Banish fears about time, strategy
Don’t let your
money idle in the bank. Find a little time and invest it optimally
Sometimes it feels like we are not doing enough. We
had decided to begin that SIP, activate the PPF, invest in that equity share,
and increase those tax savings. However, we find those plans remain only on
paper. Why is it that we don’t persist, even if our intentions were good?
First, we suffer from a starting problem. The endless
postponing of the investment decision is not unique, though we think everyone
else is managing their finances well, while we are slacking. Investor inertia
is a well-documented issue. And, we think that at least money in the bank is
safe and not losing value. Only nominally, because inflation would erode its
value anyway.
To mitigate this, we could assign a specific week in
a year for product choice. Just as we file our income tax returns, and know we
have to meet that deadline. In that week every year, we could shortlist mutual
funds, equity shares, bonds, saving products and insurance policies. If we
arrive at a default list of a few products, that would do. Through the year,
until the next review week comes up, we can invest in these default products.
Fears about the right time, the right product, the
right strategy, and the right way to go about it, are all overstated. As long
as you have done basic due diligence check about the product, and satisfied
yourself that the issuer of the product is someone you can trust your money
with, you will do fine.
Second, we are unable to make correct estimates about
how much money we will need and when, and being unsure takes away the
motivation to keep contributing. There is really no surefire way to make
estimates for the future. Planning for our goals is only a framework that
enables us to save and invest with a purpose in mind. We can still end up with
less or more, depending on how the markets behave. However, there is a saving
grace. We have the benefit of the gradual process. We do not have to build the
retirement corpus on a single day. When we save and invest over the period of
30 years, we will accumulate a sizeable sum. And when we retire, we are not
likely to use the entire corpus at one time.
How much we accumulate depends on how we contribute,
where we invest and for how long. An annual saving of ₹10,000 seemed like a stiff
target in 1986 for many of us who began to work for a monthly salary of ₹1,600. As we stand on the verge
of retirement, over 70% of the corpus comes from appreciation in the value of
the investment, our contribution a mere 30%. In these 32 years, there have been
severe market crashes, government collapses, global crises and scandals. It was
not as if we had great wisdom and foresight to choose the right product and
stay with it. It is just that we ensured that the savings were deployed in the
default portfolio, and stayed invested. It is that simple. You just need to
have process, patience and persistence on your side.
Third, we cannot commit to a fixed sum and persist
with it, because we cannot estimate the unexpected needs for money. Sometimes,
saving and investing take a back seat, and worse, savings are used up. An
easier approach is to split the saving into two. A smaller portion that you
will systematically invest at the start of the month, and a regular top up that
you will do at the end of the month. Once you have linked your investments to
your bank account, you can push any amount of money into the same product and
folio that holds the SIP. In a good month you do more, in a bad month you do
less, but before your salary hits the account, the balances have been invested.
This approach is your customised systematic
investment that contributes to your assets regularly, while also keeping your
savings account balances small. If you have a fixed deposit and a
pre-sanctioned loan on it, and a credit card with a decent limit, there will be
no killing event that will take you off guard when you have emptied the savings
account. Do it for a few months, and you will not let balances lie idle in the
bank. We humans adapt rather amazingly.
The author is Chairperson of The
Centre for Investment Education and Learning
Uma Shashikant
TOI 17JUL18
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