Future Uncertain!
Many moons ago when my Sister was born, a relative of ours recommended a financial scheme where we invested X and when she reached 18, we would get back 1,00,000.00. In those days, 1,00,000 was a very huge sum. In fact, the cost of building a simple house more or less was equivalent to that amount. That sum was assumed to be good enough for Marraige and more. But when she reached 18, forget getting married, her Engineering Fees was nearly 50% of that for every year.
Most investors invest with the best of intentions and hope that things work out as planned and enable us to meet our Goals. But do we really have a clue as to how the future unfolds and how best to prepare for them?
Equities are claimed to be the asset of choice if you need to beat Inflation and evidence does show that there is merit to that argument. But the evidence is nothing more than a look at the rear view mirror. While the logic behind is indeed sound, the fact remains that end of the day, there is no such thing as a Guarantee in the world of finance.
On Twitter (where I am active), I get into frequent debates with distributors of Mutual funds on whether Direct is the way forward or should one go through a Distributor. Both have their Pro’s and Con’s, but the unfortunate thing is that you are no wiser as to what is the right choice until its been too late to change.
While no one can guarantee about the outcome of investing today, a qualified financial planner can help you make the necessary changes as time goes by. A mutual fund distributor is not a financial planner in any sense. He is no more than a salesmen hoping to make a sale while in turn will provide him a Income.
While he will to ensure continuity try his best, the fact remains that he can only do as much as his knowledge enables him to. Any and every action of his has to be backed by evidence which in turn has to pass through the biases we frequently face – Survivor / Selection among others.
In the aftermath of the housing crisis in US, there were hundreds of stories about investors who lost everything and were forced back to working at a age when they should have led a comfortable retired life. While its easy to blame them for their greed and lack of understanding, its a story that is repeated across countries and across generations.
Fixed Deposits / Gold / Mutual Funds / Real Estate all have their place and time. While the proponents of Equity will have you believe that FD is the worst form of investing, if you had invested in a FD 5 years back and you were in the Zero Tax bracket, you would have made more money than investing in Nifty Bees. And all that without having to bear the pain of negative volatility.
End of the day, its your money and your future that is on the line. In times of need, its you and you alone who has to face the responsibility, blame game can only go so far.
“While the proponents of Equity will have you believe that FD is the worst form of investing, if you had invested in a FD 5 years back and you were in the Zero Tax bracket, you would have made more money than investing in Nifty Bees. And all that without having to bear the pain of negative volatility”– To present a wholesome picture ,you should also compare it to an average diversified equity fund as well. How many people exclusively invest in the Nifty Bees and that too , a one-time , lump sum investment exactly five years ago ? This is not even taking into account the taxes levied on the investor in an FD (how many people are in zero tax brackets ? ), dividends received from the Nifty Bees and reinvestment , lack of taxation on equity and so on. Realise that you are just giving cherry picked data, but better to emphasise that asset allocation always has a place irrespective of returns or taxation.
Agree with you on a lot of things. But I don’t have access to Survivor Free databases which makes it difficult to compare against the Universe of Mutual Funds.
On 10 year basis, Nifty Bees gave a return of 11.50 which is higher than Bank, but for that you needed to stay calm during 2008 when portfolio dropped > 55% from the peak.
A qualified financial planner can help you make changes? Disagree.
Changes are mostly made for course correction. i.e. rectifying a past mistake. While you make changes, again you are not very sure whether you will achieve the desired results by changing course.
And any financial planner who has the ability of generating a few percentage points more than 5 – 10 yrs. bank fixed deposits; will rather reap the benefits of his craft for himself. & selling advice may not be such a rewarding option for such a practitioner.
Therefore those who make a living by selling advice as financial planners may not efficient capital allocators after all.
A financial planner is any day better than guys who just show you the stock in which to invest (most of the Advisers I see use this methodology).
Yes, mistakes happen. The key is to correct them and correct them fast.
The Average Investor- i.e. one whose principal source of income is not from stock markets should definitely take advise or take the pain to educate themselves on different investment options. Equity/FD/RE/Gold or Silver being the most common ones. Even in equity they would definitely be better off sticking to a diversified equity fund or nifty etf. Also if they want to indulge and exorcise their gambling/ tip following instincts to get bragging rights or fill whatever emotive void, they would be better off putting aside 5-10% of equity allocation in a “sin” fund and use that.
Now comes the next question: who to take advise from – any one who get paid by the seller of the product is bound to sell you the one that works for him and not necessarily for you. And tip sellers follow a fixed fee model as they obviously are not there for the long haul.
Also investing is a profession where what is promised is only delivered years later. And heavily influenced by luck. Also investors at time have very unrealistic expectations.
So best would be to find a planner/advisor who educates you and its only fair that you remunerate him for his time. And if you believe in his process and him/her as a person then pay a small fixed and more variable fee. It will also help you ascertain the advisor’s intentions.
My two bits.