Most of the investing risk comes from the amazingly wrong, stupid, egoistic assumptions that we make. Of course when a person makes these assumptions the IFA/Client does not know that the assumptions are wrong. Let me list a few of the thousands of assumptions that we make:
Equity markets are OBLIGED to give me 12% returns if I hold the shares/ equity mutual funds for 3-4 years, about 15% if I hold on for 7-8 years and about 20% if I hold for more than 10 years. Have you not seen the ad which says ‘buy right sit tight’? Amazingly wrong assumption to think that the equity market will give returns in isolation to the happenings of the other markets. Equity return is a product of prevailing interest rates around the world, performance of other markets, company performance, currency markets…so a client or an IFA TRYING to ‘guess’ the returns over 39 years is joking.
Client will continue the SIP perenially when an IFA suggests a SIP to a client and tells the client ‘this is a 20 year SIP’ the client nods sagely. In 3 years time the client could be bored, need the money, had to make a bulk payment…..but either the SIP is stopped or the whole money withdrawn to make a down payment for a house…
‘He is from my community, church group, institute, family,…..so he will look after my interest: Mostly when you invest in a scheme like Sharada chit fund, Sahara, etc. the ‘agent’ is usually a victim just as YOU are. He has no knowledge, he has no clue where the money was going,…he was getting a 20% commission or its equivalent. People get bad advice, they allow their IFA to sign on their behalf, laugh at forgeries done by IFA and laugh out loud at the banker’s risk controls. That is fraud. Do not encourage it. Remember Madoff? He looted his Church first.
He is from a big brand: Not just that hes is from a big brand, but he takes me for lunch to an exclusive club…he works for a big, prestigious firm and the product is very sophisticated, I deserve this ‘Platinum’ club membership. Many IFAs internationally have confessed about Merrill Lynch, Morgan, Goldman…..saying that the IFA himself /herself was TRICKED into selling some obnoxiously bad products to unsuspecting clients. At a much later date the client finds out that the rewards were just not adequate – or the risk was so high that the capital got wiped out.
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