Many people talking about risk do not tell you the biggest risk of investing. Let me take an example from the Running Field. Whenever people talk of running, the first word that comes to mind is ‘Marathon’. Running a marathon or races like Comrades takes a lot of mental, and physical effort. It can normally be done only by people who have put in a lot of effort at fitness – playing a sport, being in the army,..etc.
The biggest risk at a Marathon is NOT having the guts to turn up for the race. Mental fatigue.
The second biggest risk at a Marathon is NOT being able to finish the race – could be mental strength or physical strength.
The third thing that could happen is finishing the race way beyond the planned time. Poor preparation?
The best thing of course is finishing exactly as per the planned time and feeling energetic at the finish.
THE BIGGEST RISK in investing is having to scale down the goals or not meeting the goals due to POOR INVESTMENT MANAGEMENT.
How does this happen?
- Not earning enough from one’s profession or job.
- Poor asset allocation – too conservative or too aggressive.
- Not investing enough in equities, and sensibly.
The first point of course is beyond the scope of this post and this blog. Poor asset allocation – I saw a man very excited about Hdfc Prudence fund’s performance. I seriously thought he would have a serious allocation to that fund. A person earning Rs. 19L ctc…was investing Rs. 5000 in a SIP – and for the balance he had LIC endowment policies, Ulip heavily loaded in debt funds, PPF, etc.
I HAD NO CLUE WHY SHOULD HE BE EXCITED WITH THE PERFORMANCE of a fund into which he was investing such a small amount.
This was the time when one life insurance company was running the ‘Kam life insurance lene ki bimari’. Sio I decided to coin this as ‘Kam equity mein invest karne ki bimari’ or ‘the disease of doing small sip’.
When people have big dreams, big salaries, and not very high expenses, YOUR SIP AMOUNTS have to be big. BHAG – big hairy audacious Goals – have to be backed by BIG HAIRY AUDACIOUS SIP. Not a piddly one which you started 4 years ago.
Big goals? Realistic? within your reach? Go and do a big SIP.
Sadly SIP in people’s mind is ‘5000’ – because the adviser has no GUTS to ask the client (read you) to ask for a big SIP. If I meet the CEO of a company with a take home salary of Rs. 500,000 a month, why should I ask him to do a Rs. 20,000 SIP because I do a Rs. 20,000 SIP?
Why not ask him for a SIP of Rs. 400,000? say 2 Sips of Rs. 200,000 with an annual increase of 10% p.a.?
Not even wealth managers from big banks ask for big SIPs. They just do not ask, so people do not give. Not blaming the investors, only blaming the advisers.
However Pattabiraman and I are making an attempt in a book called “You can be Rich Too’ – with Goal Based Investing.” Your SIP should match your goals, not the figure that your adviser asks you to do.
If you want to buy a top end Mercedes or a Jaguar costing Rs. 1 crore in 3 years time you need to do a SIP of Rs. 250,000 a month for 3 years so that you accumulate that amount. If you wish to buy a Nano in 3 years time you need to do a SIP of Rs. 2500 a month for 3 years.
The job of an adviser is to explain to you that YOU cannot buy a Jaguar in 3 years time if you do a SIP of Rs. 2500 a month. You cannot buy that Jaguar even if you multiply that by a factor of 10.
To buy that Jaguar you need to do a SIP of Rs. 250,000 per month – and that could be 100 times bigger than the SIP that your adviser is doing to buy his Nano.
So do not do a Nano sip for buying a Merc or a Jaguar.
Ask your adviser to remove his own shoes before he gets into your shoes. That is the message of our book.
#YouCanBeRichToo – will soon be available….in the 2nd week of November.
Caveat: I hold shares and DVR of Tata Motors, and have a vested interest in your buying our book. The publisher will earn money, the distributor, the author, and the courier who delivers the book – will all earn money if and when you buy the book. However, I can assure you, that your PORTFOLIO will benefit far, far, far more than the cost of the book. THAT is a promise.
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