Investing is not easy. Much as we try to simplify, speak about it enough to help investors feel confident, it remains tough. There seem to be many paths to investing success and one is never confident about one’s choices. Do it yourself or seek an adviser? Buy a product or a package? If so, which one? When and how long? The process seems to be filled with too many questions. Let’s consider some steps and some pitfalls to avoid.
First, there is no excuse for not learning the ropes. One has to state that first and upfront. There are many stories of how people made money easily; some speak about stock trading as if it is the surest way to richness; and there is the lure of the sales pitch, the media hype, and promotions. Amidst all this noise, investing is a serious business that needs time, effort, perseverance, patience, knowledge, attitude and skill. Don’t remain irresolute and make ignorance a virtue. Begin small but keep learning.
Second, do not mistake effort for effectiveness. Many of us believe that if we put in many hours of work, the end result must be good. That pie can crumble in many ways. Unless the effort has the requisite focus and merit, it may not be worthwhile. We might save all our life in our Provident Fund. We may even add a VPF to it. And we may desist from drawing anything or taking any loan. Lots of effort over a long period of time. But suboptimal outcomes because we choose an instrument that is income oriented and not growth oriented. Make your effort count.
“The more successful investors are those that began small. They enjoy the results of their habit and their choice.”
Third, even as you make a plan for your future and decide to save and invest towards that goal, you need to identify with the effort and process. You are unlikely to stick with it, if at some stage you see it as unimportant, or tend to deny that the goal on hand is important. Parents typically place children and their education ahead of other goals. They compromise other goals including retirement as they allocate funds. Since retirement is a distant goal, many don’t begin to save early enough. Your retirement must matter as much as your child’s education.
Fourth, many give up too easily as they save and invest. They begin a SIP; or buy an insurance policy; or even start an RD. The intent is great. Much like dieting and exercise. The temptation of a high calorie favourite food or the prospect of a rainy day, is enough to let go. Soon enough they have given up. Saving and investing to save taxes is one such investment that fails to persist. Breaking a routine before a habit is formed makes it tough to begin again. Get real with how much you can save and stick with it.
Fifth, the transformation after an investment habit has been formed must be experienced. The more successful investors are those that began small. But the successes of their early investment has the power to transform how they think about saving and investment. They enjoy the results of their habit and their choice. They spread the word. They persuade more to do what worked for them. But their own money habits undergo a change. They become more mindful of their income; more purposeful in their spending; and more persistent in their investing habits. Trust in the power of positive outcomes.
Sixth, planning is important. Being able to visualise the goals you save for, and being determined to fund those goals is required in saving and investing. However, one must protect from the perils of vicarious investing. Ask someone who makes frequent resolutions and breaks them. They will tell you how most of their energies were lost in visualising, planning, preparing, discussing, strategising and grandstanding. If too much energy is lost in these vicarious pursuits, nothing is left for real action.
Seventh, don’t obsess about perfection. Since we all hate regret as an emotion, and since we have too many choices, we often end up with the second best. There always seems to be another investment, another strategy, another tactic that is doing better. But that pursuit can turn mindless. Worse it can put us in a place where we may choose inertia over action. Choose carefully after considering the merits of your investment strategy. Don’t question that decision too much and too often.
Eighth, don’t underestimate the place of patience in your investment process. There are only two choices in the larger scheme of things—you act aggressively and put in a lot of effort, money, time and tactic to get to your financial goals. Or you allow time to offer you the rewards for the careful and considered effort you made when you began. Choose what suits you, but be aware that even the simplest acts of saving and investment can offer great rewards if you remain patient.
Ninth, do not rearrange your financial life too often to accommodate your fear that things have changed drastically. There is always a new story in town. There are fancy new products. There are new theories floating around. Consider what is going on, surely. But have a broader framework for what you are saving and investing for and what your needs are. Risk, return, diversification and liquidity are easily the most important cornerstones of your investment strategy and they alone will matter to your success. Learn the science and art of evaluation against these core ideas. Do not drop your defenses and invest against your known preferences because you fear you are letting go of an opportunity.
Tenth, there is always the space for error and correction. Be kind to yourself. Do not assume that you are not doing enough, without considering your financial situation realistically. Saving and investing are habits you need to work on so they become part of your nature. The motivation to persist will naturally follow. Don’t give up before that transformation has happened. Your money, your life.
(The writer is Chairperson, Centre for Investment Education and Learning.)