Wednesday, September 12, 2018

FINANCE SPECIAL..... Don’t let your wealth go waste. Take a decision today


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

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