What is money, if not a means to an end? While you may be quick to dismiss this rhetorical question as banal and philosophical, the past two decades in this industry has taught me one thing – your personal understanding of this rather modest concept will affect your long-term investing success a lot more than you can imagine.
The moment money no longer remains a means to an end – say, a way to fund a comfortable retirement, or a ticket to a stellar education for your child; it becomes a scoring mechanism and a proxy measure of your overall happiness. And that is when it all begins to go awry for you, because notional profits and notional losses will keep you on a perennial seesaw of emotions that will drive your day to day investment decisions.
I say this in the context of the tried and tested concept of financial plan-led, goal-based investing. When we begin to plan our future goals, we often come face to face with the big bad wolf called inflation for the first time. And that is also when we truly begin to comprehend the futility of riskless long-term investing and its corollary; the inescapable need for adding growth assets to our portfolios.
Many of us start off our mutual fund SIPs with the theoretical acceptance of the volatility that is intrinsic to equities as an asset class, and of the fact that we cannot simply escape to the haven of fixed deposits and bonds if we intend to counter inflation and build an adequate corpus for our long-term goals.
Unfortunately, disappointing market cycles such as the extended one that we have witnessed since 2018 tend to chip away at our initial perspective. We forget why we decided to commit our long-term savings into growth assets, and all sorts of behavioural biases start coming to the fore. Should I remain invested or exit? Should I wait for the Covid crisis to pass before getting back into risky assets? Should I stop my SIPs for now and restart them when the economy gets better? Would I have just been better off in a bank fixed deposit? These are just a few of the niggling questions that begin to trouble even the most patient and rational of investors.
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