Does removing stress make you wealthy?

I spent a lot of time and energy in the last 3 years or so getting my money management story in order. What is the investment plan for long-term needs? What is the savings plan for short-term needs? How to tell if I am running a budget surplus or a budget deficit? How to protect family money from my whims?

It was stressing me out before. I kept working on solving one problem after another, and now everything is starting to fall in place. But that reveals another issue: I don’t know how to use the free time available now! So far, most of my free time went into making and tweaking my finance plan. Now that a mature plan is in place, I don’t really need to be actively thinking about those problems.

I have free time now. I need to figure out how to use that time. A good problem to have.

They say that “wealthy” means you have freedom over how you spend your time. Does that mean I have become relatively wealthier? 🤔

Jupiter Pots: a failed experiment?

I started using Jupiter a year and a half ago. The sole reason I signed up for Jupiter was their savings feature called “Pots”. I was already keeping money aside for different purposes; Jupiter Pots gave convenient tooling for what I was doing.

Jupiter Pots impressions

Pots were great when I started. I liked them so much that I wrote a blog post praising them. While the rest of Jupiter has continued to improve and evolve, the Pots feature has stagnated mostly. There have been some changes, but they fall short of being good.

For example, there is a Super Pots feature that lets you create fixed deposits using Pots. But on maturity, super pots will self-destruct, and the money will move to your saving account. That means Jupiter will put you at the risk of accidentally spending saved-up money on something unrelated! To me, that looks like a lazy implementation that doesn’t stop to consider why the customer created a pot in the first place.

Then they introduced Habits, which are essentially recurring deposits. Habits are buggy too; they move money from your saving account a day or two in advance. Reporting this issue to Jupiter hasn’t really accomplished anything. But maybe that isn’t surprising, given they don’t even support updating communication address of bank accounts. (Not allowing address updates is a KYC norms violation, one would think?)

Back to Pots being unloved. Even basic things like modifying pot names, rearranging pots in the UI, etc are not done even after so many months. Tells you how much they care about Pots.

Looking into the future

The thing with convenience is that we are impressed by simple convenience initially. But over time, we take things for granted, and our needs evolve. We want more convenience. We expect our tools to do more for us. Same for me with Pots. I was able to overlook their flaws before, but now they are glaring.

The Jupiter team not investing in Pots is understandable at the same time. Jupiter is a startup. Possibly a small team executing at their capacity to make their company a success by building features that people want to use. I strongly believe that no one outside a small niche of customers wants or uses Pots. If Pots aren’t bringing them customers or usage, the Jupiter team would be right to call Pots a failed experiment and go on to explore other ideas.

Back to my use of Pots. If Jupiter won’t continue to be relevant for my needs, I suppose I should take care of them on my own. I already track my mutual fund savings using a spreadsheet. Making a similar tracker for bank account will be straightforward.

Say, I close my Jupiter account and move all Pots to a tracker of my own. My primary bank provides auto-sweep fixed deposits, which means the money I hold as short term savings will earn a higher interest than the 3% Jupiter pays me.

On top of all this, I’ll be able to tweak the tooling as/when necessary. Such a flexibility is seldom available in a pre-packaged product. Looks like this is the end-of-the-road for Jupiter-and-me.

• • •

Finally, Thank You to the Jupiter team for making Pots in the first place. Their product helped me see the convenience of separately labelled short-term savings. I may sever all my ties with Jupiter, but they have changed my life for the better. They deserve credits for that!

Look at your portfolio everyday!

This is a popular investment advice: “Do not look at your portfolio often”. The underlying assumption is that you may panic and do something you regret later—such as panic-selling when the valuations have fallen badly.

In reality, however, the opposite has helped me.

I started investing in January 2020. For the first many months of my investment journey, I was stuck inside my house (due to Covid restrictions), so there was nothing much to do. Not only was I looking at my portfolio every day, but I was also looking at the broader market and comparing it to my portfolio.

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Fast forward to 2023. Now I don’t really care as much to look at my portfolio. Nor do I care about how the Nifty index moved or how S&P 500 moved. Because I know—from the experience of watching my portfolio closely for months—that the changes are fairly inconsequential. I am not going to sell today or tomorrow. It matters little what the market did today. Inconsequential information becomes boring very soon.

If you are mature enough to not pull the trigger at a sign of a fall, watching the market or your portfolio every day can make you a better investor. It’ll help you focus on what matters while ignoring the noise.

PS: If it becomes very hard to resist the urge to do something, follow Gaurav Rastogi’s advice #5 from this article: just buy some asset for a tiny bit of money.

Using sovereign gold bonds for goal-based investing

I am not proud of this, but I have mostly been ignoring the advice to “look before you leap” when it comes to investing. My typical investment journey goes like this: I see some arguments for investing in some asset; I jump right into investing in it; a few months later I decide I don’t want that asset; then I figure out how to course correct. It happened with gold. It happened with Nifty 50. It may probably happen with active equity funds in the near future.

