u/ketofolbolus

Recently a post of mine was deleted though I am not sure why. I did not get a response when I asked. So I am doing a summarised version of it again because even though I am a practicing physician, I feel strongly about (the lack of) financial literacy in Pakistan.

I strongly recommend all people new to investing to have a look. It will take 5 minutes, tops.

• There is already a lot of relevant material in the "discussion section" or the sub.

THE 3 CORE PILLARS OF STRATEGY

Before allocating capital, you must explicitly define three variables to determine your asset allocation:

1. Goals: What is the specific purpose of the money?

2. Horizon: How long can the capital remain locked away?

3. Risk Tolerance: What is your psychological and financial capacity for volatility?

BROAD ASSET CLASSES

Real Estate and Commodities: Physical assets and raw materials (gold, silver, oil).

Debt Instruments: Bonds, fixed deposits, and Sukuks. Designed for capital preservation with modest returns aimed at mitigating inflation.

Equities: Shares of publicly traded companies, index funds, and Exchange Traded Funds (ETFs). Designed for high-risk, long-term wealth creation.

Cryptocurrency: Highly speculative assets. Divided into Bitcoin, Stablecoins (fiat-pegged 1:1 tokens like USDT/USDC), and Altcoins (all other crypto).

ACTIVE VS. PASSIVE INVESTING (INDEXING)

The Math: Over a 20-year horizon, the statistical probability of individual stock picking beating a broad index fund is less than 1 percent. FOMO (Fear of Missing Out) is the primary driver of portfolio destruction.

The Cost Drag: Most equity mutual funds in Pakistan are actively managed and carry high Total Expense Ratios (TER) exceeding 3 percent. These fees aggressively erode real returns.

The Rule: When selecting an index instrument, look for the broadest coverage and the lowest TER. Past performance is variable; high fees are a guaranteed drag.

PAKISTAN MARKET SPECIFICS AND ACTIONABLE TAKEAWAYS

True Index Funds: Pakistan has only two major low-fee, passive options:

1. AKD Investments: Conventional (tracks KSE-100).

2. Al Meezan: Shariah-compliant (tracks KMI-30).

Local ETFs: The local ETF market is nascent (under 6 years old). Focus strictly on their structural design rather than short-term historical performance.

The VPS Priority: If you are over 25 years old and earning roughly 200,000 PKR/month, your highest ROI move is to max out a Voluntary Pension Scheme (VPS) first. It provides a distinct double tax advantage.

A Warning on AI Tools: Standard AI models lack reliable context for the Pakistan Stock Exchange (PSX) because their training data is overwhelmingly Western-centric.

I have been seeing a lot of misled posts and frankly also a bit misleading responses to them. In fairness to the moderators, there is a LOT of very informative material already linked in the sub, a link to which is provided in the automatic reply that happens with every post but the questions seem like people don't go through those a lot.

So I thought to compile a little document here to introduce people to the instruments and some general basics. There might not be a particular order to them but I am going to try. (you can copy it and ask AI to summarise it)

The most important questions to ask one self before investing anything:

1. what are your goals?

2. What is your horizon?

3. What is your personality type and risk tolerance?

What you want to invest in depends entirely on the answers to these questions.

Broadly based asset classes:

1. Real estate

2. Commodities (gold, silver, oil etc)

3. Debt instruments (bonds, fixed deposits, sukkuks. This is what "low risk" mutual funds invest in) debt instruments are for capital preservation with modest returns that attempt to keep up with the inflation or make it slightly less worse

4. Equities (shares of publicly traded companies on stock exchanges. This is what "high risk mutual funds" and index funds and exchange traded funds (ETFs) invest in

5. Cryptocurrency (includes stablecoins pegged 1:1 with fiat currencies. Fiat money is currency like PKR, USD etc. stablecoins have a T or C at end of the currency symbol like USDT or USDC depending on whether issued by Tether or Circle. Then there is Bitcoin, the first and relatively most stable cryptocurrency. Then there are altcoins which are all cryptocurrencies other than bitcoin)

MUTUAL FUND TYPES:

Mutual funds are pools of investor money that asset management companies (AMCs) manage.

Other than classification by risk type as slightly touched upon in the above message, one classification is actively managed mutual funds and passively managed (aka index) funds. The active funds try to beat the market at huge annual fees that often eat into real returns after inflation. All equity mutual funds in Pakistan are actively managed usually with MORE than 3% expense ratio (TER)

EXCEPT

1 index fund by AKD investments (conventional, follows KSE-100); and 1 index fund by Al Meezan (shariah compliant, follows KM-I30) there is a reason they are lesser known. This is where the financial sector makes the least money out of you.

