Do you know that majority of problems in your financial life are purely because of psychological reasons? We are all human beings and are prone to think irrationally at times thereby taking wrong personal financial decisions. Behavioral Finance is the area of finance that combines psychology and finance together and gives you an insight on why a common investor makes mistakes in his decisions. Today, we are going to discuss on “What should an investor be responsible for?”
We buy an insurance policy arbitrarily because the agent was really persuasive or some uncle (or dad’s close friend) happened to be an agent and sold us a policy to secure our future. We buy mutual funds, because the poster on the road showed us a fortune and an opportunity not to be missed! Our decisions are based on our friends’ recommendations and what we see on television or read on the internet and newspapers. We keep buying or investing for all the wrong reasons – like pressure from an agent (who is personally related to us and want to cash on that personal touch), a perceived need to save tax etc. And at the end, we call it our “portfolio”. Now you could give excuses that the agent was so really persuasive, sold you the policy or you had to oblige your agent uncle. But, in fact the agent has not sold to you, you have bought it. The onus to buy or refuse lies with you.
Just revisit your portfolio and ask yourself how much of it is because of your purposeful planning and meticulous thought? How often you sat down, studied investment products, compared with other similar products available and then shortlisted the one that is the most suitable for you?
Let’s imagine a scenario,
Scenario 1: Ajay does not understand much about investment, but still without blinking an eye he invests Rs. 10,000, Rs. 50,000 or Rs. 1.00 lakh in Insurance or Mutual Fund.
Scenario 2: Now, Ajay goes to the vegetable Market and buys half-a-kg of tomatoes at Rs. 20 a kilogram and each tomato he selects with such care thinking that he has to buy a quality product and not what the seller selects.
If you look at both the scenarios, you will notice that the same person Ajay does not care at all when he is investing in Mutual Fund or Insurance.
Why does it happen?
Truly speaking, the investor doesn’t think much when investing in Mutual Fund, but he thinks a lot when he is buying tomatoes, because he understands tomatoes. He does not understand How to Invest in Mutual Funds at all. So investor devotes his time on things which he understands.
What is the Onus of Investor?
Onus of investor is very simple to understand. If you again draw a parallel with the doctors, the doctor doesn’t only give you the medicine for your ailments but also tells you that you must change your attitude towards life, you must go for a walk regularly, you must not worry so much, you must do this, and you must do that. It’s the responsibility of patient to follow the advice of the doctor rather than throwing the onus of treatment on the doctor.
The same way, the financial planner is like a financial doctor. He tries to influence the attitude of investor to bring in them the correct attitude. These attitudes can vary. They can be one extreme like there is no tomorrow, enjoy today “Kal Ho No Ho” kind of a person and on the other end there can be a person who thinks that money is too much below his dignity. Even that attitude is quite detrimental to the financial well-being of a person. So the investor should remain away from greed and negligence. He should follow a self-discipline balance approach towards his financial life.
You only have to do a very few things right in your life, so long as you don’t do too many things wrong.” – Warren Buffet
Remember, an investor who never takes risk will never gain anything. His goal of financial well-being will be very small. If you decide to keep liquidity and put all your money into Bank savings account, then definitely you have avoided all risks, but at the same time you have forgone all the upsides which are possible. So it will be the onus of the investor (You) to adopt a correct attitude towards risk, to weigh the risk against the rewards and then take a correct decision. So in all aspects, a financial planner would serve a very important role in assisting you in making right financial choices.
Financial Planner will Educate You
Financial Planners will make you understand reasoning behind every suggestion he offers. He will make sure that you agree and understand everything so that in future you can take similar decisions yourself. Has any Mutual funds advisor told you why SIP is better for you Or Why You should expect great returns in long term from Equity? Has Any Insurance Advisor or agent told you what are the important things you should be aware of before buying a ULIP? Or why you should avoid Endowment Polices for Long term wealth Creation? We doubt there are many of them giving any genuine information.
Financial Planner wants to make your Financial Life Better
Financial Planner’s goal is not limited to Insurance Planning or Investment Planning. In fact a Financial Planner is trying to make your overall Financial Life better and paving a smooth financial path for you, on which you can start walking. Your overall financial life is made up of different components like Insurance Planning, Investment and Retirement planning, Child Future Planning, and Tax Planning etc. A Financial Planner will take care of all these avenues.
Most Indians are totally clueless about Guide to Financial Planning and only in recent years there has been some awareness about it. Most of the people try to fix their finances on their own without accepting that they are not competent enough to do it and they need a professional. Don’t you go to a Doctor or Lawyer or any other Professional and pay them? Then why not hire a Financial Planner? Go Get One!! So onus is on you to make the right choice.