April 25, 2019

Deciding To Invest Money Is Not Planning! Having A Plan Where To Invest & Duration Of Investment Can Be Planning

General Money   || Personal Finance   || Stock Markets  ||  Real Estate ||

I am often asked questions like – “I have 1,00,000 rs to invest, what do you recommend i invest  in ? ”. And when i question back – “Do you have a plan ?” & most get stumped over at this point. This may seem normal to most but this is where real financial literacy needs to set in, moment you decide you want to invest. An open ended question such as this, will only reveal how undecided your mind is & would just want carry out investment as a procedure without any plan.

Investing is a plan, it’s not a procedure nor a product. Let me explain this to you with a small example. Let’s talk about different modes of travels. Do you know why there are so many trucks, cars, auto’s & bikes around us? It’s because there are so many different people with so many different needs. A single person may not need a 7 passenger capacity SUV, but a family of more than 4 may need it. (Let’s not get confused with this concept thinking about affordability here, we are talking about need factor). And if it were to be a business man dealing with hardware items day in & out – he would need a pick up truck or any utility vehicle & not a sports car as a priority. And that is why investment product are often called as ‘Investment Vehicles’.

One most know which product to use to achieve the purpose & this is only possible only when you understand – the different investment products that exist in the market & also when you know what your purpose really is. All that a vehicle does is to take you from point A to Point B. Similarly – an investment product or vehicle takes from where you are financially to where you want to be sometime in future, financially. And that is why investing is a plan & it needs effort to plan it systematically to meet its needs.

Let’s say you are planning a trip to Bangalore to SriLanka. Obviously you will know for the first leg of your trip – you may need a bike ride or a car ride – to reach the Airport from your house. That means you will need a plane or me be even a boat ride to reach SriLanka. And once you reach the land, you can walk, ride a bike or car, take a train or bus to reach your destination. Now mark my words carefully – Mind you all are different vehicles that have helped you move from Point A to Point B. And one vehicle is not necessarily better than the other. If you have a lot of time & really want to see the country, then walking or riding a bike would be the best. But if you need to be back in Bangalore earlier – than you may use Flights to travel inter cities & get back to your Point A at the earliest. So there are at times when you need to own a vehicle, sometimes you can hire a vehicle, sometimes you may need more than one vehicle – similarly even with investments when you know your ‘investing plan’ & understand your ‘purpose of investment’ clearly you will best know how to match them with different investment products in the market & get the job done.

Why do most people fail with their investments?

Surprisingly – most people think they don’t need a professional financial advisor, just because they are eligible to buy to any instrument which are legally permitted. While people choose to build a house – they call an Architect, people know to diagnose a health ailment – you need a doctor, people know which course when done – gets them into a certain job & people are also comfortably to even assume with zero knowledge about investment products/vehicles one can achieve a certain purpose or a need. Well, that’s a another topic which i would reserve for another day 🙂 . Just realise – Investing is a plan, it’s not a procedure nor a product.

–    Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
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