About 12 years ago she came to me for investing her money. She is a well educated woman, has a smart daughter – and there is no man in her life. She is divorced, her father died about 7 years ago and she does not have a son.
I am saying all this because when she came to me she was hit by a reality check – OMG I have to ‘manage’ my finances, MYSELF!!
So I created a small portfolio – 2/3 schemes for her daughter’s education and 2/3 schemes for her retirement. She had no debt, no plans to buy any new asset, ..and she had enough salary and bank fixed deposits to pay for her cars when she needed. Her daughter is doing her CA – so the cash flow for her education was never called in to play. So she has a nice portfolio.
Recently she sent me a mail – and I saw her portfolio. It was an unmitigated disaster. Let me explain.
When she came to me she KNEW that she did not understand investing. However she took it upon herself to ‘learn’ investing. After all she was a ‘type A’ personality who did not want to depend on ANYBODY and she could invest, right? After all she headed a division in her company and had 400 people under her – she could not be all that naive as ‘Subra’ thought.
Well she read up all the websites that I had told her were good. Excellent start. Then she started chatting up with all the Relationship Managers who were assigned to her.
She had smartly bought ULIP (but Subra the Term insurance was a loss – I was getting back nothing!!), she had invested in 17 mutual fund schemes – mostly for 80C. Almost all these schemes she had chosen ‘Dividend Reinvest’. Now this is the WORST choice for a 80C – the dividends get locked in for 3 years, and she will NEVER EVER be able to close it. LOL. And all this for a woman whose PF deduction was Rs. 1,30,000 per annum.
She had chosen these schemes based on rankings, and on what each website said. For example in Value Research said ‘A fund is better than B fund’ she would switch. Wow.
She would listen to an ‘adviser’ who came to her colleague in the company where she worked. That adviser had sold her gold sips, one real estate scheme where she had invested Rs. 33 lakhs, …..and now her portfolio looked like a dhobi’s list, not like a portfolio at all. She was stunned when she saw 51 itemes in that list. Of course she had opened a demat account and lost about 3 lakhs on an investment of Rs. 8 lakhs – and she has been told that the loss is temporary.
She remembered me ONLY because of ONE SENTENCE that I had told her ‘I will build a simple portfolio for you’. So she came to me for ‘Once again creating a simple portfolio which would out last her.
What I said was blunt:
“Maam I have created a simple portfolio for you: 5-6 schemes of which you need to CLOSE 3. You will now have 4 schemes – one will close at your daughter’s wedding. 3 other schemes, post office deposits, bank deposits, and 2 debt schemes – everything needs to be closed. Your ulips have to GO. As your daughter gets into her job, your term insurance ALSO goes for a toss – so no more life insurance premia to be paid.
Also I will charge you a fee this time around because my ‘free’ advise did not get the respect that I thought it deserved. The fee will be a decent sum of money, but not paying MAY mean you will go back to the same investing habits. You can of course get tips from others, but that will mean YOU WILL ASK ME, NOT IVEST. I will decide whether it fits into your portfolio. Your daughter is now a major and a CA to boot. She will have to understand and approve every decision. The violation penalty? Fees will double next year.
This is what I told her:
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