This blog post is about another such story.

Accumulating gold

When I decided to remove gold from my investment portfolio, I thought that investing in equity+debt was a good way to accumulate purchasing power to buy gold in future. If equity appreciates more rapidly than gold does, I thought, investing in equity was better than investing in gold.

But now I have a different point of view. If the end goal is to buy gold, accumulating gold slowly over time is likely a better approach than investing in equity.

The goal based investing framework recommends taking just enough risk to meet our financial goals. You don’t put all your money in fixed income because it’s going to be very difficult to retain your money’s purchasing power that way. You need to take more risk. So you add equity to your portfolio. But you don’t hold 100% or 80% equity for long since the added volatility can make it difficult to meet your financial goals. An investor following the goal based investing framework would start with relatively high equity exposure, but regularly keep reducing equity exposure to progressively reduce risk.

Investing to buy gold is tricky. Gold is just as volatile as equity is. But if equity prices fall, gold price may rise and vice versa. Gold’s price appreciation is also usually faster than fixed income’s growth. Given these, holding equity and/or fixed income assets to eventually buy gold sounds risky. it’s arguably less risky to just buy [investment] gold and hold it until we need to buy [consumption] gold. At the time of buying gold for consumption, we can sell the investment gold, and we’ll have just enough money. By holding gold as investment, we nullify the impact of gold’s price volatility.

Using sovereign gold bonds to accumulate gold

Sovereign gold bonds (SGBs) are issued by the Reserve Bank of India (RBI). These bonds have a fixed tenure of 8 years. A bond that was issued on 1-May-2021, for example, will mature on 30-April-2029. Each bond represents 1 gram of gold. On maturity, the current price of gold will be paid to the bondholder. If gold price had appreciated in these 8 years, the bondholder need not pay any tax on the capital gain, which is a good incentive for most people.

Indian weddings make use of gold. A nontrivial amount of gold is needed if you are the bride’s side. (The groom’s side usually doesn’t need as much gold.) I roughly know when our girl children will get married, so it’s easy to tell how much gold we’ll need when. In my investment tracker spreadsheet, I plot the maturity of our SGBs as a graph like this:

This graph tells me how many of our SGBs mature in a given year. This gives me clarity on exactly how much gold we can buy in that year. Accumulating SGBs is a convenient and less risky way to accumulate gold if the end goal is to buy consumption gold.

Don’t let attractive XIRR figures fool you!

Have you come across investment opportunities that quote very attractive XIRR numbers? Have you been tempted to invest in those just based on the XIRR? This blog post is for you—to discuss what XIRR means in a practical sense.

An example to understand XIRR

Let’s say I borrow ₹10,00,000 from my bank at 10% per year interest, which I promise to pay over the next 60 months. The bank will ask me to pay ₹21,247 every month. Assuming I pay exactly ₹21,247 every month from November 2023 through October 2028, I would have paid a total of ₹12,74,820. While quoted “interest rate” is 10.00%, the XIRR of this loan is 10.46%.

Let’s say I am able to pay this loan off more aggressively. If I pay ₹5,000 more every month—i.e. I pay ₹26,247 every month—how much will I save? Based on Fisdom’s calculator, I’ll be saving ₹66,689 in interest overall. The loan will be closed in 47 months instead of 60.

If I follow the original schedule, the bank receives repayments at the XIRR of 10.46%. Now that I am more aggressively repaying the debt, the total interest I pay goes down, but the XIRR increases to 11.31%!

What does this mean? A higher XIRR does not necessarily mean higher overall earnings.

How is this information practically useful?

Does this mean XIRR is a misleading metric that we should just ignore? Not really. XIRR takes into account the “time value” of money. A higher XIRR is useful to those who can optimally reinvest all the cash flow coming to them, as it is coming to them.

A higher XIRR is useful to a big bank since they can take this cash and lend to another borrower. A higher XIRR will mean the bank’s loan book can grow faster. However, if you, a retail investor, tend to simply accumulate the repayments in your savings bank account, the higher XIRR is often bad for you.

How to decide about high XIRR investments?

Some investment products show their high XIRR return prominently everywhere. If you calculate the CAGR return of the same investment, the rate may be low. But because the XIRR looks a lot more attractive, they promote the investment by quoting the XIRR number.

You can invest in such an investments if you have the ability to optimally reinvest all the repayments as they hit your bank account. If you cannot reinvest so quickly—most retail investors cannot—then you are better off ignoring the quoted XIRR and calculating the investment’s CAGR instead. Or, just calculate the corpus you’ll get from this investment and compare that with the other investment you may make instead (such as PPF or bank deposit or debt mutual fund).