Skip to main content

Financial Planning: Magic of investing - Patience & Strategy

There’s no secret or magic to investing. Ignore the fads, and keep your eye firmly on your goals


IF YOU dig in the same spot long enough, you’ll eventually find water, goes an old saying. But a lot of people dig in one place for a while, and then get impatient or distracted and start digging in another place, and then another... When they don’t find water in any of those, they blame their luck. It’s surprising that more people haven’t figured out the simple trick. Of course, there’s no denying the importance of choosing the best place to dig in the first place!


In my line of work, I often encounter people who seem to dart in a new direction randomly. Many get caught up in the latest investing fads. There are broad trends like equity and mutual fund investing. Then, real estate, commodities, gold. And then there are micro-trends—read “fads”—like going overboard on midcaps, banking stocks, the communications sector, and infrastructure. In pursuit of the latest trend, investors churn their portfolio. These are the people you find glued to the TV, watching business channels, where post-mortems and predictions are doled out incessantly to viewers who wait with bated breath for the latest, as if they could get the news and act on it before anyone else. But what’s on the TV channels is news only to the retail investor; the rest of the investing world usually not only knows about it, but has often also acted on it. The result is that retail investors are often the last to rush in last, and get the empty shell, after the kernel has already been eaten by those higher up in the investing food chain.


The investing topography also has its share of whirlpools and quicksand. These feature things like rumors floated by vested interests, and often aimed at retail investors. Trusting investors follow the trail laid out for them. Then the cowboys who floated the rumours unwind their positions and move on to the next pasture, leaving trapped investors bleating plaintively. But memory is short. Investors lick their wounds for a while, and then fall in line behind another pied piper.


Retail investors are fascinated by day trading. Who hasn’t heard a story about someone’s neighbor or cousin who makes money hand over fist on a daily basis? Isn’t it remarkable that one hardly ever hears stories about the losses made by these legends? Many investors have great faith that there exist failproof methods to become really rich really quick. They underestimate the risks they take, and rely too heavily on the instincts of themselves and of others, often at the expense of plain logic. The tide of optimism exposes their gambling streak, and they end up making bets that may not be as sound as they first appeared. Fact is, it’s very difficult to predict equity markets, because there are simply too many variables involved.


For those who want to get rich fast, investing time frames are measured in days rather than years. All that talk about wealth creation over time—how boring! What could be more tame than returns of 12-15% a year? The hot-blooded investor will settle for nothing less than doubling his money in six months. But the fact is that risk and return normally have a direct correlation: the higher the risk, the higher the returns. However, the chances of good returns increase—while risk does not—when one gives one’s investment time to perform.


When investors burn their fingers, they leap to the conclusion that investing is dangerous, and swear they will never return to it...until the next fad comes along—perhaps land, or gold, or something else. I’m not suggesting these are bad investments. My point is that it’s just drifting from one investment, to another, to another, without any strategy, will not help anyone reach their long-term goals. It amounts to digging in too many places for water.


If there’s no strategy for achieving goals, it may never happen. Most of us simply chase money. But that money is required for achieving certain milestones, fulfilling aspirations and meeting goals. Making money is fine—who could argue against that! But just chasing money, and letting oneself be led in any direction that seems appropriate at a given moment, will render the whole exercise futile.


Investors need to work with goals in mind, and work towards reaching them in the appropriate time frame, which is what financial planning is all about. There is no compelling reason to arbitrarily gun for some high-threshold of return (say 40% a year) which will only drive the investors towards riskier options. Responsible investments made over a period help in achieving goals, even if they give modest returns. Investors need to give them time. Like everything else in life, it takes time for an investment to bear fruit.


Less is more. There’s no need to keep moving one’s money around. If you have invested in good options in a diversified manner, just let it be. That way you can keep your sanity, and not have to constantly look around for options to shift to. This approach is good for your peace of mind and your blood pressure.


Remember, if something seems too good to be true, it probably is. Schemes which promise stratospheric returns deserve your skepticism. So do those who claim to be sure about which way the stock market will turn, which stock will do well this year, and the like. When someone is that sure, take their views with a proportionately big pinch of salt.


As for knowing where to dig for water, well, you’d consult a hydrologist, engineer, or some other professional, wouldn’t you? Why should it be different with money? Find a consultant you can trust, who will guide you responsibly.

