Run Forrest run! is the famous line from the movie- Forrest Gump where he’s told to run away
from trouble and not to be brave. Survival is not of the fittest, but of
the ones who adapt to change. So, while facing your fears may generally
be a good idea, in investing, fear isn’t all that bad. Accepting it and
learning from it is better than just facing it. Embrace your fear and
channelize it to make it work for you. How do you do that?
1. Fear of the unknown: We are generally scared of things we don’t
know or don’t understand. Do some research before you venture out in the
world of investing. A map/ guide is useful when you don’t know how to
get to where you’re going. Determine your destination (time horizon) and
choose a map(do it yourself) or a guide(an advisor) you can trust. Do
all your checks before you choose either of these and also see how
comfortable you are when you approach this. A little discomfort when you
start a journey is ok as long as you are confident and this settles in
sometime. A word of caution here, take small steps, invest small
amounts, see your experience and then trust some more and invest some
more. You could also dabble in different asset classes via mutual funds
for fairly small amounts and evaluate the experience.
2. Fear of losing capital: Since the pain of losing a rupee is much
more than gaining one, we tend to focus our energy on avoiding losses
rather than making profits. Nothing wrong with this approach, but this
limits the growth of our investment portfolio since we want our money to
work harder for us. There are ways to achieve capital protection whilst
not compromising on growth. Asset allocation and investing according to
one’s time horizon are two good ways to address this concern.
3. Fear of volatility: Whilst we like predictability, it comes at a
cost. In your portfolio, ensure there is a mix of stable and growth
assets in a proportion which lets you do two things: Meet your goals and
lets you sleep peacefully at night. Easier said than done though.
4. Fear of missing out: When the talk at social gatherings is around
investments- exotic or otherwise and people brag about how they have
bagged an investment which doubled or tripled their invested amount, you
tend to feel left out because either you are not invested or just not
interested. People more often than not exaggerate their wins and
conveniently avoid mentioning their own losses. So, don’t fall prey to
that and take these conversations with a pinch (or a bucket, according
to your taste) of salt. The normal reaction that follows such
conversations is to search for that particular stock/ option/ asset
class and invest in it. And more often than not, this tends to be a bad
decision because you’re chasing something for its past performance and
not evaluating it based on its future prospects. So, tell yourself this
that while your portfolio may be boring, it is doing its job- it lets
you be interesting and enjoy life.
For generations, we have been investing in FDs and RDs, it made sense
for our previous generations when the options were limited and
information wasn’t as readily available as it is today. Their
expectations from life and from their money were also limited. Today,
with our aspirations, lifestyle and expectations, investments in FDs
simply won’t help us reach where we want to get to. We need better and
smarter solutions for our investments and you should invest some time to
evaluate who/ how this can be done.
Identifying and working with your fears is the first step to becoming a
smarter, better investor.
from trouble and not to be brave. Survival is not of the fittest, but of
the ones who adapt to change. So, while facing your fears may generally
be a good idea, in investing, fear isn’t all that bad. Accepting it and
learning from it is better than just facing it. Embrace your fear and
channelize it to make it work for you. How do you do that?
1. Fear of the unknown: We are generally scared of things we don’t
know or don’t understand. Do some research before you venture out in the
world of investing. A map/ guide is useful when you don’t know how to
get to where you’re going. Determine your destination (time horizon) and
choose a map(do it yourself) or a guide(an advisor) you can trust. Do
all your checks before you choose either of these and also see how
comfortable you are when you approach this. A little discomfort when you
start a journey is ok as long as you are confident and this settles in
sometime. A word of caution here, take small steps, invest small
amounts, see your experience and then trust some more and invest some
more. You could also dabble in different asset classes via mutual funds
for fairly small amounts and evaluate the experience.
2. Fear of losing capital: Since the pain of losing a rupee is much
more than gaining one, we tend to focus our energy on avoiding losses
rather than making profits. Nothing wrong with this approach, but this
limits the growth of our investment portfolio since we want our money to
work harder for us. There are ways to achieve capital protection whilst
not compromising on growth. Asset allocation and investing according to
one’s time horizon are two good ways to address this concern.
3. Fear of volatility: Whilst we like predictability, it comes at a
cost. In your portfolio, ensure there is a mix of stable and growth
assets in a proportion which lets you do two things: Meet your goals and
lets you sleep peacefully at night. Easier said than done though.
4. Fear of missing out: When the talk at social gatherings is around
investments- exotic or otherwise and people brag about how they have
bagged an investment which doubled or tripled their invested amount, you
tend to feel left out because either you are not invested or just not
interested. People more often than not exaggerate their wins and
conveniently avoid mentioning their own losses. So, don’t fall prey to
that and take these conversations with a pinch (or a bucket, according
to your taste) of salt. The normal reaction that follows such
conversations is to search for that particular stock/ option/ asset
class and invest in it. And more often than not, this tends to be a bad
decision because you’re chasing something for its past performance and
not evaluating it based on its future prospects. So, tell yourself this
that while your portfolio may be boring, it is doing its job- it lets
you be interesting and enjoy life.
For generations, we have been investing in FDs and RDs, it made sense
for our previous generations when the options were limited and
information wasn’t as readily available as it is today. Their
expectations from life and from their money were also limited. Today,
with our aspirations, lifestyle and expectations, investments in FDs
simply won’t help us reach where we want to get to. We need better and
smarter solutions for our investments and you should invest some time to
evaluate who/ how this can be done.
Identifying and working with your fears is the first step to becoming a
smarter, better investor.
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