Approaching 40s can be unnerving. 40 is the old age of youth and the youth of old age, as they say. It is a time when we willy-nilly look back and several home truths start hitting us. As for investing home truths, your ways with money and the investing decisions can hurt you financially and emotionally.
Here are 5 investing home truths you should know now and make your passage smooth to the new decade.
#1 You are looking for the shortcuts – hot tips, 5 star ratings, even get rich quick schemes.
It’s easy, isn’t it? Why bother with anything else? Why bother with compounding? You just need that one big shot, one time 10000% return and that’s it. You are looking for that shortcut.
The fact – your shortcuts end up with HIGH risks and costs, NOT high returns.
Well, know that the primary factor in your wealth growth is the power of compounding – that’s the fundamental truth.
Compounding has no shortcuts. It takes time. It is a difficult but not impossible journey.
#2 You think you can tame (or time) the markets.
Almost 100 years ago, J P Morgan, the towering figure in the American financial services, was asked his view on the market, he said:
It will fluctuate.
The statement contains a universal truth, which most investors, including you, fail to understand. See, what your very own stock market movement looks like. It is not a straight line.
Yes, there is some degree of reason that can be applied in market investing. You should buy low and sell high. But a behaviour rooted only in timing can prove lethal.
#3 You treat stocks as lottery tickets.
You are so focused on finding that one stock which can make you a Birla or Ambani overnight. It is your lottery ticket. Sadly, that’s material for fairy tales and movies. What you are doing is speculation.
What you need to understand is that a stock represents a share in an underlying real business. The stock is available for buy or sell in the exchange but ultimately its long term performance is tagged to the actual performance of the the business.
Read further: Equity Investing – Let’s get this straight!
#4 Your have zero focus on your portfolio asset allocation.
You get obsessed with transactions and individual investments in your portfolio. What role do they play in your overall portfolio is something that you don’t try to understand ever.
Let this be etched in your mind.
Asset Allocation has an over 90% impact on your portfolios returns.
The bonus – asset allocation brings you adequate diversification and manages risk as well. And yet, where are your energies going?
#5 You don’t know how to say NO.
You think relationship managers from banks, product sellers, real estate agents are your real advisors. Exotic products, trading tips and quick profits excite you. Your portfolio is bloated as you add anything and everything that comes your way.
When it comes to investing choices, it’s a jungle out there. To save yourself from the wolves, you have to learn to say NO a lot more than you say YES.
It’s easy to say NO when there is a deeper YES burning inside.
— Vipin Khandelwal (@vipinkh) March 14, 2018
What’s the deeper YES? It is your financial plan and knowledge based on what you want your money to do for you.
Read further: 50 decisions you can make with a financial plan
Don’t cross over to the 40s with a negative baggage of these investing home truths. Move in with a plan and with the required confidence that you will achieve your long term goals with a structured and focused portfolio.