Tag: principles

Posted in Investing, Personal finance

Visualizing Indian Equity Mutual Funds

Posted on by The Tortoise

The human brain perceives better through images.

As they say – A picture is worth a thousand words.

I have been doing data driven personal finance decisions for some time now.

With a combination of Python libraries and data from aggregator websites like valueresearchonline.com (Indian Mutual Funds), I was able to create visuals that gave a new meaning to my decisions.

For example, in selection of mutual funds most people will just go with the ValueResearchOnline’s rating system and pick 4-star or 5-star funds. It is a system to rank the mutual funds based on risk adjusted returns.

Nothing wrong with that, but why not see the data for yourself?

With a bit of analysis, you can project the data yourself to understand long term trends.

Let’s pull the valueresearchonline.com equity funds’ data into a CSV file and load using Python.

VRO dataframe

Note: Some of the exotic fund categories (with fewer specialized funds) like EQ-BANK will be filtered out in below analysis.

For example, here is a box-plot showing 20 Year Returns per Category of Equity Mutual Funds.

20 Yr Returns per Category

It is easy to draw a few quick conclusions from this data for a time horizon of 20 years.

  • EQ-MC (Mid Cap Funds) fared the best with a mean return of 18%
    • 25% of the mid-cap funds returned less than 15%. 
    • 25% of the funds exceeded a return of 20%.
    • The Inter-Quartile Range (50%-75% of the EQ-MC funds) returns are 15-20% as depicted by the solid box.
  • The long tail in the bottom of EQ-MC shows that not all funds will get inter-quartile returns, hence there is a risk to invest only in Mid-cap funds. Many of them performed well below the mean.
  • EQ-THEMATIC funds did not fare that good in comparison to others, as themes are cyclical and it is never a good idea to time the market. We will see below in 10 and 15 years, they perform better in the short term validating their cyclical nature.
  • EQ-LC (Large Cap) and EQ-L&MC (Large & Mid Cap) funds have the least variations from their IQR (see the whiskers on top and bottom of the box), indicating investments in these funds are stable over long term.
  • For large caps, the variations are upward, which means more funds in this category surpass the average or IQR returns than other categories.

Let us now look at the short term of 3 years, to indicate the risk of equity in short term.

3 Yr Returns per Category

As you can see, if you draw a horizontal line on 0% returns :

  • Only EQ-INTL (International Funds) and EQ-LC (Large Cap) have their heads respectfully above the water. 
  • The International Funds are mainly invested in US stocks, and the US stock market has been bullish for few years since 2010.
  • The EQ-LC (Large cap) as we concluded earlier is stable and not so volatile as others, even in the shorter time frame. 
  • See the increased number of outliers (the dots beyond the whiskers) shows the unpredictability of equity fund performance in less than 3 years. 
  • In the 20 year’s plot, there were hardly any outliers seen which indicates that over the long term, the returns across various categories are range-bound and hence more predictable.

Comparatively here are similar plots for 10 Years and 15 Years.

10 Yr Retuns per Category

15 Yr Returns per Category

A few things to observe from the 10 and 15 year plots.

  • The number of outliers (variation in returns of funds) start reducing from 3 to 10 to 15 to 20 years, thus Equity funds should be considered only for a long term portfolio.
  • Different categories will perform differently over time horizons, hence a diversified portfolio should consider funds across categories without too many overlaps.
  • It is futile to chase the best performance, and for a personal portfolio it is good to choose funds within the IQR in each category.
  • If selected carefully, 4-5 funds across categories are enough to form a long term diversified portfolio.

Finally we come to the factor that I call the slow poison – Expense Ratio.

Expenses per category

Lets again draw some observations:

  • EQ-LC has the lowest expense ratio on an average.This is more dragged down due to the Nifty and Sensex Index funds.
  • The EQ-L&MC funds have the highest expenses (~ 2.0%) but in the 20 year range, performs close to EQ-LC (see the 20 year plot earlier). This category may then be best avoided depending on one’s personal time horizon and situation.
  • Same for EQ-THEMATIC with high expense ratios and not so good returns over long term, may be considered as cyclical fad only.
  • EQ-LC, EQ-MLC (multi-cap), EQ-MC and EQ-INTL are the ones worth considering for a diversified long term portfolio, with more allocation towards stable and low cost EQ-LC. 

Lastly let us see how the Expense ratio scatters with respect to the 20 year returns.

20Yr vs Expense

Again we can draw some pretty useful insights in selecting a fund portfolio.

  • If you are happy with 10-12% returns, then there are low cost funds with less than 0.5% expense ratio. These are Index funds and very popular in developed economies, but not yet so much popular in India. 
  • If you want to boast to your friends and family about spectacular returns, pick from the top quartile range of >15% returns but be ready to pay >1.8% expense ratio every year. 
  • There is little value in paying expense ratio over 2.0% as the returns normalize to same as low cost Index funds, as indicated by the density hues (black hexagons).
  • Just be aware that Expense Ratio is paid every year on your portfolio, whether the market goes up or down. That is, your beloved fund manager makes money off you every year, whether you make a profit or loss.
  • You can save around 1% by investing directly with the Mutual Fund house (called Direct option) than through regular channels like brokers, banks. 

This proves that like in US, slowly Index funds will start to make sense over long term in India too. This data corroborates my earlier posts on the same tenets of investing.

Active vs Passive Investing

The 3 dimensions of investment planning

Disclaimer

  • I am not a Financial Advisor by profession and the views expressed in this post are my own analysis of the data. 
  • Past performance is not a guarantee of the future. 
  • The data analysis does not take into account other factors like risk/return metrics of funds, and many other financial metrics. 
  • The data used here is confined to only Equity Mutual Funds and similar analysis can be done for Debt, Balanced and Specialty Fund categories too.
  • Readers are encouraged to do their own due diligence on similar lines. The data is sourced from www.valueresearchonline.com . The veracity of the data lies with the site.
  • There is no one-size-fits-all portfolio and this post is not an investment advice or recommendation. 
  • The data and analysis applies only to the Indian Mutual Fund data as downloaded from www.valueresearchonline.com . It should not be extrapolated to other countries and markets. 
  • For more detailed views and opinions, visit www.valueresearchonline.com . I am not an affiliate of the site and do not receive any remuneration or credit. 

