By IndiaHub 
And yet, we do not give money the respect it deserves. We casually overlook the money we have earned with our hard work and invest it without too much thought. This makes the advisor in me cringe and speak up- but that’s for another day!
Thumb rule-based targets: Some of us get caught up in thumb rules and must-do statements we get to see a lot these days. For instance, we have heard people say that it is possible to make ends meet and reach your goals only if their portfolio makes an annual return over 15%. For the same reason, they keep shifting from one asset to another in search of returns. But this approach does not take into account the costs, taxes, personal circumstances, asset allocation and more.
To achieve goals or create wealth, the important ingredients are patience, discipline, and consistent investment with a long-term focus. The most important thing is to find the right mix of assets in your portfolio, with appropriate tenure and liquidity, to meet short to medium-term goals. The part of the portfolio that is set aside for the long term can have equity and other risky assets that have the potential to do well over time. There is no need to move around the assets based on what is doing well at that point or fads.
As advisors, we have seen that if one is diligent and follows all the advice mentioned above, such portfolios can meet all requirements and create wealth without the constant worry of whether the assets are giving 15% returns.
Big, round numbers chosen as targets: Some people choose nice target numbers that look sufficient at first glance.
For instance – one should have at least Rs 5 crore retirement corpus for it to be effective!
This kind of a round number sounds great as a target, but may not reflect reality, as there are so many variables that determine the actual amount required. Taking the same example, the amount needed depends on lifestyle, expenses, and retirement goals, as well as the survival period, pensions/ annuity incomes already arranged for the retirement phase, portfolio composition, medical conditions, and subsequent provisions, gifting to children or grandchildren, and other factors.
It should be evident that such random round numbers as targets would not work, as there are so many parameters that will determine what is needed. This needs to be determined properly on a case-by-case basis. If the actual amount needed for the goal is much higher, then the assumed target will fall short. However, if the target amount is much more than needed, it could have crowded out other important goals or cramped the lifestyle in the run-up to the target figure.
Accidents with online calculators: For the do-it-yourself set, there are lots of blogs and videos that help one calculate what one needs to invest to achieve any goal or to reach a certain target! Many people get their target figure from such calculators and treat them like gospel. That’s when you hear a contrived number that one has picked as a target and wants to achieve, anyhow.
These calculators take in data like return assumptions, income growth, saving potential, inflation, tenure, etc., based on which projections are made. This is simplistic as the assumptions are for long periods, which is seldom the case. Also, such calculations focus on achieving one goal, without understanding its bearing on other important goals.
The spell cast by Finfluencers: The internet is filled with content creators who all are trying to grab attention. They come up with edgy content that borders on the incredulous and leads investors away from what is truly important.
For instance, finfluencers have videos on how to set up systematic withdrawal from hybrid and even equity funds, which financial advisors would not recommend. Similarly, some videos showcase how one can go on a vacation just through points earned by using a credit card! Many people get influenced and act on this “advice” and spend so that they accumulate the points. Finfluencers also have suggested investing in crypto assets, gold, silver, property, etc., at various points, which investors follow blindly and end up in trouble!
The irony is that finfluencers are not qualified or are not registered with SEBI to provide this kind of advice. However, many have following in lakhs, which lends them a veneer of credibility. Their wide reach makes them particularly dangerous.
Personal finances are a crucial part of one’s life, and yet most ignore them and play it by the ear. A qualified financial advisor can bring personalisation, nuance, and certainty in the lives of investors. Good advice will allow them to achieve their goals by design and enjoy the peace and happiness that come along.
Suresh Sadagopan, the author, is MD & Principal Officer at Ladder7 Wealth Planners and the author of the book “If God Was Your Financial Planner”.