good. Have you ever thought why I do this? It is because if I am pick pocketed then I don’t have to worry as I will have some money in a different pocket which will help me reach home safely.

Honestly, that was a cool and helpful advice. Post this, he went on to share some more insights which I have shared below.

#1 Diversification is the key. Whether it be as big as managing your money portfolio or something as small as carrying your money, some assortment is important. In case of investments, you have to ensure that you try to cover considerable number of options, as per your risk appetite.

#2 Distance of pocket is directly related to the nature of your expenses

As my dad’s shirt pocket is the closest, it meets his daily expense requirements like travel, paying for a small snack in the evening etc. Similarly, the liquid amount in your bank account or hard cash has to be on you to meet you low-magnitude expenses.

The pocket in your trousers represents the requirement for short term plans like going for a short trip, buying a good watch or phone among other things. Finally, the inside (secret) pocket where my dad keeps a major chunk of his money is most difficult to access and he generally avoids taking out money from this pocket. As he mentions, this money generally represents savings for your long term requirements like marriage, education etc.

#3 Saving the best for the last: – Limit the use of credit cards

To be absolutely clear, my father is not at all against the use of credit cards and for myself, I have a couple of cards that are used to purchase tickets or pay online fee, pay taxes etc. That being said, he is against spending a portion of the money that you haven’t earned and on things you might not require. So the basic idea is to avoid spending money on luxuries that you have not earned or by taking money on credit from the bank.

Conclusion

In my brief but absolutely helpful conversation with my father, I learnt amazing money lessons that you might find in text books/lectures/seminars but don’t care to implement the same in a disciplined manner. I sincerely hope that my learning has made good sense to you and in case you have any doubts/suggestions for me, please feel free to reach out.

Cheers.

Learning, Like Investing, Is Ongoing

An informative piece on establishing the significance of MOOCs and how to leverage them optimally.

Hey Folks,

Hope you are doing great as always and spending some quality time with your friends and family.

Before I jump into narrating my thoughts and drawing up my ideas, let me mention an extremely significant message carried in the title of the post itself. A few years back, when I started with my first investment, a courteous gentleman told me “Learning, like investing, is ongoing” and that thought has stayed me ever since because of the loud and clear message it conveys.

In these last few years, a particular trend in the education space has come out to be a wonderful surprise. Growing up in India (no culture appropriation trash here please), I have always been insistent on the importance of securing a degree/certificate, whatever you call it. However, the emergence of MOOCs i.e. Massive Open Online Courses has brought about a tectonic shift in the way we used to learn and believe me, this change is definitely for the better.

moocs

Websites like Coursera (pioneer in this space), Khan Academy, Code academy, Udemy, Udacity, edX, Skillshare and desi website Apnacourse are doing some great work in making education affordable, accessible and diverse. To give you my own example, I am currently pursuing a wonderful, interactive course on HTML and CSS from Udemy and that too for $10 only. It may sound absolutely unbelievable but the potential unlocked by these online courses websites is immense and the sad part is that a lot of people are simply unaware about the same.

If you are thinking that I will enlist the catalog of courses on these websites, show samples etc. then you are completely wrong. In this post, my idea is to give you some amazing facts (even though they are more of experiences but because of the associated veracity, let me just call them facts) which will compel you to look through the above-mentioned names. So, here we go:

Fact #1: Courses on these websites are unimaginably inexpensive. While Khan academy is a free portal, integrated courses can cost as low as $10 on other web properties.

Fact #2: Most of these courses have lifetime access. So, don’t worry if you are way too busy for days, weeks or even months.

Fact #3: They are mostly courses with certification. Too hell-bent on getting some document? That’s solved.

Fact #4: Take the names of world’s best educational institutions and you will find it present on the MOOC model.

Fact #5: Because most of these guys have mobile applications, accessibility becomes a non-issue.

To be honest, I can go on and on but you get the point! The intent behind this post is to make you aware of the myriad possibilities with the concept of MOOC. It is worth a shot.

“Learn. Unlearn. Relearn”, said Nikesh Arora, at a sales conference when I used to be a Googler. Undoubtedly, he knows what he says.

Let me leave you with this thought and as a bonus here is a link that you should surely visit – www.moocs.com

Cheers,

Mihir