All of us want to have a reasonable amount of money to achieve personal financial goals (e.g. home and vehicle purchase, kid’s education and marriage) and comfortable retirement life. We are putting our best effort towards our profession for better income and savings. Based on our knowledge of investment options and level of comfort, we are investing money in retirement and wealth creation instruments such as PF, NPS, Fixed Deposits, Real Estate, Gold and Equity.
The question is “Is our earned money working hard and smart for better wealth creation?”
In my discussions with my friends and colleagues, I came across a few concerning observations. I have listed concerns besides each observation below.
- I am comfortable that I have enough money to manage my life but do not have a clear understanding of all my financial goals, how much money I would need for each financial goal and how my assets need to be invested to achieve these goals (Lack of Financial plan)
- I and my wife both are working for a Tier-1 IT company and all our equity exposure is through the company’s employee stock options and employee stock purchase plan. Both our company and stocks are doing really well. (Concentration risk)
- All my money is invested in safe investment instruments such as Savings Account, Bank FDs and Government bonds. Hence I am secured for my retirement (inflation risk)
- Our investment is through multiple endowment plans. It will take care of both my insurance and investment needs (Poor knowledge)
- We are covered under the Corporate Health Insurance plan, hence I do not need any additional health insurance plan from other insurance companies (Poor knowledge)
- The majority of my assets are in real estate and they have grown multiple times. I plan to invest additional income in real estate. (Comfort bias)
- I am 75% down in two stocks and will come out of it as soon as it comes back up to my buying price (Emotional commitment)
- I have invested in stocks, which have doubled in a year. I am thinking of moving more money to stocks. (Overconfidence bias)
- One of my acquaintances (both husband and wife) expired in an accident without leaving any documentation. Nobody has any information about their assets and how that will be used to take care of their dependents. (Absence of proper documentation such as Will)
- I have a reasonably good understanding of personal finance and investment options but am somehow not able to get it in place (Lack of time)
As you could see from the above observations, lack of time, limited knowledge and poor investment approach may result in sub-optimal and sometimes risky financial decisions.
Financial Advisers do this for living and their knowledge is derived from their experience in advising multiple clients over time and learning from its implementation. They use a methodical and time-tested approach, which leverages industry best practices. Their advice is holistic and takes into consideration – individual’s risk-taking appetite and willingness, income generation capability, inflation risk, asset diversification and the opportunity cost of assets. They typically are unbiased and try to keep sentiment out of the investment. Many times it’s not the creation of a financial plan but its implementation which is a challenge. The advisers are motivated to bring seriousness and discipline to the financial plan implementation as this enables them to capture proof points for their advice and its success.
The important point is that the financial planning and its implementation have to be done, and it has to be done now. If you believe that you have the knowledge and time to do it on your own, you should go ahead and do it. But if you believe otherwise and need that little extra push to get this going, please do reach out to an adviser for help.
Please note that time is of the essence and the right approach to financial planning and investment will give you that extra edge to make your life much better.
“The more your money works for you, the less you have to work for money.” – Idowu Koyenikan
You may also like to read How to Select the Best Financial Advisor in India.
The writer is a SEBI Registered Adviser and Founder of FinMyn (https://finmyn.com). He provides Fee-Only Financial Planning and Investment Advisory services. If you want to know more about him, click on https://finmyn.com/about/.