June 28, 2017

What lies do we tell ourselves about our retirement plans?

  1. I have a pension by my employer: Even assuming that you have a nice indexed pension from the government, be ready for the indexing vanishing in a few year’s time. Once the burden becomes too big the bureaucrats will find a way of reducing the indexation or doing something like that. They did it to the army pension. Not sure what, but the indexed pension is too big a burden, be careful. Assuming that you have a pension, remember, you still need to supplement it with some equity at least.
  2. ‘I am self employed’ so I will NEVER retire: It is all right to be self employed but will you go on working till you are 82? why? Why not take time off? What about physical requirement to retire? what if you have dementia at age 68? and live till 92?
  3. Our company does not have a Provident fund scheme: So what? your ctc is good enough for you to create your own pension plan right? when will you stop pretending that your company PF owes you a retirement plan?
  4. I will not be in this company for long, so I have not transferred my pension.
  5. The mutual funds, unit linked plans, brokerage in brokerage firms are all very expensive. This is true, but hey what choice do we have? Do you have the ability to create your own Portfolio without professional help? and if you want professional help will you get something cheaper AND well regulated? So what are you waiting for?
  6. Both the Templeton and the UTI plans have so much debt, why should I buy them? See I told you there is no good pension plan!! – hello I said ‘retirement hamper’ not a particular scheme.
  7. My current expenses are too high: With 2 children in college/school and parents to support I am unable to save/ invest any money. Well sir, with a CTC of 76 lakhs if you cannot save NOW when will you save ENOUGH to SUPPORT THIS LIFESTYLE?
  8. I am saving for my children’s education / children’s marriage / 2nd house…: My take ” which one of these is going to feed you in your retirement?
  9. I do not understand Investing: well, well, As long as you understanding start early, compounding, equity, that is good enough to start investing for retirement. You do not need a PhD in retirement planning to start investing.
  10. I am too young to start investing for retirement.
  11. I am too old, to start investing for retirement.

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There are too many reasons why “investors” lose money in equities. Here I am trying to enumerate some of them. Keep visiting this post because as I get more points I will add them here rather than create a new post.

1. Confusing between trading and investing: Traders and investors both make money if done professionally. However most retail investors do not know whether they are traders, investors or speculators. So if they lose money in a trade they do make the same mistake again, and again. Professionals learn better than retail investors.

2. No asset allocation: Normally they have never enumerated all their assets and liabilities.

3. No portfolio construction knowledge: Just buying a few shares is not a portfolio. I recently came across a person (he considers himself successful as an investor) who had put all his equity portfolio (40% of his net-worth)  in  2 companies  (both of the same group).  I was aghast  at his portfolio, but  as he had made  a lot of money, he thinks it  is the best strategy.

4. Not doing enough research: In your whole life you need to pick and hold about 50-60 companies. However to reach this figure you may have to look at say 500-1000 companies. If you are assuming an investing life of 40 years, looking at 1-2 companies a month is not difficult. Most retail investors are too lazy to do it.

5. Watching TV: Watching television is not a bad idea. Problem is when you listen to the sound bytes, believing it and acting on it. Do not think of business channels as your “financial guru”. They are not. They are here for entertainment.

6. The money that an investor makes (or loses) is a function of market behaviour and investor behavior. Markets are far, far easier to predict. Investor behavior is impossible to predict. Most investors cannot put a rationale to their own action, once the action is over.

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