Yajana Rao

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FIRE (Financial Independence, Retire Early) movement

August 25, 2021

Financial independence or Financial Freedom:

  • Money work for you instead you working for money.
  • Passive income should be more than active income.
  • Not dependent on 9 to 5 job for income.
  • Your income should not depend upon you.
  • Income diversification ( Multiple sources of Income )

Those seeking to attain FIRE intentionally maximize their savings rate by finding ways to increase income and/or decrease expenses.

50-30-20 Rule:

Income- 50% for needs 30% for wants 20% for Savings

Needs are those without which you cannot sustain your daily life. These are groceries, house rent or EMI, utilities, and so on. You can never compromise on needs, and you have no choice but to spend on them.

Wants are those that are not absolutely necessary, but you are making use of them in order to make your life better. A few examples of these are gym membership, vacation, movie tickets, subscriptions to online streaming sites, and so on. It is advisable for anyone to limit their spending on wants as much as possible.

The remaining 20% of your income must be saved to build an emergency corpus which is at least thrice your monthly salary. Once that is done, you can start investing. Therefore, your investments in mutual funds should be 20% of your monthly salary. If you are able to cut down on spending on wants, then you can utilise the same in increasing your mutual fund investment.

Extreme savings rule:

50% - 70% Savings.

Frugality: Think twice before spending.

Generate passive income

Lean fire:

Live on bare minimum and save on rest.

You’re not going to get rich renting out your time. You must own equity - a piece of a business - to gain your financial freedom.

Get paid by the value you bring. Not by the time

Investments

The following are some of the popular asset classes.

  1. Fixed income instruments

Typical fixed income investment includes:

  • Fixed deposits offered by banks.
  • Bonds issued by the Government of India
  • Bonds issued by Government related agencies such as HUDCO, NHAI, etc
  • Bonds issued by corporate’s
  1. Equity

Investment in Equities involves buying shares of publicly listed companies. The shares are traded on the Bombay Stock Exchange (BSE), and the National Stock Exchange (NSE).

  1. Real estate

Real Estate Investment involves transacting (buying and selling) commercial and non-commercial land.

  1. Commodities (precious metals)

Investments in gold and silver are considered one of the most popular investment avenues.

The technique of allocating money across assets classes is termed as ‘Asset Allocation’.

Stocks

A stock or share (also known as a company's "equity") is a financial instrument that represents ownership in a company or corporation and represents a proportionate claim on its assets (what it owns) and earnings (what it generates in profits).

The 11 sectors are:

  • Energy

  • Materials

  • Industrials

  • Consumer Discretionary

  • Consumer Staples

  • Health Care

  • Financials

  • Information Technology

  • Communication Services

  • Utilities

  • Real Estate

  • Dont put all eggs in one basket

  • Always buy in SIP mode. If you want to invest 50k in Infosys(For example). Then buy in 50:20:20:10 ratio or any ratio that you wish. So you can buy on dip or breakout

  • Invest in the shares who are market leaders of their sector.

Type of Investments

  • Invest in Lump Sum Investing in a lump sum would benefit investers with large amounts of money. Do this once a year.

  • Systematic Investent Plan

A systematic investment plan (SIP) assits a paid person in investing a set amount each month.

  • Buy on Dips

Purchasing an assets after it has dropped in price with the hope that it will rebound or exhibit an uptrend in the future is known as buying the dips. The method can be used to buy a new assets or to smooth out an existing porffolio.

Investment strategies

1. Coffee Can Investing

Coffee Can Investing is a low-risk way to build enormous wealth by purchasing shares of outstanding companies and keeping them for 10 years without actively buying and selling them.

• The company should have been in existence for at least 10 years. • The revenue growth should be at least 10% year on year, not CAGR or SAGR. • ROCE of at least 15% for 10 years • Market capitalization should be more than 100 crores • The company should have good brand value. • The company should have a competitive edge. • Use a Coffee Can Portfolio screener

$-step framework while building a coffee can portfolio

  1. Chose companies that are market leaders
  2. Build a portfolio of 10-15 companies and intended churn of less than one stock per year.
  3. Choose companies that have an excellent growth track record of over a decade.
  4. Don't focus on one type of stock; Keep it diversified.

Reference:

  • https://twitter.com/naval/status/1002103670400417792?s=20
  • https://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp