Old vs new investments: Should you invest in the latest innovations in personal finance and investing? The key point is that the allure of ‘new and ‘innovative investment options should not overshadow the importance of basic investment principles, risk assessment, and value of diversification
Dhirendra Kumar
CEO, Value Research
A few days ago, I read a post on X, which made the point that younger people are much more attuned to trying out new, innovative investment options than older people. Going by the likes and reposts, it received an impressive approval amongst its audience. This is not surprising. Some, or even most, people are attracted to the idea of new. In his book Antifragile, Nassim Nicholas Taleb terms this trend ‘neomania’. Over the past few hundred years, the world has seen many new and wonderful things. However, neomania victims assume that the reverse is also true. Not wanting a change or trying something new is supposed to be a bad thing, but I would say that as far as investing goes, the people who are suspicious of new things are likely to do much better.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} The curious thing about the discussion was the actual division of old and new investments. Predictably, fixed deposits, gold and real estate were classified as old. However, mutual funds, crypto, and P2P lending were lumped together as new. I’m sure this categorisation has raised many eyebrows among my readers; it certainly raised mine. Who are these people who think mutual funds belong to the same pigeonhole as P2P lending and crypto?
This classification reveals a fundamental misunderstanding of investment vehicles and their histories. Mutual funds, which have been around for nearly a century, are far from new in finance. They represent regulated investments that have stood the test of time. To group them with the relatively recent and highly volatile boondoggles like cryptocurrencies or the black box of P2P lending demonstrates a lack of historical perspective and financial literacy. This conflation of disparate investment types is particularly concerning as it may lead inexperienced investors to equate the risks and potential returns of these vastly different options. These things become a part of the narrative and people accept these as having validity just because someone is saying so.
Moreover, this misclassification highlights a broader issue in the way financial education and information are disseminated, especially through social media platforms. The oversimplification of complex financial concepts into catchy posts or tweets can lead to dangerous misconceptions. I think most serious people have, by now, given up on finding useful guidance on a complex issue on social media.
The classification of mutual funds in this ‘old versus new’ debate is a matter of such complexity. Mutual funds are a universe unto themselves, and an old-new dichotomy exists within this category. I would classify diversified equity funds as ‘old’, as are most debt funds. These are the types of funds that have been around for a long time and serve well-defined investor needs. Constructing a portfolio for any goal using such funds is possible. The ‘new’ types are the plethora of sectoral and thematic funds launched in huge numbers in the past few years. These have nothing to do with investor needs and are designed to serve the business needs of fund companies. Note that I’m not saying ‘old or new funds’, but ‘old or new fund types’. Many new funds are the old type and quite suitable for investors.
The key point is that this allure of ‘new’ and ‘innovative’ investment options should not overshadow the importance of basic investment principles, risk assessment, and value of diversification. Many years ago, while reading about the history of scientific research, I came across an interesting idea. Great researchers are distinguished by a relentless drive to prove themselves wrong. This may initially sound counterintuitive, but bear with me for a moment. The way it works is that you have an idea, form a hypothesis, and then try, very hard and very seriously, to prove yourself wrong. If you can make this attempt with all honesty and humility, you are a good researcher.
If you think about it, you’ll realise that this is just as true of investors.
(The author is CEO, VALUE RESEARCH.)
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This story originally appeared on: India Times - Author:Faqs of Insurances