 

 

 

Posted in Investing, Personal finance, Savings

The 3 dimensions of investment planning

Posted on by The Tortoise

In the financial world, investments make the world go round. There are numerous articles, strategies, professionals and algorithms working day and night to fight each other for that extra 1% – call it return, risk or fees.

For an average investor or someone just interested in growing his/her wealth to have a good financial life, it is a huge distraction and confusing to say the least.

With the various investment options and opinions, whatever you do seems little and a wrong decision somehow.

Instead of ranting, let me take a few examples:

  1. I had been investing in Index Funds for some time now. Then as my portfolio grew, some well known investment firms started calling me to pitch how they have beaten the market over last 25 years.
  2. The investment choices available today are myriad – bonds, stocks, mutual funds, real estate, gold, commodities and exotic art. Whatever you choose for your portfolio, you will be left wondering if you are doing it right and if you are missing out on the next wave.
  3. The temporary market crash due to Covid-19 and the subsequent surge in Gold for some time now can make you wonder if you should have rushed to buy a ton of Gold.
  4. Each investment then has different tax treatment and tax shelter on how you hold them. Before you reap the benefits, the taxman comes calling for his share.

As an average DIY investor, I see there are 4 dimensions to the problem.

  1. Goals and time horizon
  2. Choice of investment
  3. What you keep (after Tax and Fees)
  4. Making it a habit and automate it

If you view the above aspects as a 4 dimension space, then really it is all about allocating correctly across all the axes.

If you look closely, the dimension 1 and 4 can be squeezed to one called time. The 4th dimension is just an execution process.

So let us define the 3-D space now in a simpler manner.

  1. Time according to life’s goals
  2. Return on Investment and the choices
  3. Cost of investment – taxes and fees

The First D – Time and Goals

Time is one of most important dimension of the investment space.

They say – It is not market timing but time in the market. 

Any investment that you consider has to be first mapped to this dimension.

Let’s say if you cannot predict the exact no. of years, you can still divide the axis into 3 sections. Let us look at some typical life goals that we can map to these 3 sections.

Short Term Requirements (1- 3 years)

  • Emergency Fund
  • Short term goals – buying a house, car etc.
  • Short term obligations – paying taxes, insurance, credit card

Medium Term Requirements (3-10 years)

  • Education Fund for children
  • Debt payoff plan – car loan, personal loan
  • Building savings for buying more assets

Long Term (10-20 years and beyond)

  • Retirement Fund
  • Mortgage payoff and debt-free plan
  • Wealth building and giving

Simple? So far so good.

The Second D – Return and Type

This is where most of the confusion is. As the choices are unlimited, most people ignore the risk-return tradeoff. In the chase for returns, they forget to look for the risk and burn their fingers in wrong kind of investments.

It is always better to set your expectations first, and then map the type of investments.

When you start with the first dimension Time and Goals, it is easier to set the correct return expectations and hence the risk-return tradeoff.

Let us now place our expectation of return on the second axis for each section of the Time axis.

Short Term

  • Emergency Fund
    • It does not matter. This is a fund not for growing your wealth but only for emergencies.
    • Return expectation – 0-2%
  • Short Term goals
    • Depending on what the goal is, the primary objective is still capital safety.
    • Return expectation – 0-2%
  • Short Term Obligations
    • This is for tax payment, annual insurance payments, credit card payment etc.
    • Again we are just saving money rather than investing.
    • Return expectation – 0-2%

Types of investment:

  • Normal Savings account
  • High Yield Online Savings account
  • Money market account

You do not need more than 2-3 savings account mapped to the short term goals. The funds should be completely liquid and accessible in a day or two.

Medium Term

Here we are talking about 3-10 years time horizon.

Since the goals in this bucket may be slightly ambitious and we want to fight the monster called inflation, the return expectation should be slightly higher than inflation but with considerable less risk.

This is also easy to determine:

Types of investment:

This is where we start searching for good mutual funds. For this time horizon and return expectations, the following may fit one’s portfolio

  • Balanced Index Funds which have majority in bonds (60% or more)
  • A good bond fund with duration of 5-7 years.
  • Balanced Equity Funds (aggressive option with 60-70% equity)

Again, here 2-3 funds with returns just beating inflation should be good enough. As you will need the money in less than 10 years, it is better to focus on less risk. 

Long Term

This may be (depending on your age) 10 to 20 years or more.

For such a long term, it is not only inflation that we want to surpass but also several other factors that come into play.

  • Building passive income sources
  • Diversification to contain risk

All of the above can set our return expectations differently.

For example, the retirement draw number can set the expectation in the following manner.

  1. For someone who does not yet have a good corpus, you need to know how much more to save to reach your retirement draw number. Experiment with realistic numbers for return and how much you can save.
  2. If you have already accumulated a significant corpus, then your return expectations may be lower. Instead of going for highest return-risk, you can calculate what return will it take (assuming further regular investments till you work) to reach your passive income goals, or retirement draw number.

There are 3 avenues by which you can reach your goals.

  • Appreciation via Stock/Fund investments – The S&P 500 has returned 9% annually
  • Dividends from stocks and funds – 3-4%
  • Real estate investments can return 7-10% as passive income from rents, REITs etc.

Types of investment:

Here we need aggressive investments (as per return expectations set above) if you have more than 10-15 years of horizon.

  • Low cost S&P 500 like Index Funds and ETFs
  • A High Yield Dividend ETF or Dividend stocks of stable companies
  • REITs or direct rentals

The time horizon itself reduces risk for these aggressive investments.

However you can diversify further in each of the 3 types by going global.

  • Low cost International and Emerging Markets Index Fund and ETF
  • Global REITs

The Third D – Taxes and Fees

Now that we have placed the whole investment picture in two dimension (Time and Return) , we have to make sure that the 3rd dimension does not go too high.

Ideally we would like this dimension to be ZERO for all and remain flat in the 2-D plane. But in real world, the free lunch is a myth and the flat surface will be pulled upwards (or downwards from our perspective) in 3-d by taxes and fees.

Dimensions

If we look at it from the 2-D plane again (Time and Return), there will be different rates of taxes and fees, and our goal should be to minimize them.

This is where the allocation of investments into different types of accounts apply.

