Like all economics or personal finance questions, this question is also complicated. Well the question is not complicated, but the answer surely is!

Let us first see what options people use and why:

Bank Relationship Manager: Ha! he has a target to achieve, and a number to reach. So he tells you:

– it is convenient: true, he will do all the paper work, he knows that you have 12,84,432.34 in your bank account, so Rs. 12, 84, ooo can be safely invested…what more do you want?

the only problem is you maybe buying something that you do not need. Also if your wife is a Non Citizen (and therefore your units are in single name, but your demat account is in joint name)…he will tell you ‘he can get it dematted – lie number one.

Lie number 2 will be ‘Sir let us do a SIP for one year…..well surely this is NOT because he gets credit only for a 12 month SIP?

Lie no. 3: all your details will be in one place

Oh he forgot to tell you that it will not be well analysed like Iris, Valueresearchonline, Morning star…..

Lie No. 4: Sir this is the best scheme NOW ….and it is closing in 4 days..

Lie No. 5: Sir put this money in a FMP….FMPs are risk free….

Well well.

Let us counter them

– If convenience was the only thing to consider, consider Las Vegas (Aniruddh Sengupta told me this)

– SIPs can be done for much longer periods – without the bother of paper work. If you are preparing for a 20 year investment life, why will you CHANGE fund schemes annually?

– go to www.camsonline.com – enter as an investor – your latest statement comes to you in 10 minutes. Not a real great advantage, Mr. Banker..!

– when you have cash, a new scheme is born every week….or month…Opportunities seek cash. If you have cash, you will get a million chances…

FMPs used to be risk free, long ago. If you think risk is a static thing, all the best.

 

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  1. >>> If you are preparing for a 20 year investment life

    In the current globally connected economies:
    1. Is it wise to invest for 20 years without thinking!!!
    2. Are we not vulnerable to financial collapse such as 2008 in US and being naive in assuming it will never happen in India!!!
    3. Currency has depreciated 30% in last two months which means every Indian lost 30% of their purchasing power, Isn’t it!
    4. Stock market is giving clear signs of dependency on FIIs and probably entering BEAR market

    Isn’t it HIGH TIME to start taking actions and be an active investor rather than be a passive investor!!!

  2. @Isitpossible
    – my thoughts:

    >> 1. Is it wise to invest for 20 years without thinking!!!

    We are paying fund managers to do the thinking.

    >> 2. Are we not vulnerable to financial collapse such as 2008 in US and being naive in assuming it will never happen in India!!!

    Yes. We are. Solution for this – diversify in different asset classes.

    >> 3. Currency has depreciated 30% in last two months which means every Indian lost 30% of their purchasing power, Isn’t it!

    Not true for Indians earning in India and spending in India. Currency depreciation
    will affect us in the form of inflation. Best way to protect against inflation is
    investment.

    >> 4. Stock market is giving clear signs of dependency on FIIs and probably entering BEAR market

    Yes. It is best time for starting long term SIP as no one can catch the bottom.
    One strategy could be start with x% of investible money and then keep on increasing
    by y% for every z% fall in Index.

    Direct equity investment requires lot of time (to learn), energy (to execute) and of course luck.
    For others, it is MF.

  3. Excellent answer from babon. Will not like to change even a comma or a full stop.

    FMPs are fine if the underlying assets are bank CDs – otherwise I would be scared of a default. Check that before buying.

  4. Babob, Subra: Thanks for sharing thoughts.

    In short you are advocating following!

    1. We pay fund managers so they better do the job… more like I don’t care attitude for my own money!!!
    Isn’t it your money and you should be responsible for managing it rather than rely on others!!!! No wonder we have so many money management frauds in India and even in US.

    2. Great solution, when everything is going down I am better off diversifying BUT in what??? Market is down, same is the case with bonds, real estate is in a bubble stage and can burst anytime, currency is in free fall… the only option for now seems to be commodities.

    3. No doubt best way to protect against inflation is investment but NO one tells in what. And when things r going down, it is probably NOT a good idea to invest in market. Look at what happened in US, took 4 years to get back to equilibrium.