Extensive market research shows that broad based index funds (or ETFs) are your best bet for LONG term wealth creation.

Stock picking can beat the market for a few years but the skill and time needed for it to consistently do it over decades is simply not possessed by most people (myself included).

Over 20 years and more, the statistical probability of stock picking beating indexing is less than 1%.

FOMO is the biggest destroyer of long term wealth generation.

When choosing an index instrument, choose the one that has the most number of companies and the least TER. Past performance is not a guarantee. TER is.

The oldest ETF in Pakistan is 6 years old. That's barely even half of what is the optimum time to judge an ETF by its performance. Look at its structure. It is more important. Even for mutual funds that are older. As a rule, the broader the better, the cheaper the better.

If you are older then 25 and making about 2 lakh a month, max out on your Voluntary Pension Scheme (VPS) first before any other investment. Its double tax advantage gives the best ROI long-term. Cheapest equity sub fund within VPS with no FEL is by Mahaana.

Unless you are very good at prompting, AI models cannot contextualise their advice for PSX investing very well. Their training data is extremely Western centric.

I have been seeing a lot of misled posts and frankly also a bit misleading responses to them. In fairness to the moderators, there is a LOT of very informative material already linked in the sub, a link to which is provided in the automatic reply that happens with every post but the questions seem like people don't go through those a lot.

So I thought to compile a little document here to introduce people to the instruments and some general basics. There might not be a particular order to them but I am going to try. (you can copy it and ask AI to summarise it)

The most important questions to ask one self before investing anything:

1. what are your goals?

2. What is your horizon?

3. What is your personality type and risk tolerance?

What you want to invest in depends entirely on the answers to these questions.

Broadly based asset classes:

1. Real estate

2. Commodities (gold, silver, oil etc)

3. Debt instruments (bonds, fixed deposits, sukkuks. This is what "low risk" mutual funds invest in) debt instruments are for capital preservation with modest returns that attempt to keep up with the inflation or make it slightly less worse

4. Equities (shares of publicly traded companies on stock exchanges. This is what "high risk mutual funds" and index funds and exchange traded funds (ETFs) invest in

5. Cryptocurrency (includes stablecoins pegged 1:1 with fiat currencies. Fiat money is currency like PKR, USD etc. stablecoins have a T or C at end of the currency symbol like USDT or USDC depending on whether issued by Tether or Circle. Then there is Bitcoin, the first and relatively most stable cryptocurrency. Then there are altcoins which are all cryptocurrencies other than bitcoin)

MUTUAL FUND TYPES:

Mutual funds are pools of investor money that asset management companies (AMCs) manage.

Other than classification by risk type as slightly touched upon in the above message, one classification is actively managed mutual funds and passively managed (aka index) funds. The active funds try to beat the market at huge annual fees that often eat into real returns after inflation. All equity mutual funds in Pakistan are actively managed usually with MORE than 3% expense ratio (TER)

EXCEPT

1 index fund by AKD investments (conventional, follows KSE-100); and 1 index fund by Al Meezan (shariah compliant, follows KM-I30) there is a reason they are lesser known. This is where the financial sector makes the least money out of you.

Extensive market research shows that broad based index funds (or ETFs) are your best bet for LONG term wealth creation.

Stock picking can beat the market for a few years but the skill and time needed for it to consistently do it over decades is simply not possessed by most people (myself included).

Over 20 years and more, the statistical probability of stock picking beating indexing is less than 1%.

FOMO is the biggest destroyer of long term wealth generation.

When choosing an index instrument, choose the one that has the most number of companies and the least TER. Past performance is not a guarantee. TER is.

The oldest ETF in Pakistan is 6 years old. That's barely even half of what is the optimum time to judge an ETF by its performance. Look at its structure. It is more important. Even for mutual funds that are older. As a rule, the broader the better, the cheaper the better.

If you are older then 25 and making about 2 lakh a month, max out on your Voluntary Pension Scheme (VPS) first before any other investment. Its double tax advantage gives the best ROI long-term. Cheapest equity sub fund within VPS with no FEL is by Mahaana.

Unless you are very good at prompting, AI models cannot contextualise their advice for PSX investing very well. Their training data is extremely Western centric.

I have been seeing a lot of misled posts and frankly also a bit misleading responses to them. In fairness to the moderators, there is a LOT of very informative material already linked in the sub, a link to which is provided in the automatic reply that happens with every post but the questions seem like people don't go through those a lot.

