The Five I’s of Personal Finance

Published: December 18, 2014 at 12:33 pm

Which is the single most important trait that characterizes a DIY (do it yourself) investor?  

1) I for Individuality

A person who rises above pigheadedness* and understands the steps necessary for wealth creation.  However, once the basics are clear (asset allocation is all that is needed!), the person chooses a path defined by personal comfort and expertise.

Once a particular path/style (with a history of performance) is chosen, He/she does not care about what others do, or how others have done it.

It is unfortunate that for most people, volatility in returns is proportional to a vacillating temperament.

*Pigheadedness here refers to an obstinate love for fixed income products (FDs, endowment policies, ULIPS(?!) etc.)  without recognizing the associated danger: investment disproportionate to returns.

How does one choose a ‘path defined by personal comfort and expertise?’

2) I for Introspection

Questions to be asked first: Where do I stand today? where do I need to go?  What do I need for the journey? What route would work for me? How do I reach my destination with minimal fuss?

Questions to avoid: Which is the best investment? What did others do/buy?

Questions to be asked last: Where should I invest? What do I invest in to save tax?

Related activity:

3) I for Inertia

Static (or bad) Inertia: When nothing moves

Someone who has trouble starting must recognize that personal finance is all about action and must act.

Dynamic (or good) Inertia: When it ain’t broke, don’t fix it.

Someone who is up and away towards their financial goals must not stop to worry about short-term market movements. If something is chuffing along nicely, let it.

4) I for Inclination

Perhaps should be number one in this list. Action should be fueled by the drive/inclination to change.

5) I for Information

Less is more: Inclination, Introspection and Dynamic Inertia thrive when the investor can distinguish between knowledge and information. A strong individuality helps in this regard.

 

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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
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