The Compounding Life

1.

Where we stand. The Nifty 50 closed on 30 October at 23,053 and the Sensex at 74,460: a little above the end of September, and still about 12.6% below January’s record. A modest month, after a hard one.

2.

SIPs set a record in a falling month. September SIP contributions reached ₹32,490 crore, the highest ever, across about 10.06 crore SIP accounts. Equity funds saw their 67th month in a row of more money coming in than going out.

3.

Foreign out, Indian families in. Foreign investors sold about ₹45,500 crore of Indian shares in September. Domestic institutions, which include the funds your SIPs flow into, bought about ₹76,000 crore.

1.

Dhanteras: health is the first wealth. The day is named for Dhanvantari, the physician of the gods, who rose from the churning of the ocean carrying the pot of nectar. Before it became a day for buying gold, it was a day of thanks for good health. No portfolio is worth more than the health of the people it is meant to serve. And the custom of buying a vessel that lasts carries a second lesson: prefer what endures over what glitters.

2.

Naraka Chaturdashi: the demons are inside. Krishna’s victory over Narakasura is marked with lamps in every corner of the house, including the dark ones. The demons that do most damage to a family’s wealth are rarely in the market. They are fear, greed, envy and impatience, and they do their work in our own corners. Naming them is the first lamp.

3.

Lakshmi Puja: wisdom is seated first. Lakshmi is never worshipped alone. Ganesha sits beside her, and he is worshipped first: wealth is invited only after wisdom has been seated. Our grandmothers also called Lakshmi chanchala, restless. She does not stay where she is chased; she stays where the house is kept in order. Compounding behaves the same way. It ignores the family chasing this year’s best performer and rewards the one with an emergency fund, written goals and a few good funds held for a long time.

4.

Govardhan Puja: build the shelter before the storm. When Indra’s rains threatened Vrindavan, Krishna lifted Govardhan hill and the whole village sheltered beneath it until the storm passed. Nobody builds a shelter during the storm. An emergency fund of several months’ expenses, and money needed in the next two or three years kept away from equity, are your Govardhan: they let the rest of your investments ride out the weather untouched.

5.

Bhai Dooj: protection is a promise kept on paper. Sisters pray for their brothers’ long life; brothers promise protection. In money, the most practical form of that promise is a little paperwork: a nominee on every folio, and at least one other person in the family who knows where everything is. It takes an afternoon and protects for a lifetime.

1.

Progress keeps us going. The Harvard researcher Teresa Amabile studied thousands of daily diary entries and found that the biggest lift to people’s motivation was a sense of making progress, even small progress. She called it the progress principle. Investing is hard on this count, because in the early years compounding is almost invisible. A milestone makes it visible.

2.

We speed up as the finish line nears. Psychologists call it the goal-gradient effect. In one well-known study, a coffee loyalty card that started with two stamps already filled was completed faster than one that started empty, though both needed the same number of purchases. Breaking a twenty-year goal into smaller milestones gives you many finish lines instead of one distant one.

3.

Happiness that is not noticed fades. We get used to good things quickly; a raise or a growing portfolio soon feels ordinary. Researchers call it the hedonic treadmill. The remedy is savouring: pausing on purpose to notice what has gone right. A celebration is simply savouring that the whole family can share.

1.

The “it’s Deepawali” licence. The festive mood gives us permission to spend in ways we would question in March. That is fine, and part of the joy, as long as the permission has a limit. Write the Dhanteras and Deepawali budget down before the shopping begins; a number decided at home is far easier to keep than one decided in a showroom.

2.

The comparison at the gathering. Family gatherings bring news of a cousin’s new car, a neighbour’s renovation, a relative’s share that “doubled”. We hear the winners and never the losers; nobody announces the share that halved. Envy is a poor fund manager. Your plan was built for your family’s goals, not for the dinner-table scoreboard.

3.

The card table. For many families a friendly game of cards on Deepawali night is tradition, and it is good fun with a fixed kitty. But notice the feeling of a winning streak: the warm certainty that you have “read” the table. It is the same feeling that later whispers that you can read the market. Keep the card money and the compounding money in separate jars, and never let the first one teach lessons to the second.

4.

The gold coin. Buying a little gold on Dhanteras is a beautiful custom. Let it remain a blessing for the home and not quietly become an investment decision made in a festive queue, at a festive price, because everyone else is buying. If gold has a role in your portfolio, it has one in a calmer month too.

5.

The conversation nobody starts. When the family gathers is the best time for the talk most families postpone for years: where the investments are, who the nominees are, what happens if something happens. Children learn about money far more from what they watch than from what they are told. A calm ten-minute conversation this Deepawali may be the most valuable thing you pass on.