One word that can make you RICH….

I am sure you are all dying to hear what is this word…..well the word is NO. Nahi chahiye. Nyet. Nein. Vendam. Nako. Nathi Jothu. Do not want…..

the single word is NO. When I was reading an article recently I saw an article with similar headlines…it was an article in Newsweek and it said ‘One word Can Save Your Life: No’. Make no mistake this article was written by a doctor. She was not trying to save on deductibles, she was not trying to save money….AND THEY WERE APPLYING it to THEIR LIVES.

I could not but nod my head in agreement.

Cut. Come to India. With so many financial planners, quasi financial planners, quacks, banks, life and general insurance companies, mutual funds, portfolio advisors, portfolio managers, etc. fairly obviously somebody would have got you!

It is also so difficult NOT TO SEE THE ADVANTAGES when confronted by a good salesman (hopefully trained by me!!). Who can deny the need for focus, asset allocation, pension plan, child plan, neighbour’s wife plan, own mother in hospital plan, funeral plan, broken dentures plan, cancer plan, kidney failure plan, tiger eating you on the highway plan, ….- given the right name, selling it to the retail ‘prospect’ seems like selling toothpaste.

If you have teeth, you have to buy toothpaste, right?

So if you have a child you need a child plan, if you have a body you should have a medical plan, if somebody you knew got cancer, you need a cancer plan. Like they say anybody with a forehead thinks he can plan, so be it! If you will retire you need a retirement plan. ….so on and so forth.

So you agree to a Wealth plan, a Child plan, a pension plan, a medical insurance plan, an endowment plan, a ULIP, and an income replacement plan. Then the next word ‘Asset allocation’…sir you need to be in equities, gold, land, bonds, bank fixed deposits, post office savings, ppf, blah blah blah. Of course you need a few credit cards too.

Then the other word ‘leveraging’. So you need a home loan, a car loan, a personal loan (taken to make the down payment of the house which you anyway cannot afford!), a travel or foreign tour plan, children’s education loan, OMG these guys are innovative are they not?

Then the dreaded word diversification again. Large cap fund, banking fund, pharma fund, gold fund, midcap fund, small cap fund, elss.

Now that you have said yes to all this – he says sir you need to be in different fund houses too – so a Hdfc, Prudential Icici, Reliance, ….and a few more fund houses as per the distribution targets of the ‘advisor’.

So now you have a fairly simple request converted to 4 pages of holdings, some as a SIP, some ULIPs, ….and the client is completely confused.

Frankly what does the customer need?

Well if he has the ability, need and willingness to invest in education he should look at a couple of well managed multi cap funds like Hdfc top 200, Hdfc equity fund, Pru I discovery, Franklin India Bluechip…one term plan, one credit card..or to make it even simpler an index fund.

And sir do not invest in a lumpsum – do a systematic investment plan, a systematic transfer plan, a trigger option, a variable investment plan, a weekly transfer, a monthly transfer plan……..another list of options!

Once he has the basics in place, he should learn the art of say NO. No to channels, magazines, websites, blogs, planners, …just keep it simple dude.

Read the article and you will be able to relate to the financial world what that article says about the Medical world.

PS: My doctor has kept me off medicines for the past 28 years. I love him. Not sure if I can say about all the doctors….I have a few friends, a few clients, a few readers of my blog, …..I just drew a parallel from a Newsweek article to our noble profession of financial advise!

http://www.thedailybeast.com/newsweek/2011/08/14/some-medical-tests-procedures-do-more-harm-than-good.html

 

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21 Responses to “One word that can make you RICH….”

  1. ‘Yes’ – we need to say No :)

  2. Excellent Article Subra.Many many thx.To say NO once the Basics are in Place ! …and The Power of TEAM ONE !!(One Fund for education,one for retirement,one credit card,one health plan,one Term cover which is proper ….Power of ONE !)

