Frugal Is Rich

Humans are naturally hardwired to resist change and the usual stance is to keep the risk as low as possible. Change may induce fear or uncertainty and the body tries to protect itself in such scenarios. This is a number of times also reflected in people's investment strategy. If people are trying to keep their risk absolutely low, they save and invest in cash or government backed securities and if they are willing to take on more risk they may be heavily invested in the equities market. My recommendation to everyone is to only take risk until it does not interfere with your sleep or day to day activities. There is no point in taking high risk if that makes you feel panicky or makes you constantly question yourself. Although, I must say its definitely worth testing the waters by taking small risks and understanding your thresholds. One of the best strategies to reduce the risk is to diversify your portfolio as much as possible and ensure you have a big enough emergency fund. I talk ...

Russia is the largest country in the world by area and eleventh-largest by nominal Gross Domestic Product (GDP). It is the world's third largest producer of oil and natural gas after the US and Saudi Arabia. Europe is significantly dependent on Russia's oil and natural gas reserves. In simple words, it is no small power and its vast control on key natural resources makes it an extremely dominant nation. Historically, how American citizens have invested in Russia has been largely through Exchange Traded Funds (ETF), Mutual funds and American Depositary Receipts (ADR). Recently, the  New York Stock Exchange (NYSE) put a trading halt in some of the key Russian ETFs and ADRs. Example ETFs that were halted were the iShares MSCI Russia ETF ( ERUS ), Franklin FTSE Russia ETF ( FLRU ) and Direxion Daily Russia Bull 2X Shares ( RUSL ). These major ETF companies have suspended creation of new shares until further notice but buying and selling of shares remains available on secondary mar...

The year 2022 has not had a great start so far from a socioeconomic standpoint. The pain and suffering of the people in Ukraine is starting to reach another extreme and things do not look to calm down any sooner.  The MOEX Russian Index took a nose dive because of the war situation, the ongoing sanctions and the geopolitical unease that has been caused between the global nations. Source: Google Finance Russia is the world's third largest producer of oil and overall supplies about one-third of European natural gas consumption as per the Council on Foreign Relations . For the EU to completely move away from Russian dependence is not easy and achievable in the short term without having a very large economic impact. Crude oil prices have shot up over the $100 price limit as we speak further making it challenging with the rising inflation for the common people. This is expected behavior and if there is any disruptions in oil exports from Russia, then this could even drive the prices muc...

If you have read a number of my posts then you probably know cash is my least favorite savings option because it's very hard to put it to work. What I mean by that is liquid cash earns a very small amount of interest when you compare it with the rise in inflation. Hence, I do not recommend to maintain more cash then what you need in the form of a monthly supplies fund or an emergency fund. There may be other situations, where for example you could be close to buying a home and yes it would make sense to hold the down payment money for the home in cash. For maximizing the value of liquid cash, there aren't a lot of great options, but there are a few where you still get something back to fight inflation. How an average American saves varies by each household, demographics and their income status. In 2019, the U.S. Federal Reserve did a study where they found the median transaction account balance was $5300 and the average transaction account balance was $41,600 . Transaction acc...

If you were watching the news on Saturday (2/19), the Ukraine Russia conflict did get heated up. There was an increase in fire exchange between Ukraine and Russian-backed separatists. I believe the market will show a negative impact due to the growing tensions as has been seen historically when war news usually breaks out. Markets never like uncertainty and tensions and hence it reacts in a negative manner. The futures are significantly down and similarly the major cryptocurrencies on 2/21/2022.   Here is a view of the S&P500 futures as I am writing this article - Source: finviz.com Bitcoin has similarly taken a constant dive since the last week with some resistance but trending downwards overall. Source: Finance.google.com The increased chances of the US, UK and other EU nations imposing sanctions could further create more turbulence in the markets. I am following the situation very closely and if Russia takes over parts of Ukraine then things are going to go sideways for...

I have been keeping a close eye on the market movements and particularly two themes have still maintained uncertainty in the last two months. Firstly, the timeline around when does the Fed hike interest rates and secondly the Russia-Ukraine situation.  Multiple banks and Fed Presidents have chimed in with various different strategies, the common theme being a consecutive rise in interest rates to fight inflation. I believe the Fed will take a cautious approach with series of 25 basis points (bps) increase over the next few months to spread the negative impact rather than straight off go to a 100 basis points increase. This will be inline with the Bank of England approach to fighting inflation as well which raised 25 bps in February 2022. Please see below the strategy of gradual uptrend in the interest rates by the Bank of England between Nov 2021 and 2022. Source: Tradingeconomics.com (UK Interest Rates)  At the same time, the US has held steady but I believe the trend to rais...

This is the continuation of how I started investing Part 1 of my blog. If you have not read it, I recommend giving it a read prior to starting with this one. Once I had maximized my 401K, it was time to look at other opportunities to grow my wealth even further. I had started to understand how mutual funds work, specially after the research and study I did as part of getting my 401K in a good spot. Next I was onto individual stocks and I felt I could win the world by being an excellent trader. I had already started imagining my self on Wall Street as a brilliant investor. But as all things in life, nothing is ever so simple. I opened an app based trading account and was amazed seeing the individual stocks all online. In the past, stock trades had a price per trade and it was not as "free" in today's times. Hence I wanted to be cautious to recoup my investment and the money i spent on executing the trade. Initially, I was a little nervous hoping not to make a mistake as s...

Growing up in my early teens, I used to have a piggy bank. Anytime someone gave me any money as a gift or what I received from my parents, I used to quickly put it all in my piggy bank. In those days my understanding of investment was if I kept the money in the piggy bank, it somehow would magically grow over the years. Well, I never thought about the laws of compounding as a child, hence all I dreamed of is one day I am going to take out all the money and be a rich person. At that time, no one really taught me that putting the money in the piggy bank was not really helping as the value of money was actually depreciating each day as inflation increased. This kept going on and on for years. After several years, I was exposed to financial banks and learnt that these banks provided you some interest for keeping your money with them. The other cool factor was that you could quickly know how much money you had saved by going to the bank rather than having to break your piggy bank. Online ba...

 It is very exciting that the Federal Reserve has been thinking deeply about the idea of digital currency. A series of papers released by the Federal Reserve on Stablecoins, the idea of central digital currency this year backs this assertion and hence the excitement about writing this post. In very simple terms Stablecoins are cryptocurrencies whose price is pegged to an external asset like the US Dollar or gold. Examples of such cryptocurrencies are USD Coin (USDC) or Tether USD (USD) that are pegged to the US Dollar and Digix Gold Token (DGX) that is tied to the value of gold. There is a third type of Stablecoin that is cryptocurrency backed, an example being DAI. To simplify how DAI works, it maintains its value through cryptocurrency which is used as collateral. Thinking of it, you may say that the price of cryptocurrencies is volatile and hence the collateral ratio between DAI and Ether is managed to maintain the price stability. This interestingly all happens through smart co...

It is phenomenal to know how many different types of financial products exist. The more I read, the better I get. Some concepts are easy, less risky to follow as individual investors while some are complicated and come with higher risks.  Putting my individual investor hat, I feel if you spend a little bit of time, then index funds can be your friends and you may become your own fund manager. I highly recommend looking at the Vanguard funds and starting your journey there. I will do a separate blog on how I started my investment journey and will discuss all my anxiety and excitement. This path of low cost investment is really awesome. Invest early and invest often is the key to success. This is the number one advice I would give to start with in the field of investments. There are a number of complicated products like options, futures, swaps which are also known Derivatives in finance. In simple terms these are complex financial products that allow you to hedge some of your risks ...