Have you ever realized the way you behave financially?

First of all, a very “Happy Diwali” to all of you. May the millions of lamps of Diwali brighten your life with happiness, health & wealth.

I am sure you must be very excited for this festive season. After all, it is kind of an opportunity to be happy during this pandemic situation.

A lot of good things and memories are associated with the word ‘Diwali’. So tell me, what is that which comes to your mind whenever you think of Diwali? ………Done? Ok. Let me guess. Celebrations and Parties with Relatives, Gifts, Food, Sweets, Travel etc. Am I missing something? Yes, you guessed it right.

 Shopping! Not only shopping, but shopping on “Discounts”.
Shopping

Whenever there is an occasional sale like ‘Amazon Great Indian Festival’ or any other sale for that matter, we just rush to grab it. It is because we are getting the same products at cheaper prices. In fact, we wait and postpone our big purchases. As we feel, by doing this, we can save a lot of money.

In short we are familiar with “Discounts on Expenditure” and we know how to take advantage of this. But do we have the same attitude when it comes to “Discounts on Investments”? Unfortunately No.

Let me elaborate it a little more. Discounts of investment means when the market is undervalued. In simple terms, when the stock prices are on the lower side as compared to their potential earnings. In technical terms the Price to Earning (P/E) ratio of the market is below average. (The word Market here can represent Index, Stock or Mutual Fund) 

The best example of this is March 2020, when the indices dropped around 40% due to COVID-19 pandemic situation. At that time, most of the fundamentally good shares were trading at a much cheaper price. But, most of my clients were reluctant to invest at that time and lost the opportunity. 

We behave differently in both the situations. That means, when it comes to investments, discounts don’t matter. But, on the other hand, we are eager to spend.

Isn’t that strange? Why does this happen?

It is because our behavior and decisions, especially related to money, are impacted by two main emotions. These are “Greed” and “Fear”. Greed to have more and fear to lose. 

Decision Making about money is nothing but a ‘Roller Coaster’ ride of Greed & Fear.

We always try to find “Perfect” time to invest. But, no one can predict the future and time the market.

Read blog-Are You Procrastinating Important Financial Decisions?

What happens generally is –

But, it should be the opposite. You must have heard the famous saying of Warren Buffett-

“Be fearful when others are greedy and greedy when others are fearful.”

It is a fact that, if you invest in an undervalued market (fundamentally good shares), returns are likely to increase. But, remember your time horizon should be at least 3-5 years.

Few important aspects while dealing with Investments,

  1. Invest an additional amount apart from your regular commitments, whenever the market (or Mutual Fund NAV) drops by say 5%-10%.
  2. It will compound your money in future at a faster pace.
  3. You may book your profits time to time according to the market scenario in certain scenarios
  4. Try to understand the Market. Whether it is a ‘Buy on Dips’ market or ‘Sell on Rally’ market.
  5. Stay away from Tip providers who claim to make you rich in the short term. Please understand that they are just taking advantage of your greed.
  6. Keep in mind your Asset Allocation and Risk Profile.
  7. Review your Financial Goals periodically.
  8. Consult the Financial Advisor before investing. Anything available at a cheaper price is not good.

Summary:

Shopping at a lower price may give you the short term savings. But investment at a lower price will give you the opportunity of Wealth Creation in the long term.

Hence, little awareness towards your financial behavior will make a lot of difference in your wealth.

This is all that I wanted to share with you in this blog. I hope you liked the blog.

If you found this informative, please share it with others. 

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