Investors Cannot Eat Their Cake And Have It Too!

Published: July 19, 2013 at 9:27 am

Last Updated on

When gold prices fell steeply earlier this year, we were flooded with ‘told you so’ articles. No one seemed bothered at that time to emphasise that gold is meant for long term investing only, and that such volatility is natural. Before the crash everyone was saying, ‘buy golf ETFs’, ‘allocate 10% of your portfolio to gold’. Now no one is even using ‘gold’ in an article.

Yesterday debt mutual fund NAVs fell and immediately we are flooded with knee jerk articles on what ‘investors should do now’. Some blame AMCs for not educating investors and marketing debts fund as ‘safe’ investment options. Other articles say, ‘stick to FDs’.

What utter nonsense! When I started freefincal, I told myself I will not react to everyday financial occurrences since that will do more to spread panic than ‘literacy’. However the kind of nonsense that gets on the www forces me to write this.

Investors should choose debt mutual funds based on only two factors:

  • When they need the money
  • How important is the need.

Returns and Tax are completely secondary.

In any case, as they near the need/goal, the money must be shifted from risk debt funds like ‘bond and ‘income’ funds to a simple good old savings bank account. This is commonsense. Investors should blame no one, but themselves if they do not recognise this.

A long term debt fund investor/saver will not be affected by such blips.

The Serenity Prayer

Everything in life comes at a price. If we want better post-tax returns then fluctuating returns are part of the deal. So we need to factor in when we need the money and how important the purchase is before we embrace this volatility.

Trouble is investors want to eat their cake and have it too! Tell them it is impossible they pretend like they understand and make the same mistake over and over again.

This is why I keep saying it is crucial to be contended investors.  Before we invest or save, ‘how much returns will it fetch’ is the second question to ask, not the first. The first question is, ‘why should we earn a return?’. This question may sound dumb. However it makes us recognize ALL the risks involved in a financial decision.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
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