Ever wondered why we always end up falling short of our finances to meet that goal we set out even 2 or 3 years ago. Coming straight to point, here are the most evident pitfalls in our strategy.
1. Starting without a clear goal & time frame in mind.
As individuals, we have quite a handful of personal, family, social ambitions we strive to achieve. Incase you’ve never clearly spelled out a goal earlier, start with 1-2 goals with measurable time frame & required funds to help you reach those goals.
2. Selecting sub-optimal and/or incorrect asset allocation strategy to reach the stated goals.
Problem here is of “information overload” & “anchoring” nature. We set out weighing the nearest 3-4 options (FDs/RDs, PF/EPF, Life Insurance, Equity, MFs) that we believe is the universe & most likely than not always end up selecting ones that are safe, predictable without realizing how sub-optimal post-tax returns our investments generate resulting in annual erosion of our principal.
3. Let’s assume we fix the above two steps to a manageable level, our execution approach remains largely piecemeal.
Unfortunately, once invested we do not dynamically manage the corpus based on our stage, status, circumstances unique to each individual’s life which require proactive monitoring and rebalancing the portfolio. Various life stages (young unmarried, just married, married with dependants, married with settled children, retired), status’ (low-salary earners with limited increment potential, professionals with consultancy income, business persons with volatile income, senior executives with large disposable income, housewives with pure savings, retired pensioners) entail different, diversified set of asset allocations & within asset class, dissimilar instruments depending on risk profile & financial condition of the individual. Additionally depending on the outlook of macro-economic environment, financial markets, change in governmental regulations – different investment instruments become worthy or unworthy for an individual.
Wealth creation process involves a bit of mathematical, financial, probability tools, the exercise is nonetheless incremental to your future goals incase well-executed over period of time.
Compared with the likes of highly developed western economies with percentage of funds managed fee model, India is a unique investor-friendly market with low to no customer-side upfront fees. As people are largely unclear or unsure of creating a practical roadmap for their goals, reaching out to a seasoned Financial Advisor can help all sets of investors (self-managed, veteran investors, novice/new investors) immensely in realizing their goals in a cost effective yet professional and unambiguous manner. «GM»