“I‘m paralyzed when it comes to money management” “I don’t know what to do. I’m reading everything… But I’m not actually doing anything with my money.” “ The Fear of investing in wrong product stops me from investing.” “ I have burnt my hands in stocks, I will never do that mistake again.” “ My kids’ future is at stake as I am scared that I will not be able to achieve my goals.” These are the most common apprehensions of lot of investors.
The subject of Personal Finance is not as Difficult as it looks like.To be a better successful investor, one needs to remember 8 simple things which are not new:
Money doesn’t grow on trees but grows like Trees:
No miracle will happen overnight and money will get Double. A lot of hard work is put into seed to become a tree. Similarly investments require lot of hard work and patience to turn into wealth. The fruits on the trees are not grown overnight, similarly you cant expect your investments to perform overnight.
Also,
Don’t underestimate the power of Compounding:
“Power of compounding is the eighth wonder of the world.” Albert Einstein. He who understands it… earns it, who doesn’t…. pays it.
Waiting for the results of Power of compounding can be at times very Boring, Like “watching the Paint Dry.”
Magic of power of compounding can be seen below:
| Amount invested every month | Years | Total Investment | Rate of return | End Value |
| 2000 | 20 | 4,80,000 | 15% | 26,55,000 |
| 2000 | 25 | 6,00,000 | 15% | 55,25,000 |
Giving just 5 years extra to you investments and contributing Rs.1.20lacs extra (over 5 Years) can actually double the investments.
One size Doesn’t fit all:
It is most unlikely that two different individuals will fit into same size shirt- pant. Similarly, each investor has different needs, goals, lifestyle, Risk taking appetite, Temperament, understanding and conviction. So, if your friend or relative has decided to choose a certain Financial Vehicle and has worked for him / her, may not hold true for you.
Asset Allocation is the key to wealth generation:
The correct asset allocation as per risk appetite are equally important as giving time to your investments. Changing you asset allocation to earn few quick bucks comes with an equal amount of risk.
Don’t forget the golden Rule of “High Risk , High Returns…Low Risk, Low Returns.” All the investments will fall in these quadrants only.
Stay away from products that don’t connect with your bandwith:
I assume you will not go out watching a regional movie if you don’t really understand the language. Similarly, one should not invest in instruments which you can not comprehend or are complicated. For example: investment in Private equity is not everyone’s cup of tea. I have seen lot of people investing on recommendation of wealth advisors and losing their wealth to these .
Diversify but don’t over diversify:
We all know what “Don’t put all your eggs in one basket” means. Diversification among different asset classes is a good idea but over diversification will not help in creating extra wealth. For example: Investing Rs.500 each in 10 schemes with same objective at a time will only add to the Paper Jungle and do no good whereas Rs.2500 in 2 schemes is a good number for diversification across schemes.
There is no good time to Enter or Exit:
Let us understand with an example.There were three friends A,B and C.
They invested at different level in the market.
| A | B | C | |
| Invested every year | At lowest levelLucky Man | At any time of the year depending on availability of funds | At Highest LevelUnlucky Man |
| Returns | 16% | 15.5% | 14.9% |
As we can see, there is not a big difference in returns between them.The wait is not worth it for A.
Similarly, exit only at the time of your goals. Booking profit just because of Market levels gone up is a barrier to growth in the wealth, if your goal has not arrived. The investments have to be clearly earmarked with the goals.
Procrastination has a Delay Cost:
Procrastination is undue delay in taking action. It unnecessary puts undue stress and occupies a space in one’s mind. Someone has rightly said:
“The minute we need a thing we begin paying for it whether we buy it or not.”
For example: If there is a need to visit Dentist and you delay it thinking that the problem will solve on its own, you might have to pay more for the treatment in the years to come.
In investments also, there is delayed cost attached. Let us see, how friends Sita and Gita both aged 30 years planned for their Retirement at 60 years:
| Started investments | Stayed invested | Amount invested every month | Total investment | Retirement Corpus | |
| Sita | Today at 30 years of age | Till 60 years | 5000 | 18 lacs | 2.81 crores |
| Gita | After 10 years from now at 40 years of age | Till 60 years | 10000 | 24 lacs | 1.35 crores |
| Difference | 6 lacs | 1.46 crores |
Here, Rs.1.46 crores is the delayed cost to Gita for delaying her investments by 10 years.
These things are simple yet not many investors are seen implementing these. If implemented, difference is seen…try and implement and see yourself emerge as a Better Investor.
Images have been sourced from google.com and are free to use.
About the Author: Gurleen Kaur is a Financial Consultant and devotes her time to her company www.hareepatti.com. She has done her Bachelors in Finance and Investment Analysis(BFIA) from College of Business Studies(CBS, Delhi) and MBA from IMT, Ghaziabad. She will be a Certified Financial Planner soon. She can be Contacted at gurleen@hareepatti.greatestdesignever.com