  • Short Term
    • There is not much return expectation anyway, so the taxes will be negligible.
    • The fees are important here and should be close to 0.0 in savings account, money market funds etc.
    • The type of investments in this segment will not qualify for long term capital gains, except for short term obligations that are just beyond one year. However rarely do safe investments get special tax treatment in such a short duration.
  • Medium Term
    • In this category, both fees and taxes become important.
    • Due to the 5-7 years horizon, most equity gains will be long term capital gains (20% or less) and get preferential tax treatment.
    • Further to shield from taxes, one can use Roth IRA, 529 plans according to the goals.
  • Long Term
    • As in the medium term, both taxes and fees are important.
    • Being long term, fees paid every year can eat away 20-25% of the corpus in the long term.
    • There are several options in US like 401k, Roth 401k, IRAs, HSA to defer or minimize taxes for the long term. In India, the NPS, PPF, EPF are all good options.
    • In real estate, the depreciation and 1031 exchange are important tax optimization tools.

For taxation matters, it is mandatory to consult an expert professional in the domain.

However for any of the above, we should be choosing only investments that matches our moderate return expectations with very low fees, definitely much less than 1%.

This can be achieved via simple Index Funds and ETFs.

In this graph, the taxes and fees matter (hurt) most in the short term and long term (due to deferred treatment and not exemption).

Dimensions

The Fourth D – Automate and Track

Automate everything and let it run like a bullet train.

If you need help on how to set up your finances, here is a link.

How to manage your cash flow

train

 

Posted in Investing, Liabilities and Debt, Personal finance, Savings

The Five ways to SIP

Posted on by The Tortoise

SIP – In India, the mutual fund industry has popularized this term for drip investing, dollar cost averaging or similar. The full form is “Systematic Investment Plan” and allows normal people to invest in Mutual Funds gradually and is proven to build wealth over a long time. 

For me, there is a bigger SIP in Personal Finance – Sleep in Peace. 

It may sound like RIP – but lets keep life going strong in these trying times. We will do another article on that, and in personal finance terms we will call it Retire in Peace.

SIP is a concept that is important throughout your earning and retired life, and defines a way you can manage your Personal Finance to effectively “Sleep in Peace” every night.

As we know with the current COVID-19 situation, many people are losing sleep over their financial situation.

While some can still be corrected with discipline, those following the basic principles of SIP will be unaffected by such pandemics and sail through it.

The Five components of a SIP method

1. Emergency Fund – The sleep in peace fund

The Emergency Fund is the first of SIP rules. It can be called the Sleep In Peace Fund too.

In the current situation where everything is uncertain from jobs to ability of paying mortgages and bills to medical situations, there cannot be a better cushion than possessing an emergency fund.

People who have not been able to build this fund, are now feeling the brunt of their careless handling of personal finances.

One essential comfort zone

2. No Debt – borrower is slave to the lender (there is no good debt)

In US, due to low interest rates on some loans like mortgage and auto-loans, some experts justify using leverage to build your wealth. While that may sound smart in good times, in trying times like now even a so called good debt can nosedive to a bad debt.

For example, the government is now directing banks to suspend mortgage payments (for a short period, of course), giving stimulus to real estate investors and trying to bail out or let leveraged people and businesses go down.

So greed and over-smartness with debt are now taking the sleep away from people who have bought and financed huge houses, expensive cars, invested into rental properties with no-money-down. Here are 3 situations where not having an emergency fund and being over leveraged, is disastrous now.

  • You spend more than 30% of your income in mortgage payment. If you lose your income, even the emergency fund will quickly run out paying the mortgage.
  • You bought an expensive car with bank financing and very low down payment. The auto-loans will not get any relief from Government, and your car may be repossessed in case you fail to make the payments. Also the payments could have been used in more protective ways, if the car was bought with cash in the first place.
  • You invested in rental properties with low down payment (< 20%). What happens now when many tenants are refusing to pay rent due to financial hardship or even just taking advantage of the situation (evictions are deferred now). You still need to pay the bank their share of interest and principal.

The universal truth about Dave Ramsey’s 7 baby steps

3. Do the real SIP – invest in a disciplined way

Now we come to investments and the real SIP (Systematic Investment Plan).

This process addresses two damaging financial behaviors – fear and greed.

I will not rant about the philosophy behind SIP or DRIP investing, it is pretty well known and over-emphasized in investment circles.

The advice from the legendary investor Warren Buffet applies now more than ever.

Be fearful when others are greedy, and be greedy when others are fearful. 

However in the Sleep In Peace method – be neither, irrespective of what others are doing. 

Keep investing with a plan. I have rearranged my India portfolio recently (just before the market crash) and apparently could have done better.

  • In a zeal to restructure my asset allocation, I invested a large part held in cash into the equity markets in Jan 2020. Little did I know, the markets would come crashing down in another month or two.
  • However I was not overzealous on Equity. I kept a larger part in simple fixed deposit (bank CD), so as not to go overweight in one asset class, Equity. 
  • The current market situation does not affect my peace, since the money I invested into equity markets is planned to be held for a long time (possibly till I retire). 
  • I could have done better if I remained patient and deployed it in smaller chunks over several months  – the real SIP. 

So that’s from a recent personal experience –

If you want to Sleep In Peace, invest with SIP – the systematic investment plan. 

Know yourself and your investments

4. Define and invest in your goals

No matter what is happening in the world, nothing can derail you in personal finance if you manage your finances based on your goals.

Every person has life goals like buying a house, opening a business, travelling the world, educating your children and RIP (Retire in Peace).

If you allocate your money to the various goals and keep adding to the corpus month after month in your earning years, then in trying times such as now – you have nothing to fear. Some of your goals are funded and some are in the process of getting built-up.

Just continue doing what you were doing.

The worst case scenario can be that one or two goals may need to be postponed. For example, if you were trying to retire early and lost your job or income, you may have to work longer for a few years more. But that does not completely cripple you or force you to liquidate your retirement funds.

A simple method of asset allocation

5. Pay your taxes and file your return on time

Taxes and death are certain – everything else is uncertain. 

There is no way to avoid taxes (except the legal ways to reduce or defer it – consult a CPA) and hence every personal finance system has to take into account – taxes. Not paying your due taxes and trying to be over smart, can really take your sleep away.

Whatever it takes, plan for your taxes throughout the year and pay the legitimate share to Sleep In Peace. 

In the US, Internal Revenue Service and in India, the Income Tax Department are both quite aggressive in following up with cover-ups, non-payment and mistakes. And for working professionals like me, who has to deal with both – there is no other way than honesty, prompt action and discipline in keeping track of your tax liabilities and payment obligations.

Keep your documentation up-to-date and file away returns on time to avoid major headaches.

