Tradingqna book club: MONEY WISE: Timeless Lessons on Building Wealth By Deepak Shenoy – #41 by Parth111 – Book club – Trading Q&A by Zerodha


I seriously don’t know why index funds always carry “low cost” with them. It’s like saying that I always hire low-cost employees in my company (Does your company do this? Do they hire expensive/good IIT engineers, IIM expensive/good managers? Or do they hire low-cost employees from God knows what institute?)

Before following up on some of the speakers who talked about index funds (I refuse to use the phrase “low cost”) in some media (social or print) and their associated cost, did I care to dig a little bit and do some research on whether active money is really that bad?

Every man and his aunt are shouting from the rooftops that Chancellor (MFD) is evil. Have you bothered asking your advisor why you should or shouldn’t choose index funds? Just because they make money from your investments doesn’t mean they are evil.

Have you at least made an investment plan for yourself (assuming you wrote down some goals for yourself to achieve on time). Have you checked yourself to find out whether you want solid returns on the index or some minimal percentage returns on your investments? I am the second type of investor.

My philosophy is ‘to hell with the index. I want 13% XIRR minimum on my investments (I can live with 12% XIRR. 11.99% is definitely not acceptable. Inflation + GDP mostly hovers around 13%, so XIRR is my target)’ in Next 7 to 10 years. This should come with as little volatility as possible (volatility cannot be 0).” Most of the time, this type of philosophy tends to overpower the pointer as well.

Have you checked the rolling returns (this is talking about consistency of returns) of the index funds? Some of the best index funds >12% have only delivered annual returns of around 85% to 90% once. Is that enough for you? I don’t want less than 97% – 98%. Compare it with some active funds that gave 100% of the times >12% XIRR and 95% of the times >15% of the XIRR.

Index funds are for the person who has achieved most of his goals in life and just wants the hyperinflationary returns with a peaceful life (no headaches in annual or semi-annual reviews). Do you fit this description? I do not.

Index funds are for the person who tends to second-guess every move they make. Re-check it, who is trying to make extra 1% or 2% returns, who wants the best performing fund each year (that’s impossible to achieve) and anything less than that is not acceptable. Is this you? If yes, please choose indicator funds. I am not that person.

I am looking for my active money. I’m not looking for the best chest. I would like a fund with very high stability that generates returns of a minimum of 13% over 7 years (up to 10 years) and at least >1 (the higher the better) market share ratio (this is another metric used to evaluate active funds) .

I will review my goals and the performance of my funds every 6 months based on rolling returns and market share ratio. I will not look at XIRR every week/every month and compare it to the previous week/month. I will only check if all my parameters are ready once every 6 months and forget about them for the next 6 months. I have more important work to do. Play with my kids, flirt with my wife, excel in my chosen field of work and ask my employer to increase my salary package. This is much more fun and fulfilling than following someone who doesn’t know, half the time, what they are talking about (they also don’t follow their own suggestions and may be biased from past experiences).

My review process –

Check rolling yield, market share ratio, and XIRR once every 6 months. XIRR is given less weight because I have not completed the minimum 7-year period that I want to complete. Once complete, XIRR gets a higher weight. Until then tiered returns and market share ratio. Does this active fund get me as excited as I did when I bought it after checking rolling returns and market cap ratio (no matter what the market does)? If yes, then I am in a good place. Come back after 6 months.

The MFD assists the investor in this endeavor because they have experience dealing with emotions during the ups and downs of the market. Of course, the payment for them continues to increase slowly and steadily (along with my group). The amount I might end up paying them is quite a bit over the course of a lifetime. I think they deserve it just because they help me ease my bandwidth to pursue other activities (mentioned above) which gives me more happiness and satisfaction than saving some money. And the higher salary I get for my endeavors (due to the freed bandwidth) makes up for a lot more in monetary terms too.

I prefer MFD because they have skin in the game. In the past I don’t know what the scenario is, but today they only make money if the investor makes money. a period

I don’t prefer a DIY investor for the above reasons. Only fee planners are very important and have their own market. They just don’t suit me because I’m a growth investor (the MFD has a vested interest in growing my pool. They make more money when the pool goes up). Fee-only planners are more suitable for the investor looking for stability (index fund type).

I also prefer the advisor who only makes money when the investor makes money.

open for discussion. I like a good one

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