Making financial investments can be compared with the marathon. People have varying life goals, aspirations, habits, financial and risk profiles.
What does the marathon teach us about investments and achieving individual goals. Here are some of them: Define realistic goals: A participant in the race usually likes to set a target. It may be completing the race or finishing within a set time or finishing within the top 100 runners. All participants will not set the goal of winning the marathon because this is unrealistic.
Similar is the case of planning your financial investments. It is important that goals need to be set that are achievable. Who does not want to become a millionaire in the shortest possible time. But, such goals may not be achievable given ones existing financial position. Being realistic of returns is not possible though investments, even if done in the best asset classes.
For instance, to achieve a corpus of Rs 1 crore at the end of 10year period requires a monthly saving of Rs 38,466 at 15 per cent return. If you consider inflation at 8 per cent, then the value of Rs 1 crore after 10 years will be only Rs 46,31,935. So, actually you need to invest around Rs 60,000 per month to achieve your goal.
You need to decide if you can put aside this sum every month for the next 10 years or else you to need to scale down your goal.
Start on time: Even in a long distance run, a few seconds does make a difference, especially, if you are going in for the record. You may have noticed how runners jostle for space to be in the front at the starting line.
Psychologically too, it gives you a boost if you are ahead of the pack in the opening stages of the run.
In case of making investments, the early you start the better. We all know the power of compounding works best if you allow money to grow over a longer period.
Plan your race: Do not forget that you are running a marathon and not a short sprint. You may start aggressively, but very soon, you will run out of steam and will be forced to slow down or even stop.
This does not help the cause.
Compare this with investing. You may receive a bonus from your employer and may decide to in vest it in lump sum. As time goes by, you are faced with a lot of financial demands and you end up withdrawing the money. This can be harmful, especially, if you have invested in fixed deposits where there is a penalty for premature withdrawal or if invested in shares where markets may be down and you may incur a loss on sale of shares. The best way out is to make a financial plan according to your goals based on your expected inflows and requirement of funds, and then try to stick to it .This way, you can invest at regular intervals and ensure adequate money is available to you during your entire life span.
Don't stop: Just like running, wealth creation is a long term process. If you panic and quit when the going gets tough, you will lose the advantage of your efforts put in so far. As a runner, you will experience pain when the body starts to feel the strain and you may wish to stop. If you do this, it will become all the more difficult to start again. Frequent stops will worsen the situation and you will ultimately lag far behind in the race.
In case of investments, regular disciplined investments go a long way in ensuring that you are on track. A lot of investors start well, but at the first sign of adverse circumstances, panic sets in, and they abandon their investment plans. You need to be mentally strong and learn to endure pain for long-term benefits.
Do not compare yourself with others: In a race there will be all kind of participants. Some are professional runners, others are amateurs and some are just participants. If you start looking at the leaders, you will feel a sense of disappointment. If you look at people trailing behind, you may feel good. But, this is purely illusory.
What you need is to focus on what your goals are and how much you are striving to achieve these goals.
In the investment world, it could be that some people may get plain lucky or others may have the ability to take higher risks and stomach bigger losses which you may not have. Some investors will try to ape the so-called star performers or success stories only to end up in ruins when the markets take an unexpected downturn.
So, comparing with others is risky, and should be avoided.
Remove obstructions: It is important for the runner to remove all that entangles and prevents him or her to run faster. One does not see runners running in a business suit or running in tight jeans. Wearing the right attire that allows for unrestricted movement is crucial.
As an investor, you may be carrying excess baggage in the form of earlier failures, disappointments and missed chances. Allowing these to play on your mind, diminishes your concentration, and you will tend to lose the plot. Have a clear mind, and put the bitter past experiences behind you.
You can analyse these later after the race.
Have a good coach /mentor: Two minds are better than one. A runner needs to have a good coach who knows your strong and weak points, and is able to suggest how to overcome your limitations. Training forms a key part, and a good coach will help you to train better. He will also help in understanding the course route, where there is a climb or where the landscape is downhill, and also help the runner to get familiar with the surroundings.
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