Chapter: 12 | Money, Money, Money! – What wrong products to avoid?

Money, Money, Money! - What wrong products to avoid?

Chapter: 12 | Money, Money, Money! – What wrong products to avoid?

“What a great shot, AK. You seem to be fully energised today morning. Are you on the way to a bloody Eagle!!” Gp Capt Pranav Gupta (“Pranav”) applauded his long-time friend Col AK Singh’s (“AK”) flawless drive on this Par-5 hole.

“Pranav, you know me well. Chip and Putt have now become my nemesis while my drives soar me high,” lamented AK.

“No issues AK. It is the same as in investing also. Some of our investments do well while others negatively compensate for it! You remember yesterday, I was so near to the hole in my very first shot and still ended up being 2-over par in that Par-3 hole! Life’s like that,” Cmde Rajesh Lal (“Rajesh”) chirped in.

Later, while having their morning breakfast at the café, Pranav again brought up this subject.

“When we are investing, it is not only important to invest in the right things, it is equally important to avoid the wrong ones. In fact, the latter could be more important at times,” Pranav said.

“Fully agreed Pranav,” added Rajesh, “Like we were discussing about property. At this age, when we are retiring and have our own comfortable houses to stay, if I go ahead and invest even a portion of my retirement corpus in some house, land, shop or office, I’m only inviting trouble for myself. What I now need is a good and happy lifestyle and meeting my obligations towards my children’s education and marriage. Locking it in a property and taking on the headaches of getting a paltry rent, tenant and property maintenance hassles, and absolute illiquidity of my money when I need ready money for a good lifestyle, is the very last thing I should do.”

“I now agree with you Rajesh. You know what a die-hard real-estate guy I have been all my life. But after our long discussions on the subject, I realise that, not only should I not have any more of it, I should actually sell off all the ones that are surplus to my personal requirements. You know, currently my property holdings indicate where all MS Branch has posted me during my career!” said AK, as if he’s become very light after saying it.

“You know, actually there’s no right or wrong investment avenue as such,” Pranav continued, “It is just whether it is right for you or not at the time you are investing and what road you wish to travel in the future. We talked about Gold. To buy Gold for personal wear or for ceremonies or even gifting, it gels with what we want to do. But buying a lot of Gold and hoping that it will be the star performer of the portfolio, could result in a shock later. It may not even preserve the purchasing power of our money and while we hold it, it may fluctuate so much that it may be bad for our heart!”

“Pranav, even though you are the Money-Guru here, I will still differ with you on one aspect now, when you say there is no right or wrong investment. The huge army of insurance agents who are all the time selling these investment products, masquerading as life insurance policies, will always be a wrong investment for everybody. I have seen them being sold to 80-year-olds, for newly born babies and to people on solid emotional pitches like for retirement, children’s marriages, building a house, and even for taking a loan in future!” Rajesh commented with a lot of emotions.

“I agree with you Rajesh. Such policies neither provide any worth-while insurance cover nor provide even inflation-beating returns. Ultimately, they end up giving the worst of both, insurance and investment, to the people. They only enrich the agents and the insurance companies. And people still don’t understand this simple logic,” lamented Pranav.

“Few days back, a MNC bank guy came to my office and tried to persuade me to buy such a complicated product that it took me about 45 minutes to understand it. I was thoroughly convinced with his arguments because of the colourful graphs and so-called back-testing data put forth by him. Fortunately, I did not say ‘Yes’ at that time only because I remembered Pranav’s advice not to buy anything which is too complicated to understand. Later a more-financially-savvy colleague told me the flaws in the product. He had also taken a similar product from the same bank years back – they extended its maturity period because it was in deep-red even years later, and finally matured it recently almost at the purchase price only because of the recent stock market run up!” AK added.

“We’ve also talked about Portfolio Management Schemes (PMS) and cryptocurrencies like Bitcoin few days back. PMS might be a good way to diversify for somebody who has already catered for his future requirements, is ready to take the large risks that PMS managers take by taking concentrated bets in small stocks, comfortable with the high fees charged and has the minimum Rs 50 Lakhs required. How may faujis fit in this criterion, especially when retiring or retired, I do not know?” Pranav replied and continued, “Same is the case with Bitcoins. Very volatile and highly risky even to the risk of losing a large amount of your capital, but potential for great returns also. On the risk scale, the Person-to-Person (P2P) lending platforms also can be talked about here, though much lower down on risk scale than cryptos. P2P will always have some defaults due to the way they operate but a good platform will structure it correctly so that the defaults are minimised and kept tiny – are you Ok with such an investment? Simply everyone’s personal call.”

Rajesh said, “Pranav, I think it is largely the safe products like Senior Citizens Savings Scheme (SCSS), good debt mutual funds, Govt bonds, good corporate FDs and some perpetual bonds of good banks that I should take with my retirement corpus. Of course, some stock market exposure is compulsory to preserve the buying power of my money but getting into direct stocks and shares should be a No-No. I should take equity mutual funds with good fund managers and established past track record.”

“You’ve summarised it so well Rajesh. Now I also agree with it,” AK said, putting his stamp of approval on it.

“But friends, the devil is always in details. How much of what, is the real question? That is where two very important things come in – your future requirements and liabilities which is called the ‘financial goals’, and of course, your risk-taking attitude and aptitude. If you do not factor these in, you are likely to go very very wrong. In fact, good financial advisors will always start with these two aspects before investment products are even looked at. And do not at all forget about the Emergency fund of about Rs 5 Lakhs that you are to keep in small bank FDs or liquid mutual funds,” Pranav emphatically stated.

“Great Pranav. I feel so very empowered now to take the right decision with my life-time earnings that I will get shortly. And I also know what to do with my property dotted across the country now!” AK said gratefully.

“This is not the end-all-and-be-all, AK. There are a few more things we should discuss which will truly wrap up the fabulous discussions we’ve had so far. So, more good golfing and some more retirement financial planning to come folks!” said Pranav cheerfully, gulping down the fresh orange juice which had replaced the coffee in their breakfast today.

Gyan Collected

  • When we invest, it is important to invest in the right things, but it is also equally important to avoid the wrong ones.\
  • Very few things like ‘combining Insurance with Investment’ are wrong for everybody. But most others depend on the context in which investment is being done. Something ideal for somebody may be absolutely unsuitable for somebody else.
  • High risk products merely give you a higher probability of getting high returns. High risk does not translate automatically to high returns– if it were so, they would not be called high risk products then!
  • Own risk profile and future financial goals should be the main criteria for deciding the kind of products you should go in for.

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