Don’t let your wealth go waste. Take a decision today
Investors worry about making the
wrong decision and the result is inertia that does more harm.
There is an explanation as to why we treat our assets
carelessly. Many of us have pending tasks stashed at the back of our minds that
we hope to complete some day. The pending nomination in the demat account; the
incomplete change of address request; the matured deposits that are hopefully
renewing; and the will we never made. We believe everything will somehow fall
into place and be alright.
Aretha Franklin, regarded the queen of soul, died at 76 after a
long struggle with pancreatic cancer. She left no will behind for her estate
estimated at $80million. Her lawyers advised her to set up a trust or create a
will, several times, but to no avail. They say she did not refuse to write a
will, only she did not come around to doing it in her lifetime. What should
have been an easy transfer of wealth, will now be a prolonged court affair
played out in public.
Investor inertia, or the condition where investors are
comfortable doing nothing is a well-documented phenomenon. Investors worry
about making the wrong decision. Faced with too many choices, they do not know
what to do. They dislike tasks that entail making multiple decisions. Paperwork
is something they hesitate to take on as it involves time, too many details,
and the need to deal with multiple agencies. Denial is preferred instead.
Investors who leave money lying in the bank are not uninformed.
Research shows senior executives, CXOs and investment managers who manage a
large amount of public wealth, are also victims of inertia when it comes to
their own wealth. Either they do not come around to deciding, or they worry so
much about making the right choices, that they do not make one at all.
The consequences of this inaction are well known. Wealth is
created when its current use is sacrificed for a future benefit. Not taking
care of it undermines the sacrifice, while defeating the purpose for which it
was accumulated. What can be done about this?
First, keep all transactions clean and simple. Many investors
struggling with multiple demat accounts and signatures that do not match are
the ones who made investment decisions in haste, listening to the wrong advice.
There was a time when someone with the name, say, Ram Kumar Shinde, would make
multiple applications to an IPO with these variations in name and signature:
R.K. Shinde, Ram K. Shinde, R. Kumar Shinde, and so on. This was to somehow get
an allotment. Now Mr Shinde does not remember how he signed the forms.
Multiple bank accounts were opened at a time when banks did not
have the technology to link them. Post offices were used to stash cash, without
anyone finding out. Studies show the post office schemes were used to
systematically whitewash black money, even as we thought these were schemes for
the poor. Every time a politician died unexpectedly, a few hundred followers
turned rich overnight, encashing the benami wealth kept in
their names. There is no need to feel smart about the disease popularly
called jugaad. With PAN, Aadhaar and other identifications now
available, many loopholes are being plugged. Keeping it simple is not naiveté.
Second, do not overdo the diversification idea. There is no need
to have a 100 plus items in your list of wealth, especially if you are not
wealthy enough to have your own private office to manage it. Studies of
portfolios of high net worth individuals show a long list of stocks, funds,
bonds and other investments made in small amounts, over time. This many not be
efficient.
When we are unsure about an investment opportunity, we tell
ourselves that a small amount won’t matter. So a new product is launched, and
we put in a small amount. Then it fails to perform. We believe it will bounce
back, and the small stake allows us to ignore it. We then move on to something
else, allowing the earlier investment to continue to bleed. Our inability to
sell loss-making investments is also well documented.
There is no need to have a long list of investments to be
successful. It is counterproductive. Your best investments won’t matter much if
they aren’t sizeable, and your bad investments will keep dragging your
portfolio down. If you have to scroll down an excel sheet to view your
investments, you have too many. Twenty to 30 products should serve the purpose
for most investors. Keep those numbers in control and sell off what is not
working.
Third, take help for tasks you do not like to do. Many advisers
say it is common for investors to have their wealth managed by multiple
agencies—banks, brokers, a few distributors, hopefully an adviser, and some by
themselves. This means only the investor knows where the assets are, and fails
to trust anyone with the entire list. It is today possible to get a
consolidated statement of all your listed assets —stocks, bonds, mutual
funds—as a common account statement generated by NSDL.
Hand over this statement to your financial adviser and for a fee
you can negotiate, get it all cleaned up. They are familiar with the process,
and will help you manage the paperwork if you let them manage your assets. Do
not assume that being secretive about your assets is helpful; it can harm your
wealth if you do not manage the multiple portfolios that you zealously created.
Fourth, write a will. It is not as tough as it is made out to
be. You do not have to identify each item of your wealth and list it. You will
should primarily indicate who will get what (beneficiaries) and who should
ensure that the distribution is made according to your will (executor). The
executor will take up the tasks of probating your will, making the lists,
completing the paperwork, and ensuring that everything is settled as indicated.
Two witnesses are adequate to validate the will. After your time, your will
prevails and ensures that your wealth is not left to waste.
There are millions left unclaimed by investors over years. This
money is transferred to the investor education and protection fund, to
hopefully educate others about how to not let their wealth go waste. Guard
yours.
ETW10SEP18
No comments:
Post a Comment