Smart ways to invest and attain early financial freedom

In our quest to illustrate the "Grow rich and retire early" paradigm, we shall bring you real-life heroes—people who have worked their way up the career ladder, saved and invested prudently, and have now earned enough to be able to look forward to a comfortable retirement. Some names have been changed on request to protect the identity of the person. However, the other details are completely accurate. Read about their investment journey.

In the first part of this series, we profile 47-year-old Umesh Rao (name changed), a senior executive at a multinational company.

Starting from a modest Rs. 4,600 in 1992, his salary now stands at Rs. 70 lakh per annum (excluding bonuses). His investment portfolio is worth Rs. 4.3 crore. If you were to include his real estate holdings, his net worth is now worth Rs. 14.5 crore. Here is a glimpse at his investment journey and philosophy.

Career path

Rao started his career in 1992 with one of India's largest IT companies. After working for it for 3 years, he joined an IT company in the US where he worked for 10 years. He came back to India in 2000. He has over the past 23 years worked for only three companies.

Meticulous about saving

Rao has been a regular saver right from his early days. Both while working in India in the nineties and then in the US, he would save about 20-25% of his salary. While working in the US, he channelled his savings into real estate in India.

As he moved up the career ladder and his salary grew, the proportion of his savings grew. "As your salary grows, your expenses don’t grow in the same proportion, so you should be able to save more," says Rao. Now he saves and invests a fantastic 65-70% of his salary each month. "If you can delay gratification and invest, you can make your money work for you," adds Rao.

Early foray into the stock market

While working in the US, Rao began to invest in the stock market there. "The stocks that really gave me good returns were those which I bought and held on to for at least three years. Whenever I tried to trade, I did not make much money," says Rao.

One of his best investments was Oracle, which gave him a return of 1,600% over three years. Other bets that paid off handsomely were Google, Qualcomm and Cisco.

Rao too got sucked into the Internet mania of the late nineties but was fortunate to pull out his money before the dotcom boom went bust. While he did not lose money, all the paper gains he had made evaporated as the market went into a tailspin.

Too conservative initially

In his early days of investing Rao was very risk averse. Most of his investments went into fixed deposits, post office instruments and real estate. "Given the boom that we have witnessed in real estate, my investments there have paid off well. But my inflation-adjusted returns from fixed-income instruments have been poor," says Rao. He began investing heavily in Indian stocks and equity mutual funds only recently—in the past 3 years or so. "Thanks to the guidance of some of the mentors that I have, most of my investments have been in value stocks. I have also stuck to my investments for the long term," says Rao. Now he has a diversified portfolio comprising stocks, mutual funds, fixed deposits, PPF, gold, etc.

Unrewarding foray into PMS

About 4-5 years ago, Rao invested in a portfolio management scheme (PMS). He lost some money there. What he learnt from that episode was that a person should do his own research and only invest in stocks in which he has high conviction. "Invest in the stocks of companies that you really like. They should be the sort of companies that you would build if you were to start and build a company of your own," he says. He feels that if you invest in a company with an ownership mind set (as Warren Buffett also advises investors to do), you will not lose money.

On the significance of career growth

Rao is of the view that investment, career and health must all go hand in hand. He adds that unless you focus on your career and earn well, you can't invest much.

He suggests that early on in one's career one should build an emergency fund worth six months of expenses. This emergency corpus will give you the freedom to take risks and explore growth opportunities. "Most people play it very safe. They keep doing the same thing year after year. If you are not careful, you could become obsolete in the job market," he says.

In Rao’s view, learning is the key element that propels one’s career upward. He quoted American philosopher Eric Hoffer: "In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists." He adds that those who keep learning get better jobs and their salaries keep growing. “Earn as much as you can legally and invest as much of that amount as you can.”

Lessons for youngsters who would like to grow rich and retire early

Rao opines that if you want to grow rich, there is no substitute to starting young. "Celebrate with the first month's salary but start investing from the second month," he says. Those who can't analyse stocks themselves should visit mutual fund web sites (,, that provide analyses of funds. Choose a few good funds and start investing in them. "Invest whatever small amount you can," he says.

Second, Rao suggests that more of your investments should go into growth assets like stocks and equity mutual funds. Only a small part of your portfolio should be in fixed-income instruments like debt funds and fixed deposits for safety and stability. "Fixed-income instruments will not give you growth and security," he says. He adds that when you are young you can take more risk as you have time on your side to recover from a setback.

Third, Rao emphasises the importance of having a long-term investment horizon. "Everybody speaks of long-term investing but it is rather difficult to practice. The definition of long-term itself is not clear in peoples' minds. For some three months is long term. I feel that if you keep buying and selling you will find it difficult to make money from stocks. Youngsters’ investment horizon should be at least 6 to 10 years," he says.

Fourth, he offers advice on the real estate sector. His own investments in real estate have given him good returns, but he is wary of this segment now. "Given how much the real estate market has run up already, one doesn't know how good the returns will be in the future," he says. He also points to the illiquid nature of real estate, especially during a downturn. "It is very difficult to pull money out of the real estate market. I have a friend whose house has been on sale for the past 3-4 months, but he can't find buyers even though he has been reducing the price," he says.

If you can adopt Rao’s mantra of learning, earning and investing, there is no reason why you too can’t retire rich.

Author Description

S. G. Raja Sekharan

S. G. Raja Sekharan is a visiting MBA faculty, a mentor to budding entreprenuers, a wealth management consultant, an author of a book on Investing in India and the author of this blog.

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