Ask yourself, how many times have you planned to close certain bank accounts and invest idle cash in a productive way or how many times in an year do you access your long term financial goals? “We all plan to plan” and then forget about it. How many times do we plan to close low yielding ULIPS and other Insurances and buy Pure Term Insurance?And how often do we execute what we plan? Benjamin Franklin once said “you may delay but time will not”. That is so true. In financial world opportunities missed are not likely to come by even if they do, they will have taken years of your precious time.
At MutualFundWala, we deal with 1000’s of clients and we observe that a large majority of investors tend to delay important decisions. Every now and then we come across individuals/families who defer taking extremely important and critical decisions.
Lack of awareness:
Over 90% of retail investors are unaware of various financial products, and spend no time and energy educating themselves, there have been several instances where a relative or a friend or a pretty looking Relationship Manager in a Bank then sold not Productive Insurance Policies to you and you diligently bought.
Lack of awareness leads to a financial abyss. We at MutualFundWala come across several investors who have several “junk” financial product, wrong product taken with the right earnest. And surprisingly it takes a lot of effort from our end to encourage them to get basic awareness of various financial products.
Inability to break age old habits:
Let me narrate a story, when the write of this blog got his first Job, his father did a smart act. The retired dad called his LIC agent and quickly forced a 2 Lac Rupee endowment policy for 16 years and probably patted himself.
After 16 years the return was 3.2 Lacs for a premium of appx 2 Lacs. This is a 5.6% CAGR. Compare this with the inflations of our 9% for the same period. This country is full of several such stories where young boys and girls, in their first few months of working life give in to parents pressure & invested in traditional products like FD’s, LIC’s, PPF etc. All that at a time when they can invest for a longer duration and certainly have a higher risk appetite. This Inability to think with the times is what stops people from getting risk.
Another fact that stops investors get rich is the fact that they spend little or no time on their long term financial goals. Ideally, a family should space out 2-3 hours every 6 months and take stock of their investments and correlate it to their long term financial goals. Imagine, a husband and wife sitting together (or with financial advisor) every few months and figuring out financial goals, investments, inflation, contingencies, time, risk and variation from long term financial objectives. This takes care of so many things and ensures there is no unpleasant surprise when money is most needed.
Inflation and Being risk averse:
This is the most important reason why investors invest and erode wealth. Imagine a 20 year period in a PF like instrument. Generating approx. 8.5-9% return. And inflation (not just WPI or CPI but lifestyle, education, healthcare etc) being over 10%. Now this 1% or more deficit on a compounding basis for 20 years will create havoc with your financial planning. The corpus will swell, but the purchasing power of the PF corpus will have severely eroded. Same is the story for other such investments like NSC, FD and ULIPS’s.
There is no conventional financial product that beats inflation for middle class families (including education and health care). Investors have to look at good equity mutual funds that have known to generate high double digit returns for several years. And invest systematic investment plans (as they mitigate risk). And give this serious thought and energy.