Are you a DIY who thinks he/she can do the whole financial planning process by themselves? And that you will go through the process of goal setting, finding the most appropriate tools (mutual funds, bonds, equities, real estate…or whatever), select the fund schemes, invest, keep updated, track investments, file Income tax returns, and do annual reviews?

Well, welcome to the world of investments. Good show. My take is somewhat different..

Largely you (The public) is ill informed about most aspects of financial planning and investments, medicine, nutrition, and as the fields keep expanding, the gulf most consumers need to cross to understand them grows even faster. In fact..I just saw the comment of a very respectable editor of a Pink paper which sums it up “If you want premium content, pay for it. If you are a freeloader, you will have to put up with ads. Hey, newspaper organisations are businesses, not charitable institutions.”

Given this challenge of being bombarded with ads in various forms – and given that  the subject matter is complicated. I have seen that financial planning and investments are areas in which most people do a terrible job of judging their own competency. It is also true that this is a field in which most people have little or no training. Our syllabus does not include personal finance in school, and most people don’t take it in college. We typically learn about it from our parents, friends, families and the media, NONE of whom necessarily have any particular skill. Face it a good investor need not be doing anything else – except for fun.

Even for a minute assuming you can do parts of the process by yourself – I have rarely seen a person doing the whole process fully, and competently. Makes sense to at least have it reviewed by a professional. I have some amazing stories…

I have met some people who have underestimated their financial knowledge and abilities BUT, BUT, but many, many more who have overestimated them. As bad as the public’s knowledge of financial planning is, its misconceptions and faulty information about the planning processes, documentation and knowledge (or lack of it) about investments is probably worse.

I received a call from a doctor who was asking me what do I do. Quickly he told me I should consider him a knowledgeable investor because most of his family and friends did. Then he asked me, “so do you advice people on: hedge, options, futures, shorts?” I politely replied “normally for no client do I use any of these strategies”. He was upset and  he told me I was constraining myself by not pursuing those strategies. He did not even realize that he was talking INVESTING -and all these words which he used were RISK REDUCING strategies OR trading strategies. Here was one more doc who was NOT investing his money but perhaps wasting his time and effort!

I have met people who think that since European government bonds are yielding two percent more than the equivalent U.S. Treasuries, and the dollar is definitely going to continue to go down against the Euro, so one should keep buying European bonds.

Simple, right? Except that the person who said this had NO CLUE of currency risk – and it was not a strategy that could be run from India – he had got it from his brother in law in US.

I meet and regularly have conversations with people who have no working knowledge or experience with finance or investments. I also meet people who have had no finance knowledge but do masquerade as financial consultants – they are the people who ‘advise’ (lol) too. I meet doctors, lawyers, chartered accountants  who pursue all kinds of risky strategies: lawyers trading options; doctors doing BTST strategies, shorting shares; and company executives who day trade. They compound their problems greatly by not even knowing that what they are doing is risky and taking the help of amazingly stupid financial consultants.

Be that as it may ‘trading’ or ‘investing’ is a very small part of financial planning. While finance, investments and taxation have always been difficult for consumers to understand, the ideas behind financial planning are very new, and as the field grows in India it seems to get harder. There has been a completely unnecessary surge in the available financial products, in the number of bank relationship managers, and much of the decision-making framework has changed. If you are (were) learning investing and financial planning from your parents, wake up.

Clearly I think most people would be better off meeting and working with a really good, competent, and independent financial planner. Remember you need a competent and diligent financial planner but a brilliant investment adviser. Rare combination – Investment management pays far too high for an Investment manager to get into detailing that a FP should do.

I hope I have confused you enough.