Five components of a personal finance system

Conclusion – Ride the wave and learn something new

While this is the time for great financial worries and the clouds of a multi-year recession looming over us, there could not have been a better time for us to introspect and re-organize.

This is the time to take a hard look at your financial and other priorities in life. Locked down inside our homes, with more family time and me-only time – when is a better time to introspect and find your real dreams? 

When the world was open and running, the rush of the morning and the fatigue of the evening left little for us to think beyond the next day.

If you want to sleep in peace when all this is over, maximize this opportunity and start something new.

I am working on starting a financial coaching business where I can help people with their finances globally. What better time to serve the world than now and next few years? 

Who moved my cheese? How to deal with changes in financial plans

sticky notes on board
Photo by Polina Zimmerman on Pexels.com
Posted in Budgeting, Investing, Liabilities and Debt, Personal finance, Savings, Spending

How to manage your cash flow

Posted on by The Tortoise

A company which is listed in the stock market has to publish 3 essential financial statements.

  • The balance sheet
  • The profit and loss statement
  • The cash flow statement

Briefly, the balance sheet shows the health of the company at the reported time, profit and loss statement shows how much profit the company is making after all expenses and taxes, and the cash flow shows how the company is generating the cash from its operations as well as investments.

Free Cash Flow (FCF) is an important metric that is used by investors to evaluate the real worth of a company. 

In personal finance, while balance sheet (Your net worth) and profit and loss (how much you are making and spending) are important, managing the cash flow is key to achieve your financial goals.

In this blog, we will talk about how to manage your cash flow – no matter whether you earn a lot or earn an average paycheck.

Most people do not manage their cash flow, forget about doing a budget or any other conscious form of tracking.

At the end of the month or year, we wonder where all the money earned went.

Conventional ways of managing cash flow

There are several techniques Personal Finance experts have championed time and again.

  1. Do a budget, track every dollar. 
  2. Create an envelop for groceries, utilities, fun etc.
  3. Use separate accounts. 
  4. New automated solutions like Stash, Digit etc. 

All of these are good methods, but the problem is sticking to the discipline of maintaining it day after day, month after month.

Isn’t that boring and worrying at the same time? Few issues with these approaches are:

  • Writing down expenses every day
  • Stuffing that envelop and counting the money every time before spending
  • Keeping track of multiple accounts
  • Not knowing how much the AI driven savings app is going to deduct next month

So is there a simpler and better way?

Just like most posts in this blog, I seek simplicity and automation.

The simpler way of managing your cash flow

There are 4 goals to managing the cash flow every month.

  • Invest for the future
  • Save for the short term
  • Pay your bills 
  • Spend the rest

In fact, any wind-fall is also a one time cash flow, and can be fit into the same framework.  Lets say you got a bonus of $1000, for example, the Govt is sending a check to all Americans. And if you want to keep it simple, allocate 25% to all the 4 goals.

  • Invest $250 in your long term (retirement, child education) plans. The market is down and you can invest $250 in a mutual fund or an ETF. 
  • Save $250 for any short term goals that you have. It could be added to your monthly savings goals, towards anything like vacation, buying that new phone, or simply emergency fund. 
  • If you have consumer debt, why not allocate some to pay it off? Use $250 to pay off the highest interest or smallest balance credit card. 
  • Now you have $250 to splurge on. Buy that favorite book, order the special meal or decorate your home. 

But how do we automate and manage the cash flow every month?

  • Invest – Direct deposit investments. In fact most employers have systems to auto-deposit 401-k investments or direct deposit to your chosen brokerage firm. 
  • Save – Auto transfer to a savings account from your checking account. 
  • Pay Bills – Setup auto-pay with your credit card or debit card. Set the bill payments mostly towards beginning of the month. 
  • Spend – Use your debit card to spend – it will tell you when the money runs out. 

Once setup, the only stress you have is the last bullet, where you have to make your spending within the limits, or rather the residue after all obligations are set aside or paid off.

How it can snowball into Financial Freedom

As you get consistent with stashing money away for investing and savings, those may generate additional cash flow or assets which will come back to bolster the spending budget.

Thus cash flow is a virtuous cycle once set up the correct way. Lets take some initials and approach this from a math perspective.

  • J – Job Income
  • R – Retirement
  • I – Investment
  • S – Savings
  • B – Bills
  • E – Expense
  • P – Portfolio Income

J + P = R + I + S + B + E

I can produce P in terms of interest, dividend or rental income.

silver and gold coins

In the wealth accumulation years, the goal should be to increase J, so that I can be increased, which when invested can increase P. P is added to J and a part reinvested, saved or used.

As you reinvest P, it will generate more P till at a point, J becomes less and less important. 

This cash flow situation is called Financial Freedom.

Conclusion

We just presented a simple and fully automated cash flow management system for personal finances. It does not take much discipline and will power to stick to it, once correctly setup.

This is also explained in more detail in the post The SAFE plan – Simple, Automated, Flexible and Efficient .

Photo by Pixabay on Pexels.com

woman standing on cliff
Photo by Min An on Pexels.com

 

 

Posted in Investing, Personal finance, Savings

Locked down – 5 hurdles to overcome

Posted on by The Tortoise

In the last few weeks the world has changed quite a lot. With no sight to an end to the corona-virus spread, cities after cities are going into lock down and people are forced to stay at home.

This will impact the economy in a very bad way and many businesses like entertainment, travel and food will be severely affected or shut down. In these unprecedented times, the current situation of the stock market and its decline is understandable.

Since this blog is concerned with personal finances, let us look at the impact this black swan event can have and how to get over this crisis.

We will examine 5 adverse scenarios and how my previous posts (in good times)  suggested recession proof way of managing personal finance.

Social distancing

This has been enforced in many cities and people are not allowed to be meet each other face to face.

    • This will impact people and their livelihood when it depends on teams and network. For example, direct real estate investing like house flipping, buying houses, wholesale deals and likes.
    • Financial, insurance advisors and their clients who depended on face to face interactive sessions. While this can still be done over video conferencing and online communication, the personal coaching sessions may be less personal after all now.
    • Investments which depended on a broker or branch are impacted since  offices are shut down or low on staff.

The key to solving these issues is to setup systems that enables you to transact virtually from anywhere in the world, including your home. If you have automated your financial systems using FinTech, those systems are not affected by the current situation.

FinTech – can you be immune to it?

