This is the second part of a simple solution to all your investing problems. Check out the part 1 which is about the background to this post. This post is about the thought process that went into making of the 88% solution.

The Thought Process:
Before I tell you about the 88% solution, it would make sense to know the thought process behind:

1. Paralysis by Analysis: There are 300+ insurance schemes, 1000+ mutual fund schemes, 2500+ stock scrips and hundreds of deposit schemes to choose from. Is it possible to analyse them and come to a rational decision? Even if it’s possible, wouldn’t it paralyze your decision making ability? Wouldn’t it be a good idea if I have to choose from a set of 10 products which is being recommended by a person not interested in selling those products?

2. There’s a lot of noise: If you look up to TV, Newspapers for tips, let me pray for you. There are so many conflicting views (and all of them appear confident and right), that you can get confused. I look for information, not views/tips from the Newspapers/TV. But it may be a good idea to close down that noise altogether.

3. Timing the market is impossible: Nobody actually knows whether the market is going up or down. And When! I have made countless attempts at predicting the market and hoping to time my investments. I have failed more often than not. There’s merit in being regular and automate your investments rather than trying to time the markets.

4. 4 Parameters for your investment decision: Before taking an investing decision, you need to look at the likely returns, liquidity, safety and the cost. Figuring out all the four factors can help you take a rational decision.

5. Mutual Funds are more costly than ETFs: Having discovered the abilities of stock experts, I also discovered that we pay a lot of fee for their fund management abilities. I have also learnt that majority of the fund managers under-perform the market indices. And they get paid from our pockets for underperforming the markets!

6. Riding the momentum wave is not for long term: We have everyday reports of top gainers and losers. And there’s a whole lot of day traders riding the wave and appearing to make good money every day. But along the way, we have also seen suicides when the markets crash. To me, it is a zero sum game where you win some and lose some. Eventually balance it out.

7. Discipline/Emotion Control is important: It is easy to get waylaid by emotions of greed and fear. It is important to understand this risk and continue with your investing.

8. Getting Started is the best Investment decision: Yes, we delay getting into money decisions because of a variety of reasons. Like:
• Huh, I’m just 24.
• This financial planning is so non happening thing.
• I have no money.
• I don’t understand the jargon.
These are excuses and not reasons. It prevents you from getting started. But how do I get started, you ask.

You can check out the 88% solution!

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This post is about a simple solution to setup your investments. I call it “The 88% Solution”

Why 88%? Because my hunch says, it works for 88% people. It works 88% of the time!

I have met a lot of young people, who have just started having their own income, get phased out by the in-numerous financial products, persistent financial advisors and the jargon. And all these complexities paralyzes them and prevents them from getting started.

This 88% solution will help young people get started and be 88% right about their investment decisions. That, to me, is a fair start. Along the way, you can customize the solution and make it 100% right for yourself.

I will cover this post in three parts: 1. The Background. 2. The Thought Process and 3. The 88% Solution.

The Background:

During my 20 years of work experience & 4 years of blogging, I have always mulled over doing things in a better way. Be it, work or the topic of my blog, i.e. personal finance.

I took to blogging to learn more about managing money. And to find a simple solution to a complex issue of managing money. I knew about information asymmetry in the industry. I have learnt more about the psychology of money management. I have read up on budgeting tools, personal finance software and learnt more about rupee cost averaging and the magic of compounding. I have researched Mutual Funds, Stocks and thought up the important factors that should go into deciding a product.

In the process, I have also developed my own “Iceberg Theory of Money Management” where I believe that knowledge about money is not enough. You also need to develop skills and attitude towards managing your money.

I also get a lot of emails from you asking me how to get started with investing. I do point out a few things in my reply. But I have been figuring out a detailed reply that might be more useful to you. And this post is that attempt.

There’s a maze of thousands of financial products, advisors, advertisements. The 88% solution will get you started with 5 simple products which nobody bothers to push. Because it has no commissions attached.

Welcome to “The 88% Solution”

Why not 100%? It won’t work for day traders; “get rich quickly” approach guys. Some people will get put off because it doesn’t entail any commission to your friendly advisor/agent.

Now, I know this is beginning to be a daunting thing for a layman who just wants to get started with managing his/her money. The good news is that you can set up your money management in a matter of few hours. And be done with this hassle thing called “personal finance”

Please bear with me and stay tuned for Part 2 (The thought process behind the solution) and Part 3 (The 88% solution)

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