Brijesh Damodaran, Founder and Managing Partner Zeus WealthWays advises that goal attainment and not chasing returns holds the key to wealth creation.
Why Chase?
Frank Hubbard once said, “The safe way to double your money is to fold it over once and put it in your pocket.”
If only making money was that simple. Patience is a virtue which is forgotten and an aberration today. Building up the portfolio is like building an innings in cricket. With IPL around, T-20 cricket has become the new way to play cricket. With the advent of 24 hour visual media, we are eager to make a quick buck. More often than not, you lose more than you gain.
History repeats itself and we are condemned to repeat history. The returns delivered in the period 2004-2007 were mind boggling. With the opening up of the Indian economy and the easy credit available across the globe, majority of the investment product in equity and real estate delivered phenomenal returns. This had to stop at some time and in 2008, it came down with a thud.
The Cycle
Typically investing for the long term (excess of 5 years) is an aberration. You start with all the good intentions. You do a financial plan. You frame the asset allocation. You decide on the review strategy. But then, when the next opportunity to make a quick buck comes, or if the market spirals down temporarily, you look to withdraw funds. This defeats the whole purpose of attaining your goal. The financial plan goes into the dustbin and again ad hocism rules. Your discipline goes for a toss when you chase returns. More times than not, you have also not set targets for the exit. You wait and wait and more often and then you exit below the purchase price.
Way out
Discipline is the key and only you can take responsibility for it. Investing is akin to running a business. Do a thorough due diligence when you invest based on your financial plan and then give time for the investments to grow. You need to be like a gardener. Anyone can advise based on hindsight information. But decisions are made in real time. A lumpsum investment of Rs 10,000 in a diversified equity fund in 1994 has delivered an annualized return in excess of 22 percent at the end of 2012. Inspite of all the upheaval which happened in the interim 2 decades, you still end up laughing all the way to the bank. In this case the aim was not to chase return and this happened only because you were too lazy to do any changes in the portfolio. (This part was shared to me by one of my clients). If only all investments had such happy endings.
In the period Oct 2011 – June 2012, many investors stopped their SIPs in equity funds and went overweight in debt. The equity market started the northward journey from July 2012 and today equity is not a bad word. If only these investors had taken into account attainment of their goals and not market movements, many of these investors would not have stopped the SIP’s in equity.
As a financial advisor, it is your role and duty to your clients to make them avoid this peril of chasing returns and make them understand setting and attaining goals in the long run is the key to sustainable growth and wealth creation.
