Have you ever wondered why people close to you – brother, sister, in laws, friends, cousins, colleagues, do not seek advice BEFORE they buy a financial product?

It is my job to wonder why, so I do. Most of the people who consider me their financial adviser (or at least think I know more than them) seek my advise once in a while about what they should do with their money. Does it mean they ask me what to do BEFORE every money decision that they take? No. Out of about 3000 people I have dealt with, about 10 of them do :).

Recently a friend redeemded Rs. 30 lakhs from 3-4 equity mutual fund schemes. I knew about it after he had redeemed. On prodding he told me that he was planning to buy a house for Rs. 88 lakhs (including furnishing it should be about Rs.1.3 crores. He explained that he was living in Powai and he wanted to buy one more flat – it was supposed to be his Retirement plan. He was planning to give it on rent (impact of Rich Dad Poor Dad perhaps). He was putting about Rs. 24 lakhs of his own and borrowing Rs. 64 lakhs. On a ctc of Rs. 23 lakhs this was just 3 years CTC so he did not find it too high. He wanted to give it on rent to take care of the EMI and the rent would continue post retirement and post emi.

Smart move.

The economics was not working. He was getting about Rs. 3.5 lakhs as rent (annually) but he was paying Rs. 78,000 as MAINTENANCE (club house, swimming pool….are  not really free are they?). The EMI was high – he was already 47 years of age (so the loan had to be repaid in 11 years). He had NIL liquid assets except his Pf. His daughter aged 20 was ready for going abroad, his wife was dead against the deal, he felt his job was great (I am not sure he can keep the job for 11 years). His son was 16 years of age and planned to study abroad…OMG to me this was …well He did not ask me, did he?

My questions are:

Do I speak so harshly (or condescendingly as Gowri says) that people do not ask? or

Do people decide to do something and then justify in leisure?

Do people want to be secretive (why should Subra know I have 2 houses in Powai and 1 in Pune?)

Do people think I will laugh at them for not doing a SIP, …or being in equity for a long time?

Do not know, do not understand…and find it amusing when they ask me AFTER THE EVENT? Makes me laugh. Sometimes sad.

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  1. Investing is an extension of behaviour & psychology. At times, I believe thers’s a secret desire to prove that one is better than the expert?

  2. I feel its more to do with ego. If you ask someone then it means you do not know what to do. A lot of people I have seen just want to let rest of the world know that they have two houses and some property worth some xyz price. Though no one wants to admit how they are financing their debts and that EMI is eating into their savings.

  3. Sometimes, the decisions are taken on the spur also, even though it could be life changing. They see a nice apartment, famous builder, fancier pamphlets and a nice neighbourhood may be just enough. Emotions spur and financials, logical thinking are subconsciously kept aside.

    Kind of how we select our spouses ?

  4. Other reasons, than what in your questions
    – Need for confirmation. They need some confirmation/assurance, as they were 100% sure before, but now when the decision is taken and big money involved, now they are still 90% sure. For rest 10% they need a assurance. They are just looking for confirmation from another person, not a unbiased answer. Any -ve answer will most likely will be met with defiance.
    – Previous Success bias. Previously say one had success in a asset class, say real estate. The memory is so sweet, one is not even ready to know about other asset classes. So one is so “sure” about deciding, he doesnt “need” a expert, he is already smart isnt he ?. One of my friends is only into RE investing 3-4 houses, few in debt, not even ready to invest small in equities, even though he knows/aware of equities/MF well.
    – Using heuristics instead of actual calculations. Brain is wired to make decisions on heuristics. [ I have x CTC, house cost is 3x, so i buy, break even effectively in “3” years, and pay Y EMI with Y rent , so easy to do on heuristics, but in real, numbers dont tally. My stock price is x, it has gone up 20% in 2 months, it will gain go up 20% in another 2 months and then i sell. ]

  5. Ego – I am IIT/IIM/MBA/Engineer/Doctor/Foreign educated/Manager/VP. I made 50000 in 2 months. I am nimble. I am smarter than him. I have thought this through all angles. I dont need luck or advice you see …

  6. I think it’s because we take decisions first, and then justify them later. The sound of owning three houses has a nice ring to it, and I guess that prevents you from ignoring all the other facts you mentioned in this story.

    Your friend probably didn’t ask you because he knew what the answer would be, and didn’t want to hear it.

  7. This happens always (Human behavior science). People take decisions and then DEFEND it (Vociferously). Decisions (unknowingly) taken sometimes are beneficial, sometime goes bust. Hope your friend gets through good time soon.

    The saddest part is that, he has such a good friend like you but still did not take excellent advise [May be free of cost 🙂 ;)]

  8. Dear Sir,

    I’m a Certified Financial Planner and is a regular reader of your blog.

    I’m impressed with your original thinking.

    I do post regularly in my blog. But I should tell you that my strength is reading a lot and sharing (duplicating)what I’ve read with my own small value addition, duly acknowledging the source.

    I post my own writings too. But that is a smaller proportion when compared to what I share.

    You are one of the inspiration for me to post articles regularly in the areas of ‘Personal Finance’. Spirituality and Personal Finace are two areas of my passion in life. Spirituality and Wealth are two sides of the coin of life.

    I admire your intellectual strength in writing regularly on your own. That explains your popularity in the investors and investment advisors community.

    I agree with most of your writings and disagree with some. But what is important is my admiration of what you write, even if I disagree with you.

    Keep up your good job and kindly accept my sincere appreciation for what you do.


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