A noob’s handbook for investing and making money with finance guru Ankur Warikoo

Maybe you’ve already decided to invest but don’t know where to begin, or you’ve never even had the thought of it pop into your mind — fret not, for we have entrepreneur and financial guru Ankur Warikoo coming to our rescue, whose newest audiobook ‘Make Epic Money’ on managing and making money is also out on Audible now.

Yes, investing might seem intimidating. But this world of stocks and bonds is not reserved for suited-up professionals. Armed with knowledge from Warikoo’s arsenal, you too can navigate the world of personal finance.

Read edited excerpts:

Q. What is a trap noobs often fall into when beginning to invest?

Ankur Warikoo: The biggest trap out to get you– and I went through the same thing in my 20s when I started – is that you don’t know how much to invest. Forget where to invest.

The math in your head is: “I have my income, my expenses and whatever is left is what I should invest.” And that is the poor mindset. The rich mindset is: “I have my income, and I will then make an investment, which is a definitive committment, and then whatever is left, I have to make my life work in that.”

But that doesn’t mean that you kill yourself to get to that point. Because what’s the point of making money in the future when you can’t even enjoy your present? But this will make you disciplined about your money.

It will make you think hard about things you truly need to spend money on and something that you could, perhaps, wish away or postpone. It’ll make you sharper about the reality that maybe your income isn’t enough for you to fulfil all your desires, which will push you to increase this income further. Whether by changing your job, upskilling yourself, by getting side incomes, or by increasing some passive income stream. Because you will know that this, clearly, is not going to be enough for you and your future.

Q. How should noobs start investing their money?

Ankur Warikoo: It’s shockingly simple for you to start an SIP. When you start an SIP, it acts like the bank EMI. Your bank doesn’t care what your bills are that month. It doesn’t care whether you have the money, are out of a job, or got a promotion or whether you had to ask your parents for money that month. They just need money on that date when you committed to pay. The same way your SIP should be your future self as the bank asking for stability in the future.

That future could be five years out, 10 years out, or 40 years out when you retire. But it is something that you have to plan for.

Q. What is your one golden financial advice for a noob?

Ankur Warikoo: The only thing that I would love every 20-year-old to cultivate is the discipline of investing. What do you have that I don’t and I would pay all of my money to get? Time. Because you’re young, time is going to take care of many things that people in their 40s cannot afford to do.

If I were to ask you, “Hey, do you want to switch places with Warren Buffett? And maybe, about a few would think, “Not bad, having some 100 million dollars, but then you stare at his age and you’re like no, I don’t want to do that.” Why would I want to be 94 or 95 with $100 million when I can be 21, 22 and still have the potential to pick whatever number I can with my disciple and hard work?

Q. What if someone is bad at being disciplined with their money?

Ankur Warikoo: I don’t think anybody is good at this so you don’t have to blame yourself and you’re certainly not the odd one out. Everyone in their 20s, give or take, is not good at being disciplined around money. It’s a changing decade. You’re experiencing yourself for the first time; your most meaningful relationships, and professional relationships are being formed. You’re, perhaps, staying outside of your parents’ home for the first time. You’re by yourself and a lot is just hitting you right now. And that’s why, I always say, motivation is actually your worst plan when it comes to being consistent with money. Because motivation is nowhere to be found. Especially for the right things to do in life.

We somehow never need motivation to sleep for those extra 3-4 minutes after our alarms ring. We somehow never need motivation to eat another slice of pizza or to keep endlessly scrolling Instagram. No one has ever said, “Oh, I wish I had the motivation to binge-watch 15 more minutes of this show.” But somehow we always need motivation to do the things that we must do. So, don’t rely on motivation but forced discipline. And that, in the form of an SIP, is great. You don’t have a choice. Ye toh paise kat ke hi rahenge. (This money will be deducted, whatever you say.)

Q. Demystify 4 finance terms a noob needs to understand as they go on this journey

Ankur Warikoo:

1. 01

   Compounding

   The most important thing you need to know is compounding. It is basically the way everything grows, not just money, if there is a fixed rate of return.

   If there is a fixed return on your skills, your money, your relationship, you're going to get a bigger and bigger gain every year. Why? Because that return is on a bigger and bigger base. This blows up when you have given it time. So compounding is indeed the eighth wonder of the word, as Albert Einstein said.

2. 02

   Fixed rate of return

   The second thing is a fixed rate of return. A fixed rate of return is that you don't have to guess at what percentage of growth your money will grow. A great example of that is a fixed deposit. When you sign up for a fixed deposit, they'll give you a 6% return. It’ll remain the same, so, every year your money will grow by 6%. There's no ambiguity.

3. 03

   Variable rate of return

   The third is a variable rate of return, which is that your money may grow by A percentage one year, B percentage the other year, C percentage the next year, and D percentage the year after. But over a period of time, when you look at the approximate growth rate, you find a pattern. A good example of that is the stock market. The stock market goes up and down every second. But when you extrapolate, i.e., when you zoom out and you look at a 5-10 year period, you see a very clear trend line, which is usually upwards.

4. 04

   Risk

   And then the biggest element is risk. Risk in money is defined by: What is the probability of this money moving? So, clearly, in a fixed rate of return, the risk is zero because there is no movement, but in a variable rate of return, the risk has to be measured. For example, there's a very healthy stock, say, Reliance, Tata or HDFC. The risk is comparatively lower. Why? Because these are very large companies. They don't move like crazy. They move a little bit here and there. But over a period of time, it is a very consistent growth.

   But then you pick at the other extreme, say, cryptocurrency, even if it's Bitcoin. The volatility or the movement of that price is insane, it could go 20% up one day, and 20% down the next, then 30% up the next day, and 30% down the day after. So, your risk is far higher.

Q. Where should a noob invest their money, according to you?

Ankur Warikoo: What you invest in, then, is a combination of what risk you’re willing to take. And of course, what rate of return you get from that. This is the simple lay of the land. This is all that you need to know to start investing.

Now, you have three choices of investing.

Choice number one, be very safe. So, put all your money in a deposit. I will not recommend that because that gives you low risk, but also low return. It’s only about 6%.

Choice number two is you pick stocks. Know ye company bahaut achi kar rahi hai, (this company is performing well) or you listen to telegram groups that are telling you,’Buy this stock, it is going to go double the next day.’ You’re not an expert. You don’t know whether that’s true or not. We certainly don’t have the time or the wherewithal to evaluate whether this is right. And often, it’s driven by greed. Again, not my recommendation, because the risk could be very high.

Choice number three is a portfolio of stocks, or a group of stock. In a group of stock, if one stock goes up, the other one may go down and everything will be balance out. A mutual fund is a good example of a group of stocks. You can even opt for a mutual fund managed by somebody else. You don’t have to think about what to buy, how much to buy, none of that because somebody else is doing it for you. You just buy the mutual fund. And that is a passive way of investing. It’s like buy it, forget it. And your money keeps returning in a certain way, over a period of time.

I am a firm believer that everyone in their 20s should be passively investing unless, of course, they want to make active investing their profession. Because it doesn’t demand any effort or knowledge. And your money keeps growing with time.