Photo: iStock
Photo: iStock

Pain of discipline rather than pain of regret

Generally, people do not tolerate free advice from anybody including parents when it comes to personal or professional matters, but are willing to take free advice in their financial life

Everybody and their grandmothers are doling out financial advice these days. Currently, apart from the latest fad on losing weight, the other favourite topic is around equities. Those who have been lucky with some investments have become influencers in their circles—be it with their colleagues, family or even where they live. Even my own husband, whose portfolio I manage, is being called by his friends to check on which funds to invest in.

Recently, at a session, I had a gentleman who argued that investing in stocks was better than investing in mutual funds as one had control of the stocks that one can buy and stocks give good returns really fast. But the unbelievable thing he said was that with stocks, one could buy a few shares and make money but with mutual funds, one needs to hold for long term and keep switching in and out of funds to really make good returns. Turns out that this person was the most followed at their office and most colleagues were investing in stocks based on his recommendations, which were coming from a stockbroking site.

This is akin to buying stocks or investing in funds based on TV shows. I have come across shows where people are calling in to check if they should exit because their fund had underperformed in the past 2 months, or calling in to ask for funds to invest into. More than anything else, the focus is on the “best" stock or equity fund to invest into without thinking about financial planning.

And why only TV, there are social media pages where those who have financially “arrived" are dispensing views. And if all these sources are not enough, you have sports journalists handing out financial advise like in the recent case of scam by a Bangalore-based investment firm, which assured 20-25% monthly return by investing in commodities. What was surprising was that none of the people who invested questioned the credentials or experience of this investment firm or the investment strategy, and more importantly, expected 20-25% monthly returns consistently. This is like buying slimming capsules, which guarantee to reduce 2-3 kg of weight every month.

This problem with free financial advice is really two-fold. First, financial literacy levels are low. Investing in market-linked instruments is done randomly and based on tips from friends or through internet sites. It is the same while buying mutual funds. Investors are choosing funds based on recent performance and expecting 15-20% returns per annum every year. The end goal is to make a quick buck in the least possible time, which is like wanting to lose 10 kg in 3 months by consuming some pills. For how many people does the weight loss happen and even if it does happen, does the weight stay off once the individual stops the diet?

The second issue is having wrong influencers like friends, colleagues, internet sites, social media pages, or others, and following an influencer blindly. At almost every session, I find influencers to be a group of people who are tracking prices hourly and hence appear to be the knowledgeable ones who are looked upon for investment advice by their colleagues. Individuals don’t realize that their financial situation, financial goals and risk taking appetites are different from that of their friend or colleague.

Generally, people do not tolerate free advice from anybody including parents when it comes to personal or professional matters, but are willing to take free advice in their financial life. This is despite the fact that most people do not like to take risk on their money. This reminds me of a quote from Robert Kiyosaki, author of Rich Dad, Poor Dad: “Your most expensive advice is the free advice you receive from financially struggling friends and relatives." All the sports celebrities who have recently lost money must be regretting investing with a fraudster, probably based on free advice.

So who should be the right influencers in your financial life?

1) Knowledge: Read, read, read. If you can Google medical matters before going to a doctor, you can spend some time learning about how to manage your money. Understanding basics of investing is usually much easier than understanding medical terms.

2) You, yourself: It is okay to take information from others on various investments available but remember that your needs and risk appetite differ from theirs. The best influencers are those who have actually achieved financial success without flaunting about it.

3) Stay away from fads: A case in point is Bitcoin. In 2017, I came across so many people who had invested at levels above $15,000. Today, the value of their holding has halved. But last year, even school teachers who invest mainly in fixed deposits and gold, were putting their hard earned money blindly in Bitcoins.

4) Pay for advice: Learn to pay for financial advice just like you pay for booking movie tickets, air tickets or train tickets. Else, you too may end up losing like the sports stars did recently.

5) Have a plan: Finally financial planning is the key to a good financial life. So keep out all the noise from your friends, family, neighbours, and colleagues. Focus on creating a financial plan for your family, which will give the right direction for your investments.

Rather the pain of discipline than the pain of regret!

Mrin Agarwal is financial educator; founder director, Finsafe India Pvt. Ltd; and co-founder, Womantra

Close