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I know it all

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I know it all
OLM Desk - 22 May 2017

The Problem

Belief in one’s ability to manage their money is desirable. However, the moment this trait tilts towards overconfidence, you tend to believe you have greater control over your finances than you actually do. You should be realistic about your abilities than carry any misguided conviction that anything that you touch will turn to gold. The tendency to accumulate a particular type of investment is the outcome of such a bias. There are people who simply believe that real estate is the only investment vehicle or gold is the only asset to invest in. Their belief stems from past performance, when these assets would have fared well, without realising the change in times and the relevance of such instruments in their portfolios. Do not blindly believe in your abilities, when it is based on limited exposure.

Example

You start accumulating investments in guaranteed return bonds or real estate projects because both are tangible investments and there is a belief that their value will never diminish drastically. Both are cyclical investments, with phases of underperformance being longer than those of superior returns.

Suggested intervention

The cardinal rule of investing is to follow an asset allocation plan that fits your needs and risk profile. Next, diversify your investments based on the recommended asset allocation and follow it. Get into an exercise of reviewing the performance of your investments and rebalancing the assets to the proportion with which you started. There are more investors who have made money by investing, simply because they followed and stuck to the suggested asset allocation mix. You may know it all well, but there is always room for learning.

Tip

Do not get carried away with the success of your investment decision, because many a time such outcomes are more by way of chance and luck than your knowledge. Don’t get carried away thinking the outcome is a result of your ability and skill.

Read: Inside the Mind of Investors

olmdesk@outlookindia.com

Wrong age, wrong decision
I’ll do it later

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