Weath is built with Income. Wealth is not built with Returns - Mr.Pattu(freefincal.com)
Mr.Pattu in this interview highlights that wealth often comes from consistent increase in income, not by chasing high returns. It’s like achieving your ideal weight: you control your habits, not the speed of results. Similarly, in investing, consistent contributions from your income build wealth over time. Market returns, like metabolism, have their own pace. You can’t force quick gains, just as you can’t force rapid weight loss.
Time is key in both scenarios. Consistent effort, whether in health or investments, compounds over time. The earlier you start, the more your efforts will grow. Focus on what you can control – your income. Let time and compound growth work their magic.
Let’s set the ground rules to work with
- Investments should be dumb and boring.
- Anything worth doing must be greater than or equal to my hourly rate.Outsource anything is less than my hourly rate.
- Be consistent in following the above rules
I like spending time on things that gives most excitement. I had had tried evaluating stocks , reading financial data and keeping up with trends but it wasn’t that exciting. There are two options to make investments boring, each of them having their own nuances.
- Index funds
- Robo Advisors
Index funds are either mutual fund(unit trust if you are from Singapore) or ETFs. These are in essence a bunch of stocks that’s either managed by fund manger or it simply designed to track the market indices. You pay a higher fee for mutual fund and low to no fee for ETFs. Over the long term the performance is almost same.
Robo Advisors take a middle ground between the two. They offer low cost actively managed funds by using algorithms. These are relatively new type going back as far as 2016. It should give similar performance as the above two given that most them buy just a bunch of ETFs similar to DIY ETFs. The difference between DIY ETFs and Robo Advisors. I suppose robots are much more disciplined than me.
As a software developer, I often fall into opportunity trap. I start Solutioning to problems with software without thinking from first principles. Anyone I know thinks of app idea they reach out to me. I have spent enormous amount of time building stuff and getting into projects without much thoughts. In fact a lot of friends and colleagues has similar stories to share. This is bound to happen in a world where access to information is at click of a button. I see DIY investment as one such trap.
The most expensive commodity in the world is time. I exchange time for my needs and wants. The value of time must be much more than what I get in exchange for it. Naval Ravikant discusses the idea of personal hourly rate and recommends to set it be as high possible to begin with. Assuming an hourly rate of $100, if the task at hand is anything less than that then it’s better to outsource it.
Roboadvisors fees typically range between 0.5% to 0.7% per year including the expense fee charged by the ETFs that it picks. A portfolio of $100k comes to about $58 per month. It is in fact a very low fee for the value it provides.
The hardest part of all is controlling your emotions and shutting yourself from constant investment news, staying invested and focusing income generation by adding value to others in exchange for time.