It’s the IPL season!!
There is no better time of year for cricket fans than this!
IPL fever is spreading like wildfire.
Cricket and investing have several similarities, which is interesting to note. There are some concepts in cricket that can be applied to your financial life as well.
Do you know what the term ‘Powerplay’ in cricket means?&nbs
What is powerplay?
Powerplay is a rule in T20 cricket that restricts fielding to only two fielders outside the 30-yard circle for the first six overs of each inning.
This has allowed batters worldwide to blow out and put up massive totals for their teams. As a result of Powerplay, many ODI teams have scored 300+ points and T20 teams have scored 200+ points.
So, here every team grabs the opportunity and tries to take enough risk in this period to score maximum runs. If we try to see this parallel to our financial life, we also have a phase called ‘ Power Play ’.
For different age groups, how does Powerplay fit into Investment?
The concept of power play can be applied differently for each age group. Here, segregation has been divided into the 20s, 30s & 40s. Each age group has different responsibilities some have fewer some have many.
We start with the 20s, the initial 10-15 years of working life. Where there are fewer responsibilities or the 20s, this is the time when we can take risks. During this period we explore ways to grow our wealth. This is the time when one should have maximum exposure in his investment portfolio toward equity. Also, this is a crucial time for getting habitual in financial discipline.
Once the fielders spread out after the first 6 overs, the batsmen don’t risk the chances too much and just keep the ball ticking for 1s and 2s. Similarly, when responsibilities come on the shoulder during our 30s one should not take too much risk in his investment portfolio and should have disciplined 1s and 2’s in the form of SIP.
Powerplay concept in your 30s:
The 30s is the age when you are probably married and thinking of starting a family soon! Planning a kid comes with another set of responsibilities, as now you have to put them in school, and you might need a bigger house/car.
During the 30s, an individual’s risk appetite reduces, as the focus shifts to protecting the money rather than growing it quickly. There should be a mix of investments, it should be a little aggressive, and there should be a balance as well!
Over time, ‘Power play’ has become a deciding factor. In Power Play, if a team scores more than 60 runs in the first 6 overs, there is a very high probability that they will end up scoring more than 180 runs.
Providing the team has laid a strong foundation in the beginning, the rest of the innings can be played intellectually. The first step towards building a strong financial foundation is to purchase life insurance for your family in the event of your death.
Powerplay concept in your 40s:
The 40s is a critical phase of life, by this age, you are at the peak of your career. You will have more earnings, and more responsibilities, and it is a crucial decade in your financial life. It is a crucial decade of your financial life since you will have more earnings, and more responsibilities, such as raising a child and getting married.
Even this strategy can be co-related to our investment decisions. By laying a strong foundation of equities in the initial 10-15 years, we are ensuring that these equities will have enough time to grow in the coming 40s & 50s so that one can enjoy a risk-free retirement.
One needs to power make sure that they are not tied up in a single investment. Diversification is important as it can help you to reduce the total risk in your portfolio if a stock you invest in loses its value. Now in your 20s and say even in your 30s, you could drive your major investment in equities and less in debt instruments. But in your 40s more stress is put towards keeping your money in a secure investment portfolio.