    4. YES, no one can catch bottom and who said one shall do so!!! But isn’t it wise to stay out of market when its giving clear warning signs and get back in when the tide turns!!!

    It is high time, People should stop investing blindly and start taking control of their own money. This does not mean invest in stocks or start timing the market rather take some pains to understand at a basic level where to invest, how to invest, etc. Blindly following SIP, keeping investment horizon of 20 odd years might not work the best in this globally connected economies as the consequences are severe and stakes are very high in losing a good chunk of your hard earned money. Often people invest at HIGH and sell at LOW, it is about time to learn basics…

  5. brilliant Isitpossible. You have written well, and seductively. You are almost saying that you can time the market. Excellent. Such holistic statements will attract people to your blog for sure. I have no clue what is your commercial model…all d best. Wish it were true.

  6. Pooja: >>> almost saying that you can time the market.

    Clarification: BTW, I DO NOT have any commercial model and you wouldn’t be saying it if you took pains to visit the site.

    Not sure where you read we can time the market in above statements! All that I am trying to say is STOP relying on fund managers and others to tell you and “rescue you” especially in matters of your hard earned money. It is easy to give advice when your money is NOT on the line. Instead start investing sometime to learn basics and invest wisely, rather than following herd mentality.

    Debate is healthy so lets try not to make it personal, everyone is entitled to their opinions and hearing other side DOES NOT COST you anything.

  7. @isitpossible:

    People who invest in funds very much care about their money – so much that they are willing to pay someone to take better care of it. Not everyone has the time or inclination to learn analyse stocks.

    People pay fund managers because they believe the managers know better.

    If your car needs a paint job, do you take it to a painter/service centre, or you paint it yourself even if you know you do a terrible job with painting?

  8. @thenub

    I think what “isitpossible” trying to say is
    “If you have to paint your car every month/year (same as SIP) and you are spending your hard earned money, then you better learn painting and paint your car.”

  9. I think, what isitpossible is trying to do, at best, is tactical allocation with higher weight to cash – because he thinks that all other assets will give negative returns in near future. Nothing wrong in that assumption.
    However, tactical allocation is not an easy art. Many people who bought G sec heavily in view of falling interest rates are regretting now.

    Easiest way is to assume that you are an idiot and keep a fixed asset allocation. Rebalance it every year or so.

  10. thenub: >>> “If your car needs a paint job, do you take it to a painter/service centre, or you paint it yourself”

    When you take your car for a paint job, do you go to any unknown service provider or do you do your homework of finding out credibility of service provider, quality of the job, etc!!!

    How many people even care to look at who is fund manager! Track record of fund manager! Many select funds based on agents/broker tips and decisions and fall prey when market crashes.

    Just because you pay someone DOES NOT mean you get best quality, best decisions, best returns and NO WORRIES. Good old hard work always pays off and no one can avoid homework unless you are high net worth investor and have an army of financial analyst working for you.

    REMEMBER, its your money and ONLY you care for it and can protect it, relying on others BLINDLY for managing your money is a sure way of loosing a good chunk. One does not need to be a financial analyst or stock analyst or commerce graduate to know about markets or selection of funds, but they sure need a WILL and TIME to learn some basics (which are essential) especially if you do not want surprises regarding your hard earned money. NO GAINS without PAINS.

    Sanjay: Re-balancing every year or after select period is possibly a work around, however basic understanding can improve your returns significantly over longer periods.

    Questions:
    1. WHY is their so much resistance to learn basics? and protect your hard earned money! (No one bothered to even ask by basics what do you mean! and assumed one has to be a financial analyst!!!)
    2. WHY everyone is in favor of giving their money to someone else to manage and assume others will do best decisions for them?

    In short, it seems like NO ONE wants to take responsibility of making money decisions, hence rely on others so later they can blame them if things go wrong. But investing some time towards your money management will help you and your family to get better returns, Isn’t it!!!

  11. @isitpossible:

    OK baba. You follow your investment thing.

    I’ll stick to my cheap index fund.

    What to do… I’m dumb, and your words of wisdom are not strong enough to pierce through my thick skull.

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