Remember buying a phone, bike, or car. How much time did you spend analysing the product—checking features, prices, taking feedback from friends, or reading online reviews? And how much time do you spend reviewing a financial product? You would probably say this is not an apple-to-apple comparison, or it’s an apple-to-orange comparison.
No, I am not talking about comparing normal products to financial products. I am talking about the habit of reviewing products, whether they are financial or any other kind, and most people do not review financial products when they buy them. They only review them after they have already purchased, when they want to exit or sell, and are facing losses.
About the author: Ajay Pruthi is a SEBI-registered investment advisor and a member of fee-only India, an informal association of SEBI RIAs who charge a flat fee. He is also on freefincal’s list of SEBI-registered advisors. You can contact Ajay via his website, plnr.in.
When people buy products without reviewing them, they find themselves stuck in a continuous loop of questioning whether they made the right decision or not, and they start seeking validation on social media. This may be the returns on insurance policies, buying equity mutual funds for short-term goals, or purchasing stocks without any analysis (perhaps based on media gurus’ advice), and not aligning with their personal goals.
The problem begins when a product hasn’t been reviewed thoroughly, and different opinions start appearing on social media, saying you should have done this or that to get better returns.
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Let me give you some examples—
- An insurance agent comes to your house; shows you guaranteed returns of 10%. Without giving it a second thought, you buy it.
- Some media guru suggests buying a stock that has a 50% upside potential, and you buy it, even though you do not have the skills to do any fundamental or technical analysis.
- Some friend suggests investing in equity mutual funds showing returns of 15-20%. You have a goal that is just one year away, and you buy it.
There can be endless examples, but here’s one suggestion—Review the financial product the same way you do before buying a phone, bike, or a car. Check features, check returns, check reviews, and do the best you can.
Automation. Once you’ve reviewed the product, the next step is automation Remember going for a vacation, selecting a destination, choosing transportation like flights or trains, choosing hotels—lots of decisions to be made. You keep fluctuating regarding the destination, hotels, etc., unless everything is finalized. It takes a lot of effort and energy to decide all these things when you are going on a vacation once, twice, or thrice in a year. Imagine the sort of efforts you would be putting in for investing in financial instruments month on month. It becomes difficult, and automation may be your best tool.
Discipline is often overrated when it comes to making financial decisions every now and then. For example, someone might decide, “I will invest month to month when the markets are down.” You might be right one or two months, but there will be times when making a decision is difficult. Moreover, tracking markets daily and doing extensive analysis takes up a considerable amount of time and effort. That’s why SIPs (Systematic Investment Plans) are the best for automation.
One suggestion—Check your investment history. Are you wasting too much manual effort in investing? If yes, are you getting some extraordinary returns, and is it worth your time and effort? If yes, keep investing manually; otherwise, automate it.
No Action. After reviewing the product and automating the investments as per your goals, it’s time for no action.
Markets are down; should I invest more in equity?
Markets are up; should I withdraw some amount?
Markets are sideways. Should I keep investing or wait for a correction?
What if I had invested in this stock? What if I had chosen active funds over passive ones, or vice versa?
These actions are unnecessary for a span of 6-12 months if you have reviewed a product and investments are already automated as per your goals.
Analyzing your portfolio once a year is better than reviewing it every week or month.
While you should ensure your investments are being deducted monthly, even this is checked with regular SMS alerts.
One suggestion—Taking action is easy; taking no action is the most difficult part in financial life. With all the social media and finfluencers, it always seems like we are missing something. If you have already reviewed the product and are investing as per your goals, believe in yourself and take no action unless it is really required.
Conclusion. You will find people who typically oppose this approach and might be earning better returns (because people with an active investing approach and earning less returns normally do not come forward). Still, there are very few Warren Buffetts or Rakesh Jhunjhunwalas. Understand that even for Warren Buffett and Rakesh Jhunjhunwala, investing was their profession, not a side hustle. Invest time and effort in your profession rather than stressing yourself over those 1-2% extra returns.
This article may not impact a large audience because most people are eager to chase returns. However, if even 5-10 people apply this advice to their financial lives, the time they save can be used for more productive activities, leading to better overall results in life.
*Disclaimer- Nothing in the article is my solicitation, recommendation, endorsement, or offer. If you have any doubts as to the merits of the article, you should seek advice from an independent financial advisor. Registration granted by SEBI, BASL membership, and NISM certification do not guarantee the intermediary’s performance or provide any assurance of returns to investors. Investment in the securities market is subject to market risks. Read all the related documents carefully before investing.