Ways of Investing – Are we ourselves becoming financial experts?

Well I am neither old nor experienced enough to write about the various ways in which people invest.  But even in the short span of time from when I started investing, the way we invest have changed considerably.

I am speaking about the past 10 years. Year 2001 was the first year since when I started investing.  Being from  a middle-class background, for my family investing was parking money in fixed deposit and be satisfied with the interest earned.  Investing in stock market was fear about.  The only equity investment parents made (and that too of small quantity) was in the IPO of Reliance Petroleum Limited way back in 1977 and kept it intact till 2005.  Besides these there were hardly any other investments.

My first investment was in some bonds (I am not able to recollect the name of the institution).  I went to the neighborhood investment agent who took my application and returned me few rupees in cash as pay back commission.  I was happy that I have earned from the first day of investment!  My first mutual fund investment was in the year of 2003.  A lump sum in one of the infrastructure funds, which was advertised heavily and was hot investment during those times.  I kept making such investments without thinking how will it help me in achieving my ‘long term monetary goals’ and without knowing whether these investments are within my ‘risk-tolerance’ limits.  Terms such as long term goals and risk tolerance were new to me during those times.  Then, the basis for investment was primarily for tax benefits or the lure of hefty dividends up to 300% in mutual funds within 15 days of investment.  All these investment were driven by agents or so called financial advisors who would market the investments which earned the highest commission for them. 

The scenario has changed now.  We all are lucky to be living in this era of internet and information age.  We are well informed about such agents.  Hence we invest directly online through internet where various intermediary sites help us in investing by just a click of the mouse or through online facilities provided by mutual fund houses and banking channels.

However in all these free and easily available options, we have started assuming that we can choose the right investments for ourselves.  We feel that we have done adequate research about the investment.  Before investing in a stock, we review its past financials, we diligently go through free analyst reports available, we check the stock price underperformance vis-à-vis sensex in past one year and then we conclude that this stock is suitable for investment.  Similar process is carried out for other financials products such as ULIPs and mutual funds which give hefty dividends within weeks of investing.

Just think are we correct in investing this way?  Are these investments suitable for us?  Though they may be good form of investment, do they suit my risk profile?  Before taking any investment decision, the answers to these questions are more important than the right valuations and these questions need to be asked before each and every investment which we make.

This is why financial planners are important.  They help us in understanding our monetary goals, assist us in making realistic goals and identify investments which suit our risk profile and which will not be a burden 20 years down the line.  Further these planners bring discipline to our investing.  They are the managers of our finances and ensure that it is timely, efficiently and effectively deployed.

Ask yourself.  How many of you have ever met a financial planner who would help in charting your goals, assessing your risk and suggesting suitable investment plan?  Alternatively, how many of you would have made investment through an agent who would give you cash-back of small percentage of amount which you had invested in insurance plans, PPF or mutual funds?  I am sure that majority of people would not have met planners but would surely have availed service of ‘pay back’ agents.

If these advisors play such an important role in our wealth building, then why are we complacent with managing the investment ourselves?  Are we thinking ourselves to be a financial expert or is it because to avail their services we need to pay them, instead of they paying back us.

 

If this is the reason, think again.  Do not view their charges as expenses.  View it as an investment which will help you in growing your wealth.  It is an investment which flows back to you multifold over a period of time.

Do have a reality check with your finances.  Are you happy with your current portfolio?  Are you reasonably sure that your current investment pattern will help you in achieving your future goals?  If your answer to any of these questions is NO, then a good financial planner is your best friend.

I invite you to share your experience in investing and comments on this post.