Losing jobs or income

    • As various industries are expected to be hit hard by this event, many people may lose their jobs or get a reduced income for an unknown period in the future.
    • This will cause difficulty in managing household cash flows, paying bills, mortgage and tiding over emergency situations.
    • Emergency medical conditions, for example, someone in the household may contract the virus and need to be hospitalized. Even with insurance, it may cause a hefty out of pocket expenditure.

The key to solving such emergency situations is to have enough cash cushion in terms of Emergency Fund and to cover Short Term Obligations.

One essential comfort zone

Investments are tumbling and losing their value

    • Your stomach will have a strange feeling when you look at your stock, ETF or mutual fund portfolios under 401k and Taxable accounts.
    • Almost all portfolios are beaten down 25-30% and may go further down to 50% or more.
    • With the risk of financial institutions and other companies going out of business, even fixed income portfolio is not safe. There may be large scale defaults in the bond market, as companies struggle to meet their short term debt obligations.

The key to solving such challenges is to remain invested and not panic sell out of it at this time.

Afraid of investing? Not so simple either

Fear is gripping us

    • While there had been virus spread earlier, the scale of the COVID-19 is unprecedented and growing.
    • This type of lock down has never happened before, and after what happened in Italy and China, we are gripped in a fear of the fatality rate caused by the virus.
    • This has stopped us from behaving rationally and with our investments, people may be reacting with the same fear. I have read many discussions on Quora where people are predicting a long recession and advising others to pull out investments or completely stop investing more.
    • Fear is the worst enemy and negativity is biggest killer of future prospects.

The key is to remain calm and take necessary precautions (staying at home, frequently washing your hands etc.). Similarly for finances, do not take up unnecessary debt at this point but just remain invested and keep your monthly investments ongoing.

The biggest enemy of your investments

Not building new assets

    • While there may be a recession ahead, this may be the starting of a good time to buy assets.
    • Our net worth is beaten down due to the stock market crash, and this is not the time to rue over the loss.

Instead we should focus on increasing the underlying asset values and look to the future for those assets to throw in cash flow and appreciate.

The Net worth vs. Cash flow debate

Conclusion

At the end, we all have to realize that the world will tide over this crisis.

For our finances, we just have to carry on doing what matters and take a long term view.

If you adopt the SAFE plan as in below post, nothing should really change.

The SAFE plan – Simple, Automated, Flexible and Efficient

With the forced shutdown, learn a new skill indoors and do not worry about your investments.

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Posted in Budgeting, Investing, Personal finance, Savings

Who moved my cheese? How to deal with changes in financial plans

Posted on by The Tortoise

The title is taken from a famous book as below. Even though it is meant to be a management philosophy, it applies to the subject of personal finance as well. 

Financial Planning does not work? 

There is a proverb in the military – Plans are good till the first bullet is fired.

Some of us who are obsessed about managing or advising on personal finance can go really overboard with planning. Have you heard about those retirement numbers, college planning or even financial freedom number?

While long term planning is good, problem with personal finance is that it is a not a standalone aspect of your life. It impacts and gets impacted by life events – birth/death/marriage/divorce in the family, choice of career or college, changing goals and circumstances and finally your own priorities may change.

How my circumstances kept throwing my plan astray

Lets take an example in my case, as I transitioned from India to US.

Till 2005, I did not know a zilch about managing finances. In fact I was pretty bad at it, just enjoying my life and like many, used to blow up my entire paycheck in frivolous expenses, needless shopping and eating out. So in a nutshell there was no plan.

Then in 2005, I decided I can at least start investing some money out of my paycheck. Good plan but was it anything long term? No it was too flaky as I jumped from one hot fund (mutual fund) to another. This was the time when the Mutual Fund and Private Insurance industry was taking off in India in a big way. I also lost money investing in an insurance plan (actually a bad plan) that was masquerading as investment.

Beware of ripoffs

Eventually as I got better with finances, I actually created a long term plan complete with everything – retirement fund, children’s education fund, vacation fund and corresponding projections several years into the future. I built separate portfolios for each, and tracked them to utmost precision even calculating year after year growth.

However God had other plans for the family. In a series of unfavorable health and personal issues, we decided to move out of India at least for a few years and relocated to US.

This obviously altered my earlier plans completely, since my place of work and source of income changed. The retirement numbers started to look different, the college education fund seemed minuscule when compared to US college costs and all the plans are to be redone again.

Well what do I plan for now? I don’t even know whether I am going to move back to India again in few years or not.

In a global economy mobility is a part of life and no one stays in the same place or country throughout their working life. Moreover as you move, international taxation is another beast which can alter your long term investments (like tax sheltered) into immediately taxable entities. 

Plan to adapt, not adapt to a rigid plan

So finally you have to take into account an ever changing plan, moving from Plan A to Plan B and keep adjusting according to your circumstances.

When I read about estimating expenses at retirement, I wonder how can someone calculate that? Following factors and more can make it completely non-deterministic.

  1. Where will I retire? Different cities and countries have vastly different living and medical costs.
  2. Will it be only me and my wife? What if the children stay with us?
  3. What do I want to do in retirement? Will I work or travel more?
  4. What health condition will I be in?
  5. What other obligations (including social and family) will I have then?

So projecting your expenses at retirement based on today’s lifestyle is like predicting the weather 20 years from now, based on 20 years of past data.

Same goes for College funding. Even if you are saving in 529 or other accounts, do you have a goal or a number in mind? How do you arrive at a number for college costs, when the costs are going up every year? Isn’t that also as variable as retirement? The following factors come to my mind immediately.

  1. Do you know what career will your 5 year old choose when he/she turns 16-18?
  2. Do you know which college will she go to? Ivy Leagues, State or Community colleges? Are the costs not vastly different?
  3. Are you even going to stay in the same state or country when the time comes for college?

In today’s volatile world, planning too far away (more than 3-5 years) is futile.

Planning based on solid principles, not circumstances

The best way to plan your finances is to look at your current goals, aspirations and develop good money habits.

Below steps will help you be in control and act nimbly to adapt to changing situations.

