What does your routine Life activities teach you about Investments?
There is no rocket science about Investments and investment planning. It’s a subject of common sense and has a similarity with many day-to-day life situations.
Let’s see some common situations of day to day life and Investment decisions can be related to those situations.
Suppose you have an employee or a servant working for you. Would you pay him; if he doesn’t work and sits idle? Money is like your servant. What do you do in case money is not working for you? Put it to work. Invest it. That is where the Richie Rich thinks differently than that of a mediocre investor. Rich people never let their money sit idle. They put money to work.
Traditionally Indian food has items like dal, chawal, chapati, sabji, raita, and a sweet in daily meals. These items together provide the required nutrients to our body. Investment Advisors use the similar strategy. They use different investment instruments which are good for your investment objectives. These investment instruments can be Bonds, FD, Equity Shares, Mutual Funds, ETFs, AIF, MPS, Real Estate etc. Allocating investment into these instruments with right mix provides required ‘nutrients’ for a happy future. This process of putting money at different places in a right mix is ‘Asset Allocation’
Different People Different Tastes
Different people think differently. Some have higher risk attitudes. They enjoy activities like Paragliding, Jumping with a Parachute or Scuba Diving. Some other have moderate risk attitude. They enjoy activities like Trekking, Racing Cars, Horse Riding, Swimming. Others who take the least risk enjoy activities like walking, playing Carrom, playing Chess or Table Tennis etc.
Along with higher risk appetite, risk-taking people also need to be physically capable and equipped with instruments. Investment mix (Asset Allocation) can be similarly different for different investors. The risk-taking ability is determined by Advisors like us; using a Risk Profiling activity. After doing Risk Profiling activity we understand whether the investor has High, Moderate or Low risk-taking attitude and ability. Hence the investment mix can be different for 2 people of same age and same income.
You would have observed that we prepare less for smaller and immediate functions/events. Suppose you have a ‘Pooja’ at home, a preparation 3-4 days prior is sufficient. However, for important and distant functions like a marriage in depth meticulous planning is required. During Financial Planning Process, Goal Planning is a similar activity. Advisors and Financial Planners do detailed and meticulous planning for the important goals like Retirement Planning or Higher Education of your child. Detailed activities may not be required for smaller goals like buying clothes or buying 2-wheeler.
Investment Principles are similar to general life principles. The only thing that they need to be put fit into the investment domain. This is where a Financial Planner / Investment Advisor comes handy.