It always happens. An introduction to mutual funds results in a feeding frenzy. I’d introduced a childhood friend to mutual funds two years ago. At age 45, she had left money and its management too late, but once she on-boarded mutual funds, she really went all the way. And beyond. Two years later, I’m horrified to see her portfolio. From the three-scheme portfolio she had started out with two years ago, she now sits on some 10 mutual fund schemes without a thought on what problem they solved. From an FD Hugger, she turned into a Feeding Frenzy Funder. I find that investors I meet fall into some stereotypes. Here are eight investor types—who are you?
The Ostrich: You have no plan, your money lies in your savings deposit and you are known to proudly say that you have no money to invest. You push away all help that comes your way because you are convinced that the world is full of cheats and you are just safer not doing anything rather than making an error. Beneath the don’t care mask, you are actually quite petrified about the state of your finance. And maybe for that reason believe that “something” will happen to make that pot of gold that you are convinced will come your way. Dream on.
I am reading a really cool book. When: The Scientific Secrets of Perfect Timing by Daniel H. Pink is a book about timing. Pink wants to turn timing from art to science and introduce a new genre in book titles, from ‘how to’ to ‘when to’. Pink says it matters when in the day we do things because his research shows that the human race has energy rhythms that are consistent across the world. Most people work better in the morning, hit an energy trough by about 2 pm and then recover by about 3 or 3:30 and then hit much higher levels by evening and 9 pm. What’s so great about that you may be asking? Well, for one, his work finds that scheduling a doctor’s appointment in the morning than in the afternoon may give you better care. Having your parole hearing in the morning carries a higher chance of being set free than in the afternoon. His advice: figure out your energy rhythms and then focus on your most productive and meaningful work in the time you know you are most effective. Leave routine tasks like admin work for the office day energy slump time.
1. Suppose you have some money. Is it safer to put into one business or investment, or multiple businesses or investments?
2. Suppose over the next 10 years, the prices of the things you buy double. If your income also doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today?
3. Suppose you need to borrow $100. Which is the lower amount to pay back: $105 or $100 plus 3%?
4. Suppose you put money in the bank for two years and the bank agrees to add 15% per year to your account. Will the bank add more money to your account the second year than it did the first year, or will it add the same amount of money in both years?
5. Suppose you had $100 in a savings account and the bank adds 10% per year to the account. How much money would you have in the account after five years if you did not remove any money from the account? $150, more than $150 or less than $150?
The kid calls. As usual, it is a last minute panic call. We’re visiting the nuclear facility and I need a valid identity (ID) proof—passport will do. When do you want this sweetie? Now. Ummm… but you are far away in boarding school and the passports are at home and I am at work. Sort it out, mum.
Luckily for all of us, this ends well. I remind the kid that I had attached a copy of the passport in a mail I sent her some months back—download, print and get your school head to sign off and then go, get radioactive. Click.
Look at the advertising splurge on television and you will know it is the season that insurance companies pull out all stops to get you to spend your Rs.1.5 lakh in yet more insurance policies. Before you succumb to the hard sell this year as well and add a 10th policy to the already useless bag of policies, consider this year’s decision as a financial one. What does that mean? It means that you weigh costs and benefits, and take a rational decision, and not one that you take either because of a soppy advertisement or because you want to get rid of the insurance agent who is calling every 10 minutes. Don’t underestimate the leech-like attributes of agents—a friend called once in a panic because the agent was refusing to leave her home without the cheque; not knowing how to make him go away, she was considering writing a cheque just so he would go.
I get an SMS alert. It tells me that a nicely fat number has dropped into my account this morning. This is the cheque I put in three days back. The cheque was given by the bank through which I had opened my public provident fund (PPF) account 16 years ago. (PPF is a 15-year account, but money comes back in the 16th year). I need the money to prepay a toxic home loan product that I find myself locked into (yes, the banks can cheat even the financially literate), or else I would have rolled over the money for another five years. But the process of liquidating a 15-year-old account in a product that has been my all-time favourite triggers a trip down the memory lane and why I opened the account.
I want to dedicate 2014 to the God of Small Things. Not to the God of High Return No Risk. Not to the God of Derivative Trading. Not even to the God of Guaranteed Return Pension Plans. Nope. Those are chimeras that disappear at touch. Mirages that dissolve as you approach. In contrast, The God of Small Things is all about the banal, the boring, the tedious, the ordinary. The rituals are painstaking and only the very dedicated persist. But, once you’ve made the God of Small Things smile, you move to another level in the game—that of being the Master of Your Universe. Not the entire Universe, just the little bit of blue that you call your own. And that’s not a bad place to be. Certainly, it’s less exciting than being a giant squid wrapped around the face of humanity, but unarguably more grounded and secure.