  1. Live below your means – no matter which country or which circumstance you are in, you can always strive for this and become better. Living below your means is common sense, yet so uncommon. 
  2. Budget – Goal based budgeting – This is very important as it ensures you have control over the cash inflows and outflows. Again something which does not change with your place of work or future plans.
  3. Invest with simplicity – Find investments that are easy to understand. Index funds, mutual funds, Real estate, CDs and savings accounts.
  4. Keep some portion of portfolio liquid – Sometimes this can be called an Emergency Fund or Contingency Fund. No matter what you call it, it is useful. When I moved from India, I kept a portion of my India portfolio into Fixed Deposits (similar to CDs here in US) and then built up an emergency fund in US too. This gives me option in both places if I decide to just leave work for some time or get laid off. 
  5. Remain consumer debt free – This is also related to freedom. Except for one mortgage in US, I am completely debt-free otherwise or rather bad-debt-free. Being debt free coupled with a portion of portfolio in cash, gives you plentiful of options to enjoy life at your own terms. 
  6. Keep investing for long term – Unless your investments are in countries with troublesome political climate, long term investments (a part of the portfolio) can be left to grow with time. Long term investments work on the principle – its not market timing, but time in the market that will reward your investments. 

To plan and execute above steps in the most efficient way, read the following posts.

Five components of a personal finance system

The SAFE plan – Simple, Automated, Flexible and Efficient

Finally do plan but let life change it

Money decisions should not dictate all your life’s decisions. Money is only a tool to live a good life.

Let your financial plan adapt to your own goals and aspirations, rather than rigidly follow personal finance gurus and templates. 

If someone screams in YouTube to pay off mortgage, it does not mean you have to follow as your plans may be completely different. Similarly you may not fall for all those high reward promising credit cards if you are not going to use those benefits.

A chess player does not know what the board will look like after the next few moves. 

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Posted in Investing, Liabilities and Debt, Personal finance, Savings

The universal truth about Dave Ramsey’s 7 baby steps

Posted on by The Tortoise

Who doesn’t know of Dave Ramsey? 

Even my 10 year old kid has been taught about Dave in elementary school mathematics.

Dave Ramsey is America’s trusted voice on money and business.

Well he is popular for a solid reason. In this post, I will describe why he makes perfect sense to me.

When I immigrated to US in 2017, I did not know who he is. I was trying to quench my thirst for new personal finance books, especially on the US system. Then I stumbled upon Dave’s Total Money Makeover.

As I read the book, initially his rant against debt was a bit overwhelming to digest. However thinking deeply, I realized that coming from an Asian country, I have unconsciously followed the same principle for decades.

Why this coincidence? Because the principles are universal and extremely healthy for personal finance, no matter which economy you come from.

If you do not know yet, here is a recap link to the 7 steps from his website.

Dave Ramsey’s 7 baby steps

Here are few points where I found an one-one match with how traditional Asian (India) household finances worked.

Have an emergency/contingency fund (Dave’s baby steps 1 and 3)

There are many names to this – emergency fund, contingency fund, rainy day fund. In many Asian households, it goes by the simple name of savings. Savings is in-built into the culture and an emergency fund is a default choice.

In a way, if you don’t have debt instruments (HELOC, Credit card) available to you, how else will you pay up for maintenance, car breakdown, education etc.?

Answer is simple, money socked off into a separate bank account – lo and behold, by end of the year, you have an emergency fund.

Use Cash – or debit card at the most (Dave’s baby step 2)

Before moving to US, my only credit card was a HDFC Bank Premium card. I was sold this card citing lots of benefits like reward points, airline miles, premier lounge access etc.

The truth is that I used it only for big purchases like appliances, electronics or vacation. And that too, because I knew I had to pay it off at the end of the month and just deferred the money being taken out of a CD (Fixed Deposit as named in India).

If I look back, except for getting a few discounts at clothing stores, I did not reap the reward points. Never had the idle time or need to figure out how to access the premier lounge. Once I tried to book a holiday trip through the miles, I found that I could get it for lesser by buying a cheaper economy ticket. Yet I paid an annual fee (or had to spend a minimum on the card to avoid the fee) for those unseen benefits.

Credit cards may work better in the US, but it is also a double edged sword. Americans are saddled with trillion dollar credit card debt. (source: Dave Ramsey) 

All my household daily expenses ran on either hard cash (lots of places in India do not accept any cards) or debit card.

Simply put, I never felt the absolute necessity to hold a credit card. Some people say its good for emergency situations, but then the previous step already solved that problem.

Oh there is one more reason – online shopping. In India, Flipkart has a C.O.D (cash on delivery) option. If that doesn’t work or not offered, you can pay using NetBanking which all online vendors provide with major banks. It is equivalent to using debit card, but without the card number. You are redirected to the bank website and you can authorize the transaction from your account, using login and password.

Retirement savings (Dave’s baby step 4) 

There are government retirement plans like Provident Fund (equivalent to 401k), Public Provident Fund (equivalent to Roth IRA) and now the NPS (National Pension System).

The first two are effectively tax exempt with the Provident Fund being tax E.E.E (exempt on contribution, growth and withdrawal). The only drawback is that the investment options are traditional – debt based with an interest rate guaranteed by the Government. The option of Equities has only come up as an option in NPS.

The Provident Fund or the NPS is now mandatory in most organizations for their employees. The amount you can invest from your paycheck typically hovers around 12% (with matching grant from employer), and is close to Dave Ramsey’s recommended savings of 15%.

There are of course private options from brokerages/banks to invest in mutual funds and stocks, as also R.E.I.Ts are now coming up.

Children’s education – use cheaper (sane) options (Dave’s baby step 5)

There is hardly any concept of student loans. Education is still affordable, though it is becoming expensive each passing year.

And despite the huge competition (owing to large population), there are no Ivy League schools to lose your shirt on getting a degree. Even the premier institutes like Indian Institute of Technology, or Indian Institute of Management are well affordable with their excellent career prospects.

I don’t have all the education expenses data, but I have not heard of any student saddled by student loan debt or carrying it well into their adulthood and married life.

Moreover in recent years, the growing start-up culture in India has also made an expensive education pretty much irrelevant.

Pay off your house (Dave’s baby step 6)

In US, people hold their mortgages for 30 years, and do not need to pay back earlier.

And it is more helped by the low interest rate regime that is sweeping the news everyday.

However in India, average mortgages survive for 3-5 years, before they are completely paid off. Both my mortgages in India were paid off in less than 5 years.

What is the reason for this? There are several factors.

