Guest Blog by Sushma Bhat, a good friend, one of our early investors and the brain behind this website.
The one where investment ignorance is bliss...
Have you ever lived your whole life thinking something is “Not you” and then one day, something phenomenal happens that changes your perspective of “you”? Well, that has happened to me, in more ways than ever. Specifically in this special edition of blog series for Koalla.tech, I will talk about how my accidental foray into the world algorithmic trading changed my perspective about “safe ways of investing” or “right ways of investing”. I learnt that investing does not have to be safe or right, rather it has to be smart. Investing can bring joy and fulfillment more than ever, when done smartly and judiciously. Read my experience and journey to understand how this actually happened.
We are all investing in some way or other…..for instance..
- A mother is investing in her child for a better future..
- A father is investing his time in his job..
- A student is investing time and energies in learning..
- A dancer is investing time and energies in crafting her art..
- A professional is working out in the gym, and investing in his health..
- A homemaker is cooking nourishing food, investing in her health,
- A friend invests in her friendships..
- A family member invests in relationships and so on…
So essentially, time, energy, skills, intellectual capabilities, are being invested everyday by everyone. Some invest their time in low return activities like mindless browsing on facebook or movies, and some invest their time in higher return activities like healthy cooking, workout, learning etc. Also, if you note most of the investments we are doing in day to day life are long term investments. For eg. a couple invests their time in children and their upbringing, that is a very long term investment!
Money is nothing but the same resources at our disposal (time, energy, intellect, skills) transformed into dollar bills, or a bank balance. Does our personal investment journey end there? Or should the personal investment approach change once it is transformed into money? It should not. But that’s not how I thought of it. Money in the bank was the end goal for me, and I did not really make that money work harder for me.
I grew in a conservative hard working family, in many ways described as a middle income family. My father toiled away at a bank day in and day out, and the main focus of the family was to “Save” so that we children could get a good education and be placed in decent jobs. There were no silver spoons, or bed of roses, hence financial decisions were pretty big decisions. Since my father was in a bank, our family had these two main ways of investing that were considered safe.
- Bank Deposits
- Gold
Even now, I know many people might think that these are still the best options of investing. So over the years, I have had the experience of both, and have taken the liberty of listing the pros and cons here based on my experience.
Bank Deposits
Bank deposits are easy and convenient. You can park your money in the account, and get access to your money when you want it. In few countries like India, bank deposits for a fixed duration also yielded about 6% annual return which was a decent and attractive proposition. So this is what I did with my income while in India. I happily left the money in a bank account and happily enjoyed the reasonable returns. It seemed like the right and safe thing to do and that was just perfect!
However fast forward a few years, and my income was in the United States. In countries like the United States, the interest rate for savings accounts in banks is as low as 0.05%. Now my “put it in a bank account and forget it” did not really yield any returns, but I still felt it was not safe to venture out into any other kind of investments, since that was not “me”.
I tried a few middle ground options like,
- NRI savings account in India and government bonds.
- I was fascinated with US bank CDs which are sold as lucrative investment options by banks. Later I realized that CDs have an average interest rate of 0.3% to 0.8%.
- I also explored options in the US banks which had international presence to see if they provided the “6%” returns that I wanted through savings, but nothing worked out.
Gold
Gold is a precious metal and limited commodity. So gold is really a great investment option, that is safe and with reasonably great returns. Now I am talking gold in the traditional sense, where you would buy physical gold from a seller, and store that. In my early years of working and earning, I took advice from my mother and invested in actual gold. However there are many challenges to doing this for a globetrotter and wanderlust like me. Where will you store it? How will you keep it safe? You really are not going to wear it that often. So this too came with its own set of challenges. While the price of gold as a commodity is bound to increase over a period of time, physical gold as an asset came with many challenges.
I am summarizing below, the two types of investments I mentioned above with their pros and cons.
Investment Type
BANK DEPOSIT
Pros
- Convenient
- Easy to access
- Money is safe, most banks have min FDIC insurances.
- Some foreign banks promise higher about 4% interest rates
- Need not be actively managed
Cons
- Poor interest rates for your savings
- Complicated paperwork for foreign bank deposits
- Double taxation (foreign bank deposit interests)
Investment Type
GOLD (as a physical asset)
Pros
- Profitable in the long run
- Can act as a family legacy and passed down to younger generations
Cons
- Hard to store
- Hard to keep safe
- Hard to transport or travel especially via airports
- Gold as a jewelry loses some value when sold, due to labor costs
- May not be very pure, and hence might lose money when selling
- Hard to prove ownership
Stay tuned to see how Algorithmic trading changed my perspective on investing.
All the above opinions stated above are from the authors personal experience, and is not meant to provide any kind of professional advice or assistance in financial planning or investments.
I am Sushma Bhat and come with more than 15 years of experience in IT and Analytics industry. I have helped build Koalla.Tech in June 2020.