How you can jeopardize your wealth creation

By Morningstar |  21-09-20 | 

As everyone’s quest to get rich continues, financial coach and adviser MAHESH MIRPURI shares from his own personal experience.

When I was in primary school, I would often look towards the high school section with some degree of awe. I would see the bigger boys and long for the day when I would grow up to “be like them”.

That yearn never really leaves us. An executive in a company wants to become a manager. A manager wants to get into the echelons of senior management. A businessman running a small-cap company wants his firm to become a midcap. The millionaires hope to get into the billionaire list. An athlete wants to break his predecessor’s record.

This is so intrinsic in humans. The universal need to continuously grow. To reach for something that we don’t possess yet. To stretch ourselves. To dare to dream. To expand our capacity, capability and understanding.

Let me apply this human need to the world of personal finance and investing.

In mainstream media and social media, there is no dearth of individuals who bask in the glory of their investments and success. It is natural for newbie investors to want to “be like them”. It’s a dream, right? To get rich, to never have a moment of financial worry, to taste immense investing success and all the frills that accompany it.

But it is this drive for financial attainment that can be your very undoing. The day you decide that you want to get rich FAST, is the day you throw caution to the wind. Once you dull your discriminative ability, you walk on treacherous ground.

Think about it – all greed, impulsive decisions, and ridiculous allocation, is the result of wanting to grow your wealth at a rapid pace. Naturally, you fall prey to:

  • Clickbait headlines
  • Taking tips from anyone who is doling out advice on social media
  • Getting swayed by the “experts” who speak with such authority on television
  • Listening to the folklore of office colleagues and relatives

It is not that you have lost your objectivity. In fact, if you spend some time pondering, it would be easy to call out this nonsense. But it is your need to attain financial freedom as quickly as possible that overshadows all objectivity.

Let me narrate a true story.

Three years ago, an entrepreneur running an SME (small and medium-sized enterprise) approached me with the idea of being my client. I engaged with him and discussed a plan that focused on sensible allocation, keeping the overheated equity market in mind.

He pooh poohed my proposition and produced data of recent returns of small caps and the predictions of individuals on Twitter. He rejected the notion of asset allocation and wanted to go all out into equity with a very significant tilt toward mid- and small-cap funds.

His utter disregard for advice and complete belief in his misallocation was a red flag. I chose not to onboard him.

That was 2017. We know the history. In March 2020 he approached me once again. He had sold everything when the market hit a low. His loss was tremendous.

It left me with a very heavy heart.  This time I onboarded him. He has burned a massive hole in his wallet and was now eager to learn more about asset allocation and heed advice.

As a financial adviser, it gives me great joy to help my clients realize their financial dreams. And it makes me sad when I see hard working individuals squander away their money because of foolishness.

We all want our money to grow; but growth is no respecter of people.

Growth respects the basic principles. Growth requires time. Growth requires patience. And growth requires tremendous humility. Acknowledge when you are wrong. Swallow your pride and change tack when you are advised. Realise that you may not be the expert you think you are when it comes to money.

In Sanskrit, the word Viveka is used for the ability to discriminate, to discern, to gain a right understanding. In a way all will comprehend, it is the ability to separate the nonsense from sensibility.

Let me ask you a few questions.

  • What poppycock are you being fed? Does your instinct tell you that you are consuming the garbage being doled out?
  • Can you really afford to lose the money you are going to invest based on a tip?
  • Place the investment options before you and ask yourself, if you end up making a mistake, which one will you regret less? We often ask, what will go well for me, not what will happen if it blows up in my face.

Viveka also means that you know when you can use help and advice, rather than falling for all the drivel being dished out.

Take advice from an ethical adviser. It is an “investment” you will never regret.

I also suggest that you read 4 expensive misadventures in investing, where I explained how you can gain substantially in your portfolio by avoiding mistakes. Win, by not losing.

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