  1. Interest rates are higher – typically 8.5-10%. This causes people to take mortgages with lower than 80% Loan-to-Value, to avoid big E.M.I (equated monthly installments).
  2. Higher down payment earns good discount from builders. One of the main sources of home buying in India is from builders.
  3. Floating rate mortgages – The interest rate by default is floating. Fixed rate mortgages have a much higher interest rate, typically 1-2% higher. Carrying a floating rate mortgage is risky, hence the tendency is to pay it off as soon as possible.
  4. Last but not the least – its a debt-averse culture. You don’t feel good till you actually own your home, free and clear.

Buying a house in India is stressful owing to the sector’s corrupt practices, less regulation and random mismanagement of funds by builders. Hence keeping low to no debt is prudent not to add on to the crisis.

Building wealth and Giving (Dave’s baby step 7)

The last baby step in Dave Ramsey’s plan is the absolute bliss.

This is where a lot of well to do families will be. With the above steps explained and if followed properly – they will be living in paid for houses, driving paid for cars (some with chauffeurs), have a good retirement corpus that is growing, children graduating from college without student loan debt, and an emergency fund stashed out in some savings account.

Now they can buy more investment assets like real estate, stocks and entire businesses.

You start building serious wealth and enjoy true Financial Freedom.

As Dave says, “If you live like no one else, you will live like no one else”. 

Now the last part is Giving. This may not be traditionally so popular in India, due to many factors. However lot of new initiatives are now trying to organize charity and reach to the real needy.

The huge wealth inequality throws up a lot of opportunities of giving. However if you are not careful and the non-profit organizations are not well researched, you will end up making some fraud people rich. I have ended up donating to NGOs (Non Government Organization), who started showing a suspicious pattern of corruption (sometimes irritating me with calls and messages for more). It becomes clear they want to milk you in the name of charity.

However with little diligence and online/offline research it is possible to select meaningful giving opportunities. 

Thus Dave Ramsey’s 7 baby steps are definitely a recipe for success with personal finance. I have only drawn a comparison with what I have lived and seen in India.

Dave’s success in getting millions of Americans out of debt and living their dream life is a testimony to the sound principles that the 7 steps represent.

Live like no one else. If you are not forced by the system, be intentional about the 7 steps. 

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Posted in Budgeting, Personal finance, Savings

Five components of a personal finance system

Posted on by The Tortoise

There are many articles on how to be frugal, how to save more, earn more and invest for high returns.

All this is good advice, and the Internet is full of such articles, blogs, videos, courses.

However the key to saving money and investing for growth is action and the discipline to implement the good practices.

If you go through most of the articles, some common themes emerge such as:

  • Pay yourself first
  • Do a proper budget or at least allocate money to your various expenses
  • Big tax refunds are not cause to celebrate
  • Get out of debt
  • Regularly invest a little
  • Use Robo advisors
  • and so on…

Yet lot of people (some say 78% of Americans) live paycheck to paycheck, and will not be able to cough up $400 cash in times of emergency.

With so much of good advice and technology out there, why then we still have the problem with more than 50% of the population? What is different with the 10-20% who manage to create and keep wealth?

I think the answer lies in being organized, intentional and disciplined. As Dave Ramsey said “Personal Finance is more behavior than numbers”.

It requires a system to be organized and manage your money. Once the system is in place and you get into the habit of it, you will automatically resist impulsive behavior.

In this post, I will highlight some of the systems that I follow to organize this area of my life. And remember, the more organized and intentional you are on personal finance, it impacts rest of the areas of your life as well. Cliche, right? Yes but difficult to implement.

There are 5 parts to the system:

  1. Automate
  2. Cap
  3. Archive
  4. Remind
  5. Learn

Just for fun, lets rearrange and call this the CARLA system (Cap, Automate, Remind, Learn and Archive). Really the order does not matter.

1. Automate

Automation is the heart of any system. And with most of the financial products employing high end technology, there is no reason to avoid automation.

A simple automation makes the “Pay yourself first” a breeze like operation.

For example, in my case, the first bi-monthly paycheck (pre and post tax) simply goes to my mortgage and investments (retirement, 529 plan, HSA, investments). I just cannot see it in my checking account by the 2nd or 5th of the month.

How do I run my expenses and pay my bills then? Another automation.

All my bill payments are set on the one and only credit card that I use. It is completely automated so I don’t need to remind myself to pay electricity, water or phone bills. The same credit card is used for first half of the month to buy essentials.

By the same system, the second bi-monthly paycheck pays off the credit card bill in full.

A portion of that also goes into savings for short term goals (provided the credit card was not overused – we will talk about caps in next section).

Advantages:

  • Naturally implements the Pay Yourself First.
  • Automated bill payments, so no chance of forgetting and running into credit problems.
  • Earn points on the credit card, as all expenses are charged to the one.
  • The credit card is automatically paid off within the month.

Risks: 

  • Need to control expenses as the credit card balance should not overshoot the projected amount.
  • Unexpected debits to the checking account (checks issued, or charged by institutions) may cause overdraft scenarios if not careful or kept track of such expected transactions.

The Starter Kit explains how to setup a system from scratch.

2. Cap

One of the toughest part of personal finance behavior is to cap your spending. No amount of technology or automation can address this adequately. There are budget apps, reminder apps, envelope system but at the end of the day, if you are armed with a credit card, there is no stopping you.

There are two ways to address this:

  1. If you are using a credit card, then absolutely you will need a budgeting and expense tracking app. I use YNAB (You Need a Budget) but I have heard people liking Mint or Personal Capital. In these apps, you can set limits for spending under each category like Food, Transportation, Utilities and Fun. Here is a referral link to YNAB.
  2. However a more effective way and not to run into debt, you can automate to transfer the estimated monthly expenses to another checking account, and use the ATM/debit card of that account. As soon as you see the account is drying up, you know you have to rein in your spending. As you do this more, you will slowly understand the pattern and be able to make or adjust estimates.

Advantages:

  • Having a cap of expenses is non-negotiable in the pursuit of good personal finance habits.
  • You know exactly where each dollar is going and how to optimize or reduce the outflow.

Risks:

  • The first approach definitely has the risk of running into credit card debt, and not able to pay in full.
  • The second approach is safer but if you are not keeping track, can hit you with overdraft fees or embarrassing card decline at the checkout counter.

Yet another simple budgeting mechanism is described in Budget – Grow the tree upside-down .

3. Archive

A good archiving system is also key to good personal finance habits. Not only habit, but it keeps you stress-free. Remember the scrambling during tax filing season, looking for bank statements, dividend results, interest certificate etc.

Moreover we have multiple sources of information, statements coming through email, snail mail, website downloads, or even previously archived repositories.

