POSTED BY January 1, 2018 4:19 pm COMMENTS (34)ON
The year 2017 is coming to an end and I would like to share some of the common mistakes which I have witnessed in some investors financial life.
You can never have a perfect financial life but you can always live a regret-free financial life. I take this opportunity to thank those who opened up their heart while I was helping them in designing their financial life.
While you are reading the article look into your own financial life and keep your own financial life under a scanner.
Here are the top 8 fatal mistakes
I suggested someone to buy a 10 Lakh health cover in the year 2015.
The person works in a bank and at that time he was least interested in having his own health coverage. In 2017 he calls me and says, “I have got a serious health issue, cancer detected in my kidney and doctors have suggested me to cut a portion of my kidney”.
He said, the Bank is ready to give only 3 Lakh and the actual expense is of 8-10 Lakh. He requested, can something be done to buy a backdated health policy to which I said NO.
There are many people who rely heavily on their company health cover and sometimes end up paying a huge cost. One illness and it has the power to eat away all your savings. See that you are having health cover of your own.
You see so many advertisements these days talking about buying things on EMI and low-interest rates offered on personal and credit card loan. One of our clients tried to learn the craft of shuffling money using different credit cards.
He will take a loan from Credit Card A and then use Credit card B to pay the outstanding. Initially, he got some success but eventually, he got into a debt trap. He was already having a home loan and car loan while discussing his plan we suggested him not to add any more liability and to stay away from credit card and personal loans.
He did not listen and eventually, he had to stop his SIP, his savings got NIL and is now regretting.
One of our clients kept aside 30 Lakh for his daughter’s marriage but eventually ended spending 70 lakh. All the extra spending took place in the name of “trying to look good”.
Under the pressure of relatives and on the name of customs, he ended up spending heavy money. The extra money spent took almost 10 years to accumulate and it was part of his retirement corpus.
I see many buying a bigger house, a bigger car etc to show they are successful. It’s time to get rid of such social pressure, as no one is going to come to fund your retirement or future goals.
A lot of people like to spend on gadgets and things which they really do not need. As Warren Buffet once said, “If you buy things you don’t need, very soon you will have to sell things which you actually need”.
The words and advice by him are precious and everyone should check their spending habits. What are you spending your money on? And what value is it creating in tangible form? Stay away from instant gratification and impulsive buying habits.
It can be buying an expensive gadget, Treadmill or some fancy home equipment.
There are many Robo advisory companies in the market. Now, using technology is not a bad thing but one has to check the quality and not the price of using some platform.
A few months back I accidentally happen to get on call with a person called Shubham Kapoor (his actual name), he said he has got some advice from robo advisory firm and he is not confident about his Mutual Fund investments. He shared his portfolio with me and the funds suggested were all shit. I immediately asked him to take corrective actions.
His current portfolio is designed by me and the funds are doing excellent. As I was writing this article I asked him to share his experience and he immediately shared his experience with me. I have not edited a single word, we do not hold any grudge against any robo advisory firm but at the same time it has to deliver quality advice.
Hope you are doing good, my experience with Robo advisory is underlined…..feel free to edit
” After Reading through numerous blogs mentioning the benefits of fee only financial planners I came across a Robo advisory firm (Let’s call it ABC ) which guaranteed Advice free from any Bias and manual intervention. I agreed to the concept and after paying the fee plugged in my input details in their software tool.
The financial advisor from the firm fixed up a meeting with me via skype and the suggested portfolio to me(Auto generated) carried out 8 MF’s(SIP in total was 20K/month).I was not comfortable with the cluttered portfolio and also with the choice of funds.
after deliberating for couple of months, I went ahead with the suggested MF’s as it was Robo advisory which hopefully knew better than me!
the review was six monthly and every time my question on choice of funds(as they were performing very poorly compared to benchmark) were unanswered, the responses were vague and confusing.
I was not expecting immediate gains but after 3 such reviews in a period of 18 months i was still not getting the comfort and trust level, this is when I decided to stop my investments via them.
I am still baffled whether suggestions made through Robo Advisory were free from any bias or whether they were for their own commissions, your call!!”
Now, if you are investing your money with help of a robo advisor or a real human advisor, you have to make sure that there some quality advice delivered to you and some alpha is generated (extra performance, which you can’t bring on your own)
This one is my personal favorite, many people get tempted to free advice.
It comes from the person known to you, your relative, your friend or some uncle who calls himself or herself your well wisher. One of my relative sends a pdf to me on whats app to check whether he should continue with his ULIP policy or not? The ULIP was sold as free advice.
I and my team did some working at our end and sent below email to him.
The return given by Reliance ULIP policy is only 6.75%. ( Extremely bad performance). You have accumulated only Rs. 354591/- after investing 3 Lakh
The policy has no loyalty benefits nor any extra benefits. If you complete whole policy period, the return will be equivalent to FD.
If you would have done SIP of 5500 per month for 57 months you could have accumulated Rs. 392000/- at the rate of 12%.
SA is only 15 lakh ( It is not giving you any higher cover)
Coming to charges:
- Upfront charge is 6 % as premium allocation charge. You paid 3 Lakh and they have charged upfront Rs. 18300/-
- Fund Management charges, mortality charges is around 4 % annually. These charges gets deducted from the amount accumulated at the yearend.
Better to come out of this policy as it has completed 5 years ( in this December) and there is no lock-in
Guys, there are no free lunch in this world, go to a professional and look for authentic advice (if you cant take it on your own). Sometimes we also go wrong with a few suggestions/advice but the intention is never wrong. If you are taking free advice from some website, Facebook group, whats app free group stop the same immediately.
There was this one person who was on our client list and on one fine day he decided he will start managing his money on his own. I was happy with his decision but somewhere I was not sure about his money management skills.
I had many plans for him on how I can help him to grow his money but he concluded things very fast. He read a few books, did some seminars and is also active on various blogs and forums.
His portfolio grew from 0 to around 75 Lakh in a span of 7-8 years. I do not have his current numbers but if the portfolio is not taken care of his profits will get eaten away by the market.
I have seen people losing huge chunks of money because they focused on buying 5 star rated funds but somewhere forgot to control the risk on their portfolio. You don’t just need to learn the craft of money management but you also need to master it.
In India every Indian is a teacher, preacher, financial advisor and a doctor. Just ask any 5 colleagues about , “How to reduce weight? and you will get different answer from all sides” .
There is no athlete in this world without a coach. If performances matters you can’t do it with DIY model. You can take a few decisions on your own but cant paint the entire picture on your own. DIY is for a set of people who have high understanding of subject, great control over their decisions making, and a lot of passion and time.
I remember when I and Manish started our business.
I asked Manish to continue with his job till we are not 100% confident about our venture. In Jan 2011 finally he decided to leave his job and got full time into blogging and writing. I have worked with a few entrepreneurs who jumped into business without any homework on personal finance front.
I always feel business is about taking risk, it is always like a free fall. My only request is, do not get overwhelmed by your business idea and do not mix your personal finance with your business journey. It’s not always compulsory to leave your well paying job and start a business because its “Cool”.
The year is coming to an end and it’s time to embrace your financial mistakes. In just a few moments the page will turn and we will step into the year 2018. Don’t be afraid of making mistakes but at the same time have courage to accept your mistakes and work on them.
Wealth creation is all about becoming honest with your own self in the area of money. If you wish you can share some of your mistakes of 2017 and fresh commitments you are ready to make in 2018.
Thank you, each one of you for being our partner in spreading financial awareness. There is a lot more coming up in the coming year and we look forward to your same love and partnership.