Modern Day Financial Planning
1) Investment = Long Term
2) This is the story brought down through ages
3) Investment if parked for a long time will compound and there’s nothing incorrect about that
4) But human lives have very important short and medium terms as well
5) For someone who is 30, buying a car is a short term goal. So do we tell him that now you wait for 10 more years because you did not start investing early enough
6) For someone at 50, going for an international holiday is a short to medium term goal. Can you ask the gentleman to wait for 10 years and then purchase his tickets just because he did not plan earlier
7) For someone who has lost his job, everything is short term goal. Do we tell him that because he had not planned earlier, he better bear the consequences of his misdeeds
8) But we have been so hardwired with the long term formula that anything other than long term appears like a mistake, how can we think otherwise
9) There are many solutions in SIP but they are for a particular kind of scenario. However, SWP has the solutions that SIP can never provide. SIP is clearly 10 years planning (long term). SWP in combination with STP has solutions for both short term, medium term and long term). Time for us to understand Structures, Product Wraps, Concept of Correlations and Pure Diversification
10) Money no doubt is the Fuel for life and living. It is the means towards an end and not the end in itself
11) Pushing everything to the long term is a sure shot formula for dying rich and living poor
12) Mindless Investing can be as bad as Poor Investing
13) We keep hearing that funds give awesome Long Term returns but Investor’s don’t get awesome long term returns from the same fund
14) The reason is clear. The fund is a non living entity, bereft of emotions and needs. It’s a timeless concept which eventually gets compounding and inflation to work in its favor and this causes it to provide awesome returns
15) On the other hand the investor is a human being driven by emotions and affected by short to medium term needs. Moreover, the investors are of different age and have according to their age different needs
16) Their risk appetite too is a function of how old they are. An elderly person is bound to have less risk appetite than a youngster. So risk appetite, risk tolerance cannot be seen Independent of age. There is a huge amount of correlation between these concepts
17) A man of age 55, may need money at 57 and Investing and compounded wealth served after 15 years most likely will not serve any of his then needs
18) His needs may arise earlier at 57, 60, 63 etc
19) So does that mean that if one has missed starting the investment journey early enough, there aren’t any solutions?
20) Sometimes 8% returns may serve better than 10% returns based on the time and need mapping
21) Investor returns cannot be compared to the Funds returns ever and let’s not delude ourselves or our investors. This is because redemption is based on human needs ; short and medium term most of the time and which cannot be postponed and funds revel in the long term story
22) Money Management is understanding the vagaries of life and designing an investment system that caters to long term, medium term and short term needs
23) There’s an old saying which goes something like; it is not the amount of money you make but the amount of money you keep that matters
24) I would rather look at this as “it is not the amount of money you make or the amount of money you keep that matters but the ability to have the the right amount money available to you at the right point in time of your life that really matters”
25) Poverty is extremely unfortunate but Dying Rich and Living Poor is equally unfortunate
27) Sometimes when you question some concepts that have traversed the passage of time, it opens up possibilities that lead to Solutions that have Current Relevance
28) All classic concepts have a very strong basis but one cannot ignore the fact that the society’s needs are not the same as it was in the past
29) And at the same time new developments be it in processes, concepts, technologies or products are taking place all the time and we need to device ways to fit these innovations to unmet needs
30) This Process brings new solutions to the fore; solutions that meet the needs of people living today
31) A Financial Plan and Portfolio Structure that caters to short term, medium term and long term needs is more useful than a Plan that leaves you Wealthy as you are getting ready to step into the grave
I rest my case
