I am most proud of an investing decision I made years back.
Let’s go the beginning.
I have been investing for last 20+ years. In the initial years, I was fumbling in the dark and trying figure it out. I had several failures and lost a decent portion of my tiny net worth. Over the years as I gained confidence, I started investing more of my net worth in stocks and moved out of mutual funds entirely by 2009. I launched the advisory in 2011 after investing my own money for 10 + years.
During the initial I did not invest a single penny of my mother’s money as I did not want to risk her hard-earned savings on my trial and error. However, by 2011, her savings were dwindling as inflation was eating into it. The interest on her savings were barely enough to cover her expenses and at that rate, she would have run out of money in the next 7-9 years.
Now you must be thinking – That’s what kids are for. I should be taking care of her to which I wholly agree. However, this line of thinking misses a key point – Independence and choice.
Fear of markets
Our parent’s generation is over cautious and conservative. They consider the stock market to be a risky place and media doesn’t help the cause. As a result, most of them invest mostly in fixed income. In doing so they take on a different risk – loss of purchasing power due to inflation.
This fear may not be rational, but you cannot blame them for it. In the 80s and 90s, the Indian stock market was poorly regulated with brokers often cheating their customers (it happened to me a few times). No wonder the earlier generation has been wary due to the speculative cycles and poor regulation of the past.
Instead of wishing the problem away, I tried my best to give psychological safety to my mother when I decided to invest for her
This is what I did in 2011.
- Invested 50% of her net worth, same as my own/ advisory portfolio.
- Reduced the withdrawal rate from her accounts to bare minimum and covered the balance.
- Have not withdrawn anything from the portfolio and let compounding do its magic.
- Promised to backstop her portfolio. I would cover any losses personally.
The last point was the key. It ensured that she would not lose money if I made poor decisions.
In the last 12 years, her equity portfolio is up 13X and is 80%+ of her net worth. The dividend income alone can cover her expenses.
There is a joy in having enough money of your own so that you don’t have to depend on your children. I continue to take care of her, but my mother knows that she doesn’t need it and she has a choice. She can ‘choose’ to spend her ‘own’ money as she sees fit. It’s a different point that she has limited needs and spends most of it on her kids and grandkids.
I cannot be prouder of this achievement. I can sense the satisfaction she has from knowing that she has enough to spend as she wishes and not depend on anyone.
If you have older parents, I suggest putting at least a small portfolio of their net worth in mutual funds (if you don’t invest directly). At a minimum, this money would act as an inflation hedge.
However, remember to manage their fears and caution about the stock market. Preferably, start small and earn their trust over time. Finally, be conservative and risk averse with their money.
Believe me, in 10 years you will be glad that you convinced them to do it.
