Arti Arora, CFP | Head Financial Planner
Fear and Greed – the two behavioral elements that every investor should beware of but unfortunately it is these two that drive a majority of them. When this happens, there is an inherent fault in the kind of investment decisions one takes as they are less driven by logic and understanding of the practical aspects of the investment world and more by emotions which as a technique is fundamentally flawed.
While making any investment, if one defines their objective in an unbiased manner, that really helps and that definition should be a grounded one. That is to say, that the investment should be linked to a financial goal that one may have or be done for wealth creation. It should not be done just to chase returns and never be done because a friend or a relative made money from it. Nothing can be more lethal than following a herd mentality when it comes to investing your hard earned money.
Returns are paramount and one may question that I make investments to earn return from them. What is wrong with that?
Nothing at all! We all invest with the eventual motive of earning handsome returns but in this unilateral chasing of returns, our sense of objective gets blurred because of narrowness of our thought process so much so that even the smallest of occurrences against one’s expectations become a compelling reason for one to deviate from their own decisions rather quickly which can affect the investment performance rather abruptly.
When the objective is Wealth Creation, it should have the 3 Ps; Preparation, Patience and Participation.
Preparation with respect to detailed study of the investment avenue in hand, of the pros and cons of investing in it, Patience to hold on even in tough times and if the preparation is through; there shouldn’t be much reason to worry and last is Participation; i.e. you should review the investment at a pre-set frequency (which should certainly not be daily, weekly or fortnightly) and be able enough to take corrective action only when required.
Do not run blindly behind returns but make informed decisions in line with your specific life situation, financial goals and of course your personal risk profile. What may have augured well for ABC may not suit XYZ and this is one fact that one must bear in mind while and when making important financial decisions. Suit yourself always :) and when in doubt, refer to a qualified and experienced expert whom you can trust and be sure that he / she will always work in your best interest.
In the next edition, let us unravel this important part of how to identify the ‘Right & Fair Financial Planner / Advisor’.