Tuesday, November 22, 2011
In the world of investing, trust is the basis of all relationships.
Consider the following situation which though real but many may still ask—aisa bhi hota hai? Imagine yourself going to your family physician for a checkup, who thereafter writes a prescription stating the ailment and the medicines to be taken. Would you turnaround and tell the doctor that you want a different set of medicines as you think the ailment is something different?
The situation seems bizarre outright as no one in his senses would do so. However, this is precisely what people do when it comes to their investments and their life goals!
Investors in all likelihood assume that they know more than (sufficiently) enough to know what investments they want to do. As financial planners we do come across investors to whom we suggest to subscribe to SIP in equity funds to be able to meet their goals-- but instead they ask us to recommend FD and NSC or disclose their wish to invest their retirement funds in property!
Recommend term insurance and they will suggest Endowment or ULIP instead!
People approach us for advice, agree upon a fee and ask for a comprehensive plan to be made for them based on the inputs provided. All said and done, they want to dictate the final course of action.
Invariably, the reason for this illogical behavior/suggestion is that a close friend of his has chided him for being amateurish by investing in mutual funds suggested by some unknown entity/professional. Confused, they now seek advice of another colleague who being a stock market buff instead suggests “hot picks”. The logic (and belief) being that mutual funds are for not so informed while FDs are for elderly.
By now the client being totally brain washed, works out a compromise that will suit his ego! A portion of money goes towards equity (tips) as suggested by office colleague and the rest into FDs or Post office MIS. Our analysis, strategy and experience be damned!
In any endeavor, things will work out only if the advice is followed completely. You will not strike water by digging two feet at 20 places. You’ve got to follow the advice and dig 40ft at a single place.
We believe that the root cause of such a mindset is that investors think that since they are familiar with the product they can do it themselves. This DIY (Do –it-yourself) attitude more often than not does more harm than good. Once the investor has the recommendation in front of them, they would tend to argue with the planner about the logic in their own line of thinking as regards investments and insurance. (Why DSP Blackrock MF and not ICICI Prudential MF? Why term insurance and not with profit endowment plans?) At the end, the investor goes ahead and implements only a part of the recommendations while the rest is done as per their own thinking and belief! So much for our plan and effort and experience!!
All this does not make sense! The relationship between a financial planner and his client will work only when there is complete trust amongst them. Just like a trapeze trusts his partner and let go of the bar himself!
Having satisfied yourself after the due diligence about the planner, simply let go.
After all it pays to invest trust along with your money!!
Thursday, November 17, 2011
Your income is regular and so should be your financial and investment plan. However, you should be a little more careful while writing out investment cheques. Your advisor is the right person to guide you in the maze called investments. Apart from being safe, your investment should not only be conforming to your financial plan (if it is in place), but should also be earning more than inflation.
However, if you are one of those DIY (do it yourself) investors, given here below is a negative list which should always be flashed before your eyes when you are contemplating an investment:-
- Do not put all your eggs in one basket. No matter how promising a particular investment may appear, it is prudent to diversify your portfolio across asset classes.
- Investments decisions based on free advice can give nasty surprises at times. It is impossible to make a crore by investing in a tip aired on a business channel or appearing in a financial newspaper worth Rs. 2. Consult your financial advisor for his feedback/opinion.
- If you are investing in stocks, do not put blind faith on your broker. Trust, but verify.
- Do not sell out too quickly. Always re-look at the bigger picture before pressing the panic button when market goes down.
- Do not invest in instruments about which you do not have full information. Avoid investment just because your friend has invested.
- Do not try to time the market. Remember it is time in the market and not timing the market that matters.
- Remember, it is not your thinking that makes big money. It is sitting! Avoid trading. Be it stock or mutual fund.
- It is time to be cautious when you hear/read the sentence “it’s different this time.” Time to get out of the market lock stock and barrel.
- Last but not the least; appoint a qualified financial advisor who has your concerns in mind rather than his gains.