Know about personal finance services to be a ‘free’ investor
Dhirendra Kumar
CEO, Value Research
No institution or organisation likes a free person capable of independent thought or functioning. They want the people they deal with to be subject to their guidance and control. Does this seem like something a guru would say? If it does, it’s not really a surprise because Osho has referred to something similar on several occasions.
However, the question you may want to ask is: what does this have to do with personal finance investing? A lot, actually. Let me rephrase the above statement to fit personal finance. None of the businesses or institutions through whom you invest like a free person. They all want you to be subject to their guidance and control. If you were to decide freely how to manage your investments and insurance, and take decisions based solely on your inputs, these businesses would make only a small amount of money from your actions. If several other people were to emulate you, many businesses would either have to shut down or radically alter how they conduct their business. So what would this free person do as far has his personal finances were concerned? Very little, as it turns out. For protection, he would buy only term insurance and nothing else.
For investment, he would choose a handful of diversified funds through direct plans, start investing regularly, and then barely change anything. This person would end up maximising his benefit, and minimising the benefit of various entities that provide financial services and act as intermediaries. This implies that a relatively large part of the money that their money generates would reach their own bank accounts.
Such a person would have no interest in fancy new investment ideas, intermediaries who pretend to give advice, insurance policies that hardly offer any insurance, and the new-fangled investments that emerge every now and then. The free person would prefer the silent strength of steady growth over the cacophony of constant market fluctuation. His strategy would involve patience and discipline, and would be inherently simple; it would allow him to sleep soundly at night, with the knowledge that his money is working quietly in the background, accumulating value through the inexorable power of compounding.
One of the prerequisites for attaining this calm state is understanding what’s going on. This is not a generic statement, but one involving a specific issue: savers and investors need to understand how things work. Banking, insurance, stock markets and mutual funds look like black boxes to most of us. Therefore, we often don’t recognise the motivation and goals of the people we are dealing with. Without a mental framework of how things work, one can’t deal with the problems that arise. I read somewhere that when a car doesn’t start on turning the ignition key, most drivers turn it harder, putting more pressure. Subconsciously, they feel that the turn of the key starts the engine, whereas the key is just an electric switch.
It’s like pushing a light switch harder to try and make a bulb shine brighter. You can stumble through things if you don’t understand them, but you can never solve any problems. For most of us, it’s difficult to mentally formulate a picture of what personal finance services are or how they function. If we understand exactly how a service works, who the provider is, who the seller is, how they make money, how they will try to make more money from us, and where we fit into their scheme of things, only then can we make better decisions. It’s unfortunate, but the person or organisation on the other side should be treated as an adversary. If you want to be free to act in your own best interests and not be manipulated into acting in someone else’s interest, then this has to be done. This will have to be the price of freedom.
(The author is CEO, VALUE RESEARCH.)
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
