As youngsters, we turn to our parents when it comes to seeking advice, be it in deciding the course we want to pursue, the college we want to join, the company that we want to join, etc. Apart from the emotional attachment angle, what drives our behavior is the trust our parents have from us because they are the only ones who have our welfare in their mind, always foremost and seldom compromised. When it comes to personal finance, it is prudent to analyze how this bond although it helps us throughout our growing up years, loses the sheen when it comes to investing.
To understand this, it is important to analyze what were the various investment options our parents had during their time. Banks used to play a big role in the personal finance of an individual and quite obviously Fixed Deposits and Recurring Deposits were some of the main avenues for investments. FDs and RDs, although safe investment options, were low return-yielding options. These were good options with people who were averse to take risk. But for moderate to high risk taking category of investors, these options were not suitable. Gold & Real Estate were some other investment options our parents used to park their funds in, due to both aspiration values as well as for sentiments.
Also the concept of Insurance as an investment avenue was fully exploited during our parents’ time. These Insurance instruments typically were Endowment policies, child plans, retirement plans, etc. Although the primary motive of these policies were to cover risk, since they were taken as an investment options, the risk provided by these policies were not adequate. Also the returns given by these traditional policies were low
Also we had the odd risk taker individual who would invest in the primary markets, either with the help of a broking firm or individually. This often resulted in erosion of principal in many cases in the case of the markets under-performing due to micro & macro economic factors. At best this was a very volatile avenue of investments.
If we look at the investment scenario available for us today, the options are myriad. With the advent of internet and information dissemination, investors are less prone to fall for common financial mistakes that their parents might have committed. The market regulators have also played their part in streamlining the investment eco-system in India to a large extent. Many a Financial Advisor, both offline and online is available to guide investors today who want to invest their hard earned money to achieve their financial goals.
Young investors are ready to take more risks and let their money earn more returns than be happy with what traditional investment options would give. For example, a well diversified portfolio would yield an annual return of more than 12% compared to FDs, RDs, Child Plans, Retirement Plans, etc. Hence young investors are seeking for a neutral financial advisor who will partner with them in their journey to accumulate wealth, unlike a broking house which would make money each time they make a transaction.
Although parents are our best well wishers, they lack the knowledge about the current investment scenario and would recommend us to invest in financial instruments they believe in. It is not necessary that it would be the correct financial advice. It would be prudent for any investor today to take the help of a qualified and experienced financial advisor who would go through the entire personal finance details of the investor, assess the risk appetite in a scientific manner and recommend a diversified portfolio which would have a long term vision to achieve all our financial goals.
Written By Arthayantra