So I thought to compile a little document here to introduce people to the instruments and some general basics. There might not be a particular order to them but I am going to try. (you can copy it and ask AI to summarise it)

The most important questions to ask one self before investing anything:

1. what are your goals?

2. What is your horizon?

3. What is your personality type and risk tolerance?

What you want to invest in depends entirely on the answers to these questions.

Broadly based asset classes:

1. Real estate

2. Commodities (gold, silver, oil etc)

3. Debt instruments (bonds, fixed deposits, sukkuks. This is what "low risk" mutual funds invest in) debt instruments are for capital preservation with modest returns that attempt to keep up with the inflation or make it slightly less worse

4. Equities (shares of publicly traded companies on stock exchanges. This is what "high risk mutual funds" and index funds and exchange traded funds (ETFs) invest in

5. Cryptocurrency (includes stablecoins pegged 1:1 with fiat currencies. Fiat money is currency like PKR, USD etc. stablecoins have a T or C at end of the currency symbol like USDT or USDC depending on whether issued by Tether or Circle. Then there is Bitcoin, the first and relatively most stable cryptocurrency. Then there are altcoins which are all cryptocurrencies other than bitcoin)

MUTUAL FUND TYPES:

Mutual funds are pools of investor money that asset management companies (AMCs) manage.

Other than classification by risk type as slightly touched upon in the above message, one classification is actively managed mutual funds and passively managed (aka index) funds. The active funds try to beat the market at huge annual fees that often eat into real returns after inflation. All equity mutual funds in Pakistan are actively managed usually with MORE than 3% expense ratio (TER)

EXCEPT

1 index fund by AKD investments (conventional, follows KSE-100); and 1 index fund by Al Meezan (shariah compliant, follows KM-I30) there is a reason they are lesser known. This is where the financial sector makes the least money out of you.

Extensive market research shows that broad based index funds (or ETFs) are your best bet for LONG term wealth creation.

Stock picking can beat the market for a few years but the skill and time needed for it to consistently do it over decades is simply not possessed by most people (myself included).

Over 20 years and more, the statistical probability of stock picking beating indexing is less than 1%.

FOMO is the biggest destroyer of long term wealth generation.

When choosing an index instrument, choose the one that has the most number of companies and the least TER. Past performance is not a guarantee. TER is.

The oldest ETF in Pakistan is 6 years old. That's barely even half of what is the optimum time to judge an ETF by its performance. Look at its structure. It is more important. Even for mutual funds that are older. As a rule, the broader the better, the cheaper the better.

If you are older then 25 and making about 2 lakh a month, max out on your Voluntary Pension Scheme (VPS) first before any other investment. Its double tax advantage gives the best ROI long-term. Cheapest equity sub fund within VPS with no FEL is by Mahaana.

Unless you are very good at prompting, AI models cannot contextualise their advice for PSX investing very well. Their training data is extremely Western centric.

How does average retail feel confident enough to invest in IPOs? Not criticising. Not even specifically talking about this one in particular. Genuinely looking to understand reasons. I commented this under a post and someone had asked me to Google it to understand. They deleted that comment so I am posting here to update that I did Google and found strong advice AGAINST retail investors going into IPOs by the following financial/economic giants:

1. Robert Shiller

2. Charlie Munger

3. Warren Buffer

4. JL Collins

This is not to critique but for my own learning of people's investment behaviours. As retail, what makes people confident enough to invest in an IPO and not seek the safety and proven long term benefit of a broad index fund / ETF?

@ People with good understanding of blockchain technology, what is your take on tokenised RWAs? From what I understand they don't actually represent ownership and rather follow the behaviour of the particular product each specific token is following. I personally don't understand blockchain and crypto too well and wanted to understand. Evidence based though, not vibe based. 😄

Regards

After maxing out on my VPS, I put whatever is left into MIIETF. The Western data that over 20 years plus horizon, passive index investing beats active stock picking seems sensible to me and I believe the same can be applied in an emerging/frontier market like the PSX, too. Partly because of my very demanding profession. But I have recently been a little curious about stock picking.

What do you guys think? Can active beat passive consistently over 20+ years?

I was comparing Mahaana Save+ and Meezan Cash Fund (MCF) to look for the cheaper option. The numbers showed that MCF is cheaper than Save plus despite a higher numeric TER (1.3% versus Save+'s 0.84%) due to the 1.5% front end load with Save+. They both break even at 3.3 years and Save+ becomes cheaper after that. A money market fund should not be held that long anyway.

I was wondering if there is any money market fund with even lower costs?

Thanks and regards