A simple system I follow consists of a uniform folder structure across multiple sources of information.

There are 4 aspects of personal finance that you need to keep track of.

  • Banking – Accounts, statements, credit cards, interest certificates.
  • Investments – Portfolio Statements, dividend statements, recommendations, documents from financial advisers.
  • Taxation – Everything related to your taxes year wise. Returns, documents sent to CPA, CPA communication, IRS communication and so on. For each year, I have the following folders.
    • Year
      • Source documents – Everything I sent to the CPA
      • Processing – All drafts and iterations I had with the CPA
      • Final – Final copies of the filed return and acknowledgements etc.
      • IRS – In case there are any direct interactions with IRS after filing (notices, response, tax due, tax paid etc.).
  • Insurance – Insurance policies, forms, statements, estate planning documents.
  • Bills and Receipts – Miscellaneous bills and receipts if they do not fall into above categories.

With the above organization, you can simply create the archival system in all your information sources.

  1. Gmail – create these as labels or email folders.
  2. Evernote – you can create notebooks and store documents as notes under each notebook.
  3. Google Drive – create folders. You can save attachments from gmail directly to these Drive folders.
  4. Laptop local drive – Sometimes it is best to store in the local drive than cloud. That is, if you are uncomfortable storing documents containing sensitive information (SSN, date of birth) into the cloud. Be sure to periodically back this up into external hard drives.
  5. Physical documents – Paper statements can be either scanned and stored in above places, or simply dropped into file cabinet drawers, with appropriate labels. The labels should follow the same categorization.

Once you have the uniform structure across all these platforms, storage and finding information is easy.

Advantages: 

  • Easy to file and find.
  • Following same structure in all systems that you use.

Risks:

  • None at all.

4. Remind

So you have automated, capped and archived personal finance. But what about still those actions to be taken, follow-ups to be done and making sure time sensitive things do not fall through the cracks?

I don’t want to describe personal productivity or time management here, but an essential part of managing personal finance is timing. There are taxes to be paid quarterly, investments to be made, or simply a phone call to be made.

Choose whatever system works for you as reminders, be it an app on your phone, or calendar on the laptop.

For me, plain gmail works as it has a snooze facility, by which I can redirect any email to come back to my Inbox at the time I need to take action. In my opinion, it is an important tool in time management as now I can remember to take action at the right time. It just pops in my Inbox on that Sunday prior to the week I need to take action on that. 

Another good platform for keeping track of your laundry list is Trello. I use it quite extensively and the concept of board and cards, helps keep things visually clear.

Advantages: 

  • Even if you automate everything, there will be things for which action needed to be taken timely.
  • Remain stress free and auto-magically respond or follow-up with people at the right time. Sometimes this surprises people as they may have promised to do something (or get back to you) and you follow up on the agreed date. 

Risks: 

  • Unless you stick to one system (Trello or Gmail), you run the risk of multiple apps keeping track of your to-do lists and confuse you enough not to take action or update new items.
  • You may run the risk of irritating some people who do not like to be followed up, especially if they wanted to forget what they promised.

5. Learn

I cannot emphasize this enough and with the plethora of information on the Internet, whatever I say will sound like cliche.

However as with any field, it is important to keep yourself up-to-date with advances in personal finance topics. 

One of the simplest ways is to dedicate a couple of hours every week, to read about different topics, blogs and videos of personal finance. You can subscribe to magazines like Money or Kiplinger. Or simply come back to this blog as I normally post every week.

Advantages: 

  • Learning is always good, and opens up new opportunities for you.
  • You build your own system and strategy as you read and learn techniques others have used.

Risks:

  • Don’t get obsessed by personal finance reading, as it can get repetitive very easily. You may end up wasting lot of time reading the same message in different ways.
  • You may take wrong action or jump into investments without fully understanding the consequences, or simply following some author’s thumb rule from a book.

These are the Five essential elements of a good system that can be setup with minimal infrastructure. It worked for me and I hope you find it useful. 

My CARLA system (Cap, Automate, Remind, Learn and Archive) – a system to automate, manage and grow personal finance. 

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Posted in Investing, Personal finance

Know yourself and your investments

Posted on by The Tortoise

I am back after a long hiatus, as I enjoyed a fabulous vacation in India. These are times when I can introspect and know myself better and deeper. Nothing to do with the spirituality of India, but just an opportunity to separate my mind from the daily rat race, and consider what is really important.

Like everything else, personal finance is also very personal. You got to know yourself thoroughly to understand how to restructure your finances, savings and investments to fit and serve your own unique needs. It cannot be driven by advertised claims from pundits, or hyped up investment professionals.

There are several occasions when I made the mistake of trying out something which did not fit my personality or immediate goals. It was just giving in to the popular notion of what I should be doing, without thinking twice about it.

Once I was nominated or elected for a post in the HoA (Homeowners Association). While the work or responsibility was not very complex, but the surrounding politics and conflicts required a lot of different people handling skills. I utterly failed in this endeavor and quickly realized that it is not for me. I have better things to do and spend my time on.

Similarly as I read more on Real Estate Investing and the numerous strategies, I wonder is it possible for everyone to jump in and spend so much time or build such skills to be successful? Or is it better to stick to your own vocation and invest passively, thereby spend your valuable time doing what you can do best. This will also increase your income and put you through a better path to success. This is of course provided you like your job and not desperate to get out of the 9-5 routine.

Some of the investment avenues that people jump into without much education or risk analysis.

  1. Direct stock investment
  2. Real Estate investment 
  3. Life Insurance coupled as investment
  4. Crypto-currency 
  5. Exotic Art and collectibles

If you are like me, who likes to keep things simple outside his area of expertise – here is a no-nonsense investment plan.

  1. Try as hard as you can to stay out of debt. Create a budget to track your income and expenses and live within your means. See the post: Budget – Grow the tree upside-down
  2. Maintain an emergency fund and create a cash cushion. See the post: One essential comfort zone
  3. Invest in simple Index Funds and create a goal based portfolio. See the post: Investing in the High Five portfolio
  4. Keep emotions under check and have a realistic plan. See the post: Emotional Investing
  5. Last but not the least, Get Started. See the post: Shun that perfection
  6. Use the following tools to get started. See the post: The Starter Kit

Finally invest in what you understand fully and comfortable in dealing with.

Rest everything can be ignored and continue a stress-free financial journey.

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