Popular posts from this blog

Rs 14,000 Crore worth of tax free bonds coming soon from NHAI , PFC

  NHAI, PFC file prospectuses, coupon rate not yet decided MORE debt investment options have opened up for investors with AAA rated tax-free bonds worth over Rs 14,000 crore lined up. The National Highway Authority of India ( NHAI ) and Power Finance Corporation ( PFC ) are offering Rs 10,000 crore and Rs 4,033.13 crore worth of tax-free bonds, respectively, as per prospectuses filed with the Securities and Exchange Board of India (Sebi). Of a Rs 5,000 crore issue by PFC, Rs 966.87 crore has already been raised through private placement on September 28 and November 1. Tax-free bonds give investors tax-free return on any amount invested. In another kind of bonds, the long-term infrastructure bonds, investments up to Rs 20,000 are tax exempt, that is this cap amount can be deducted from the taxable income. Accordingly, the NHAI prospectus has clarified that only the amount of interest from -and not the actual investment on -its new bonds will be tax-free. "NHAI's publ...

Change in Fund Manager for some of HSBC Mutual Fund Schemes

Buy Gold Mutual Funds Invest Mutual Funds Online Download Mutual Fund Application Forms Call 0 94 8300 8300 (India) However, this facility is only available to Unit holders who have been assigned a folio number by the AMC.   HSBC Mutual Fund has announced that the below mentioned schemes shall be managed by the new fund managers as stated in the table. The effective date will be July 02, 2012.   Amaresh Mishra 's will be Vice President and Assistant Fund Manager. Having done a Post graduate diploma in Business Management and Bachelor of Chemical Engineering, he has over seven years of experience in Equities and Sales.   Mr. Piyush Harlalka's designation shall be Vice President- Fixed Income. Qualified as a C.A., C.S. and holding M.B.A.( Finance degree), he has over six years of experience in Fund management and ...

How EEE and EET Tax affect Retirement Investments

  An important factor while choosing a financial product is its taxation , and for retirement savings, this is even more important as the sums involved are usually life-long savings. Here's a look at the current tax treatment of three major long-term retirement planning products, which are - Employees' Provident Fund (EPF), Public Provident Fund (PPF) and National Pension System (NPS). EPF The tax treatment is EEE, which means your money is exempt from taxes at the time of investment, accumulation and withdrawal. At the time of investment, the tax deduction is under the limit of section 80C of the Income-tax Act , which is currently Rs 1.5 lakh. Partial withdrawals are also tax-free if made after 5 years of continuous service. If withdrawals are made before 5 years of service, 10% tax will be deducted at source. Exceptions have also been provided for transfer of amount and conditions wherein the subscriber is unemployed for more than 2 months or the loss of job was beyond th...

Personal Finance: You can insure your wedding

But luck may not always be on your side. With the frequency of such attacks, as also other risks and unforeseen accidents growing, a wedding insurance is something you may want to look at if a marriage is being planned in the family. Event insurance plans like this is still in its nascent stages due to low awareness. And given the sacred nature of the ritual, nobody wants to discuss or think negative. But as wedding spends and risks grow, it makes sense to cover the potential monetary loss. The policy in those countries even covers the loss of the wedding ring, the wedding gown not reaching on time and even the expenses/loss due to late or non-appearance of the photographer which may mean staging the event once again for the photograph. In India, most insurance companies — including ICICI Lombard General Insurance, Oriental Insurance, Bajaj Allianz and National Insurance — offer wedding insurance. The policy is tailor made to individual requirements and needs. The sum insur...

DSP BlackRock MidCap Fund

Best SIP Funds Online   HOW HAS DSP BlackRock Small & Mid Cap Fund PERFORMED? With a 10-year return of 14.61%, the fund has outperformed both the category average (12.34%) and the benchmark (10%) by a good margin. Should you invest in DSP BlackRock Small & Mid Cap Fund? This fund invests predominantly in mid-cap stocks but takes a sizeable exposure in small-caps as well. The focus is on nascent companies with high growth potential. The fund manager places emphasis on quality and avoids inferior businesses even if these look tempting from a valuation perspective. Over the past year, the fund portfolio has grown, having added to some of the underperforming sectors like chemicals and healthcare. Its portfolio churn has come down significantly. The heavily diversified portfolio is run completely agnostic of its benchmark index— most bets are from outside the index—which can at times lead to bouts of underperformance as seen in the recent years....
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now