Mistakes To Must Avoid
by Mr. P V Subramanyam,
Subramoney.com
I am normally a person who likes to say 'be careful' rather than say 'do not break it'.
The mind always sticks to the most important word - so the 'break' sticks in our head.
However there are a few mistakes that I have been seeing and hearing from Independent Financial Advisers(IFAs), websites, etc. and think it is necessary to summarise them in one place.
1. Optimism..!
This is a lovely thing to have, except when it comes to investing.
When people invest in shares they have some outlandish expectation -- say 28% CAGR (compounded annual growth rate) or 17% CAGR.
No clue who gives them such 'lofty' expectations. Yes, some of us have got it in the past, but hey we have perhaps just been lucky.
A Rakesh Jhunjhunwala or a Vallabh Bhansali have got much higher returns, but you have no clue about the efforts and team work that has gone behind all this. A Naren Sankaran (Of ICICI Pru MF) or a Motilal Oswal is perhaps capable of getting far better returns, but their risk taking capacity and sheer size of funds managed puts a huge limitation to the returns.
So please temper your expectations.
Just because you expect less it does not mean you will not get it. Keep your expectations at a far more realistic 20% to 25% OVER Public Provident Fund (PPF) returns -- so if you get 8% in PPF, expect to earn nearly 10% to 11% over a long period of time, tax free. It can do magic to your portfolio over say 50 years like it has done for some of us early starters.
2. Risk & Return..!
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| P V Subramanyam |
The fact that you take more risks DOES NOT MEAN YOU HAVE TO GET greater returns. It is not your RIGHT; it is just that the odds favour you. If it were so certain, there would be no risk at all. Long term can mean really long term - say 13 years and you may have just lost patience after 12 years & 5 months.
Be very clear that for goals that are 7 to 8 years away equity is a good investment, but you will need a back up plan just in case it backfires.
3. Consumerism..!
Buying every shiny thing on the store shelf or on Amazon and Flipkart are not the way to create wealth. When you feel like buying something, wait.
Think of the last five items that you bought and what you did with that. Clearly the manufacturer and the shop keeper want you to buy all that is made and displayed. It is up to you not to do so.
4. Complications..!
Financial planners love to complicate things, ignore complex plans.
Simpler plans are far superior.
5. Inertia..!
Good and noble intentions will not protect your family or create wealth for you. So get off your backside & get that term insurance, medical insurance, provident fund nomination form, ..
NOW and start your investing programme, NOW.
If you do not believe this, see the amount of money lying in bank deposits, savings banks, post offices around the country!
Even better see your own savings bank account and see how much of interest has been credited. Kickass start.
6. Impulsive actions..!.
...while in spending, investing, saving, eating and health issues only lead to pain later on. Learn some meditation and act in leisure. Relax, do not get bullied by bankers, contractors, salesmen, cousins, friends, television experts -- by anybody.
Collect all the data, and then sleep over it for a day. Take a decision after a few hours, preferably 24 hours. Do not believe the agent who says "this scheme is closing..." Some agents have been using it for the past X number of years and doing it very successfully. When you have the money, a new scheme is born every day. Usually in a better form.
7. before the Invest Ask..!
Ask the people who know before you invest. Parachutes are to be on your back BEFORE you eject from the plane, it cannot be sent to you mid air...
8. Greed..!
If you have invested in 50,000 shares of a company at Rs.30 a share and the price goes up to Rs. 50 in 2 weeks time, great. Partial booking -- of say 1,000 shares every time a share jumps an X per cent is not a bad idea at all.
It is only the owners who can ride a share from its start to eternity -- like a Premji or a Narayana Moorthy can/ will do.
Yes there are many theories here, but hey, greed kills more than it makes you go. Be careful.
9. Mess..!
Do you have 40 items in a portfolio worth Rs. 1 crore? You are a mess.
You need to have no more than five. Okay make it 8, but not more. So please prune the mess, and clean it up.
About the author
Mr. P V Subramanyam, a Chartered Accountant by qualification and a financial trainer by profession.
https://www.facebook.com/pages/Subramoney/117778081571268
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