  3. “neighbour’s wife plan” LoL

  4. I HAVE NOT SAID ONE FOR EDUCATION, ONE FOR RETIREMENT…i have just said 2-3 funds…whatever you need money for you withdraw, let the other money lie there.

    CHILD PLAN, PENSION PLAN, etc. needed only for people who do not understand or those who lack the discipline.

    I DO NOT NEED. Does not mean nobody needs it.

  5. I have always wondered, and pardon my ignorance here, that if I invest all my adult life (lets say 25 years) in any fund eg HDFC Top 200 for my retirement. Now suppose during these 25 years the fund house collapses, maybe like Lehman’s. What happens to my money in that case??

  6. Subra ..we know you have never said ONE For Education ,One For Retirement…It becomes easy for us to keep it simple that way..specific contributions ,with specific objectives in limited no of funds.

  7. @Vaibhav : makes sense. But hedge fund are inherently risky compared to mutual fund. And mutual fund are inherently risky compared to fixed deposit. The risk is because of rules and regulations surrounding the products.
    That being said, pension funds in US also have lost money because of subprime bonds sold by Bank of America. So in a sense, there is nothing riskfree. But pension funds are still much more secure than hedge fund.

    So, it is possible that you may lose 10-20% capital but it is unlikely that you will lose much more than 20%.
    btw, I still do not know what happened to the investors who trusted their money with Lehman Brothers. Did they lost 100% capital or lesser than that?

  8. @Vaibhav
    The underlying shares will remain intact. For example if HDFC collapses, but still holds shares of SBI, and SBI is healthy, the shares remain intact, do they not?
    Perhaps, Subra can enlighten us about the legal & accounting issues involved.

  9. technically your assets are in a Trust managed by the Trustees. However how careful trustees are – I HAVE NO CLUE. A bank or an insurance company’s investments are in its own books – so you are worried about capital adequacy, but a mutual fund keeps the assets with the Custodian, under the control of the Trustees….so AMC going kaput is not an issue! This is theory. Practically no clue how the whole thing will play out.

    Of course if I were in the media I could have said ‘IT HAS NOT HAPPENED, SO IT WILL NOT HAPPEN’ instead let me say ‘IT HAS NOT HAPPENED…NO CLUE WHAT WILL HAPPEN IF THERE IS A COLLAPSE’…lol

  10. - I am not exaggerating when i say this article is simply terrific !!
    – It is a cool satire on the confusopoly (we see similar confusopoly in nutritioning/dieting/weight reduction,fashion,beauty,vastu,interior designing,television cable plans )
    – Now they have daily sips! (?), gold sip, redeem gold MF as physical gold, DIY SIP on individual stocks!(??), Fund of funds …)

  11. please do not blame the industry…people like to buy same product with many features…so industry is forced to create different buckets of same product. everybody is happy.

  12. Solid chey, subrabhai.

  13. the newsweek article reminds me , dr. manu kothari’s books on similar thoughts.

  14. Who is your doctor ???!!! :) I do not find many docs who do not want umpteen tests … again and again these days …

    As for the myriad plans .. sometimes it is only old wine in a new bottle .. one needs to understand before one buys it .. but let us face it – how many of us are not taken in by the marketing jazz ?

  15. need some good article to invest money..to make money…dont know any thing about investing….need ur help

  16. if u purchase the products ,you need not, then one day come in life when u will have to sell the most needed product ,so keep it simple and invest in education only.

  17. Very well said! And yes, as Vidya asks above, who is your doctor?

  18. r. venkatraman on October 2nd, 2011 at 8:01 pm

    Subra’s advice is very simple sound and workable. I can vouch for it.

  19. Thank you Sir for such a wonderful article.

  20. my doctor is a homeopath at Vashi…Sunil Balinge. He also has a disp at Chembur…

  21. Dear sir,
    I am new one to share market.Any advice to increase my knowledge about share market and how to investment in It.
    with love,
    Gurpreet.

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