Friday, September 30, 2011

The Magic Word to Riches!

Now what would you give to know this one word that could radically transform your fortunes and could make you rich! And just saying this word could take you a really long way in achieving your financial goals! It isn't a magical word but nevertheless a word which we do not use sufficiently enough when it comes to investing. The word is – ‘NO’. I saw an article on Newsweek and Yahoo finance which spoke about the power of the word NO but in a different context, however it makes a lot of sense in the context of financial planning also!

In India, with so many financial planners, quasi financial planners, quacks, banks, life and general insurance companies, mutual funds, portfolio advisors, portfolio managers, Relationship managers, wealth advisers etc. obviously somebody would have got you! It is also so difficult NOT TO SEE THE ADVANTAGES when confronted by a good salesman who probably is dressed better than you and is showing you a laptop with an excel sheet with fancy graphs, charts and ‘potential return’ tables! They talk about the need for focus, asset allocation, pension plan, child plan, neighbour's wife plan, aunty in hospital plan, funeral plan, broken dentures plan, cancer plan, kidney failure plan, tiger eating you on the highway plan, - given the right name, selling it to the retail 'prospect' seems like selling toothpaste.

And the reasoning offered is simple - If you have teeth, you have to buy toothpaste, right? So if you have a child you need a child plan, if you have a body you should have a medical plan, if somebody you knew got cancer, you need a cancer plan. So you agree to a Wealth plan, a Child plan, a pension plan, a medical insurance plan, an endowment plan, a ULIP, and an income replacement plan. Then the next word 'Asset allocation' - “Madam/Sir you need to be in equities, gold, land, bonds, bank fixed deposits, post office savings, PPF etc etc. Of course you need a few credit cards too”.

And if you do not have too much to invest – you are assumed to need a home loan, a car loan, a personal loan (taken to make the down payment of the house which you anyway cannot afford!), a travel or foreign tour plan, children's education loan, ( these guys are awesomely innovative, aren't they?)
Then the dreaded word diversification again - Large cap fund, Banking fund, Pharma fund, Gold fund, Midcap fund, Small cap fund, ELSS etc. Now that you have said yes to all this — he says – “You need to be in different fund houses too — so an HDFC, Prudential ICICI, Reliance and a few more fund houses as per the distribution targets of the 'advisor'.

Learn to say ‘NO’. Say it a couple of times to get into the habit. No, Nahi Chahiye, Nein, Venda, Beda – any version of No would do! Do not get me wrong. I am not against investing... On the contrary, I am very much in for investing but do not invest just because you have some spare cash and a smooth talking salesperson is sitting in front of you. Understand your financial goals. Write it down on a piece of paper and before you meet any salesperson/advisor – be clear about what you want. If you have a child and want to plan for his/her future - buy a Children's plan by all means but do your own research well into these plans and understand them well before you take one. Never buy a product which you do not understand or which seems confusing. Be wary of products which seem to offer returns which are too good to be true – because most of the time they might actually end up being that.

Keep your financial planning simple and contrary to what several financial planners might tell you – holding on to cash for certain periods of time isn’t all that bad (of course if you hold on for very long periods of time – inflation could hurt you). Like Warren Buffet said “Cash has never been known to burn a hole in someone’s pocket”. However, bad investments have always known to have burnt holes in people’s pockets.

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