“Successful investing is about managing risk, NOT avoiding it!”
We all know that we should put our money to work, protect our future, have enough when we retire, and that all this will not happen on its own. However, when it comes to taking action with our money, i.e., investing it, we more often than not, procrastinate it. Why do we postpone our money decisions? Welcome to “investing inertia”.
There are at least four well known explanations for this.
- First, we think we do not have enough money to warrant taking serious decisions.
Whichever life stage we may be at, there is a nagging suspicion that we may not have enough to follow through on a systematic and detailed plan. We often feel that the sum we save each month cannot ‘really’ be invested because it is too small. Here’s some food for thought for this – investing Rs. 2,000 pm for 10 years (total of Rs. 2,40,000) can give you upto Rs. 5 to 6 lakhs at the end of it! ‘Rule for thought’: No amount is small enough!
- Second, we are overwhelmed by the choices.
Too many options, especially with high penalty for making the wrong choice, pushes us into inertia. We worry about the regret that invariably comes with having chosen a wrong product. It might happen that you bought a large cap fund, or a bluechip stock only to find out later that mid-caps did better, or that the new unknown IPO that you did not choose, actually did better. We then end up with wide-eyed admiration for people who made so much money by choosing right, and then quietly reconcile with our inability to make the right choices. We prefer to let our money idle, over having to deal with the regret of making a wrong decision. ‘Rule for thought’: research well before investing, and then stick to it. There may have been better options, but, letting the money remain totally idle will definitely prove to be far worse!
- Third, we dislike the ‘loss of control’ investing entails.
Even with the best plans, preparation and pre-work, our choices may turn out to be bad calls. Markets are volatile by nature, and predicting how they would behave in the future is not a science. When faced with risk and volatility, doing nothing seems like a good choice. We like to think that the money lying in the bank account is at least not losing nominal value. ‘Rule for thought’: better returns do come with some risks, but planning well, or even taking professional help, can minimize this risk for you!
- Fourth, we do not have the patience to deal with the investment process.
While technology has simplified the operational aspects of making an investment decision, we still have to deal with the set-up, fill up forms that seek information, sign papers, and remember to record account numbers and passwords. Instead, we postpone decisions that take a few minutes of perseverance. ‘Rule for thought’: no pain, no gain. These few minutes and a little effort will give you guaranteed results!
Therefore, in the quest for investment decisions that will take us on a grand path, without pangs of regret or fears of loss, we opt for the easier route of escapism. We simply decide not to decide. What can be done to remedy this – There is no best choice, best route, or the best time for investing. To invest is to channel your savings towards diversified assets that will work for you over time.
Also read: Here is what you need to do for successful financial planning:
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