Over the years I have met thousands of people who wanted to invest big and small. The spark & glow that falls between the conversations is worth the time I spent with them talking about wealth creation.
After a while, I realised that some people choose to grossly under invest. Most of the time, this fact surfaces after about 12 to 18 months of being my esteemed investor.
Today I will keep the subject to “Under Investing” or “Below Par Wealth Building Practices” by investors. I shall pen my thoughts and observations on “Over Investing” on another sunny day.
From the day one of my Wealth Building Advisory Journey, I have kept one thing very consistent. Invest according to your capacity. A Rs. 1000 from a blue collar employee is equal to the Rs. 1, 00, 000, I solicit from a white collar one. If the advisor is unbiased, the growth remains same in percentile terms. Asset allocation based risk and its reward could be the only differentiator between them.
On a level playing field, when I make that small difference in someone’s small earnings in life, it is often more satisfying to my soul than creating wealth for a wealthy person.
“Investment has to be a joyful affair”, I firmly believe in that.
Few things emerge from both types of Investors. Most of them only invested 20% of the investable surplus. What went wrong? Why did they under invest? Was it the quantifiable knowledge of the advisor or was it the technical and further more confusing jargons I used while communicating to them. Was it the fear of economy and stock market? Was it just plain cautious move due to past experience or hearsay?
It is often a combination of lots of factors.
Most of the time my understanding of the client with Ms Roma’s inputs and NJ’s CRM analytics throws up a gross under investing by the individuals. When we reason with them regarding the potential mismanagement of personal assets allocation, we get to hear these common dialects.
“I have lost so much hence I am scared”. “I cannot understand this one week of positive returns and next week it starts giving negative returns”. “Internet is filled with plenty of confusing stories, I fail to understand them”. “When I buy, immediately it goes down in valuations and when I sell, it shoots through the roof making me feel like an unlucky one”.
8/10 times I guide my clients out of the negative conversation. Still every single day I fear of losing one to the negative trend which unfortunately looms large over us.
I can relate investing to 2 different kinds of actions. I personally enjoy both of them. One is painting and the other one is mountaineering. It’s not traversing in a straight line, neither it is one technique fits all.
Under investing can be very dangerous to the wealth creation even in short term. This is more riskier than the warnings you read about Mutual Funds and Stock Market.
The damage of improper investing can be best explained in logic and numbers.
25 years old Arun and Anagha earns salary of Rs. 15000. Starts SIP in Mutual Funds for 20 Years.
25 years old Salvadore and Phinnaeus earns salary of Rs. 45000. Starts SIP in Mutual Funds for 20 Years.
Only Anagha and Salvadore can actually think about retiring at 45. Financial Freedom!!
This is applicable to every person with an income. The pictures above speak volumes of investing and under investing. Apart from the concerns that I mentioned earlier personal habit such has spending, show-offs and unfortunate liabilities are major reasons for under investing.
How do we overcome this?
1. Fiscal Prudence is one method. It’s nothing but “Save First, Spend Later”. I don’t think this is difficult to understand. Right?
2. Tie Up Loose Ends. Rework on your necessary expenditure and slowly but steadily do away with unnecessary ones. This is not easy; it’s indeed a tough task.
I have failed many times, you too will, probably, in all likelihood.
All said and done Under Investing is An Unfriendly Action To Your Own Aspirations. Stick to the basic principles of investing and asset allocation.
Perform Risk-Reward ratio based rebalancing and periodic reviews. Most importantly be with your Financial Advisor at all seasons.
Founder & CMD
Trackfinder Financial Consultancy +919969828224, +919869927212.