People continue to hunt for “The Best” in everything, only to fail miserably. May it be schools, colleges, cars, toys, and in the financial world, the hunt for best stocks, ETFs, funds, and whatnot. Don’t Chase ‘The Best’ & ‘The Safest’ Investment Asset Class — Do this Instead!
One of my friends (let’s call him Alex) called me up over the weekend and asked me for some financial advice.
Alex: Hey Sriram, I hope you are doing well. I have received a bonus at work, and I wanted to invest it.
Me: Alright, Congratulations!
Alex: By the way, what do you think about mutual funds? Which one should I pick up?
Me: Anything okay. Do you have a financial plan? Do you have a set of goals?
Alex: Oh! That’s not required. I want to invest in some best funds and get good returns over the long term.
Me: Great. How long do you want to stay invested? When do you need these funds back?
Alex: I don’t know how long, but I have this excess cash to invest somewhere. Alternatively, can I buy Adani stocks? How about Reliance or HDFC Bank? Or, can you suggest some good stocks?
Me: Uh!Great. Why don’t you invest the corpus in the top 50 stocks (In my mind Nifty 50 Index)
Alex: Oh no! That’s too much diversification. I want a concentrated portfolio.
Me: Oh, nice. Great idea.
Alex: All I wanted is a few best stocks that give good returns, and it has to be safe.
Me: What do you mean by “safe”?
Alex: The stock should not crash much like most others. It should not be a risky stock.
Me: Excellent, and what else do you want to do with the money?
Alex: Maybe use it for emergencies when required. As such, I don’t need the funds now.
Me: Did you consult a financial planner?
Alex: Hey, Sriram, let’s keep it simple. You are asking too many questions. All I want is stocks or the best mutual fund ultra-safe for long-term investments that I can use for some emergency, or it will continue to compound forever! Let’s focus only on this.
Alex is a great guy, and he is financially well. However, like most others, all Alex wanted was just the name of a fund or some stocks so that he could jump to invest his money.
The problems I foresee here are:
- No interest in learning or knowing financial investment vehicles
- No time or lack of interest in putting down goals, timeline, or consulting a financial planner
- And the list can continue.
I agree that not everyone wants to understand or learn financial concepts, which is okay. There is nothing wrong, and in fact, the new-age financial influencers are over-emphasizing the need for financial literacy. You can always hire a certified and approved financial planner who can chart the road map towards your financial goals.
The problem is full-blown when you,
Neither have an interest in financial literacy,
Nor willing to consult a financial planner, as in the case of Alex.
If you are among those who lack interest in financial literacy, all you need to do is work with an approved and certified financial planner or hand over your money to a fund manager.
Let’s come to the next part: Chasing ‘The Best‘ & ‘The Safest‘ Investment asset class.
One has to understand that the safety of an investment product or asset class depends on our understanding of the product.
Many understand real estate investing well, and thus, their portfolio will be full of tangible assets.
Whereas there are also people like me who do not understand real estate or understand equities relatively well, and thus, my portfolio is all about equities.
There is nothing called the “SAFE” asset class, and all investment products come with their own inherent risk.
The more someone understands a particular investment asset class, the less they have to diversify. For those who do not understand any asset class, diversification is necessary.
The less knowledge on an asset class, the more diversification is required.
Thus, there is nothing called “The Safest” or “The Best” asset class, and it all boils down to the depth of knowledge an individual has in a particular asset class.
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