04 October, 2014

Discipline and consistency helps in achieving goals

Slow and steady wins the race , they say. But the tortoise, which vanquished the hare in breasting the tape, in Aesop’s fables, is not everybody’s idea of  a winner.  Like the hare, many sleep through their working lives. They wake up one day and decide to do something about the lost moons. When they meet us ( Financial Planners ), they give the impression of a tornado & typhoon rolled into one – they want to make up for the lost time and want to start their investments, here and now.

These people get impatient and disappointed when the financial planner tells them that the plan is apt to take a month, before they can shovel their cash into appropriate instruments. But, are these people consistent? Not in our experience.

Hares abound. We get our share of hares, who  come to us with empty coffers and sackfuls of hope. To their credit, many of these hares have good surpluses and are willing to lay them thick, to achieve their future goals. These hares can get a bit pushy while doing the plan. They are in a hurry to see the last of it and start investing. Investments happen immediately after the plan is done. Now, comes the pain part. The hares want to follow-up on their investments, like a  bulldog. The financial planner can expect a call from the hares on the status of their investments on the third day after investments and another call four days later, asking for a performance report. A week later, they would want a review of their investments and would fret if they hear from the planner, that it is hardly a fortnight since they invested.   

This pattern continues for a couple of months and the hares retreat. There may be no signs of them for months on end, after that. They may not even pick up the calls in this period. Suddenly after several months, you will recognize the same hare, who is again in a tizzy. He wants a review & wants to know what he should do with the investments. The hare will also probably tell you that he had invested in a plot, put some money in a super-duper scheme his friend had suggested and has also been buying some stocks.

The planner would probably be tearing his hair by now – for all these were never a part of the plan. The tortoise in contrast is not flashy, is consistent in approach & sticks to the plan. The sedate tortoise would be willing to be a part of boring SIPs for 10 years, be willing to invest in Equity assets and wait, be consistent in keeping their commitments on making investments from time to time… in short, they would pretty much follow the plan to the T.

Like Aesop’s fables, the tortoises seldom lose. The hares lower their chances of winning by running without an aim, in all directions.

Nothing happens in a jiffy. It takes nine months for a child to fully develop and present itself with a squeal.  Even fast growing rice needs three months to grow to maturity.  There is no sense in hurrying them up – firstly, it can’t be. But, even if it were possible, it would not give the best results. A good biryani is cooked over coal fire, for hours on end. The one that is churned out in half an hour, seldom tastes as good.

When goals are long-term and one has time on one’s side, why fret and worry?  Isn’t it a good idea to just commit the investments in appropriate instruments and relax? It actually is. But this eludes lots of people. All investments have to be reviewed, periodically. However, frequent changes to the portfolio is undesirable and ends up disrupting the potential for performance, in times to come. Financial planners suggest changes only when it is absolutely called for.

Asset allocation suggested is to be honoured.  To take advantage of  short-term movements, some tactical allocation can be done. But this allocation should not end up majorly  disrupting the overall asset allocation. There is not much sense in chasing fads.  This is where the hares differ. They specialize in it. They keep looking for the next rainbow in the horizon and zoom towards it. Chasing these rainbows ensures that their portfolio looks like a patchwork quilt.  The portfolio would not meet the goal criteria, liquidity requirements, time frames, risk profile etc.  They end up blaming everyone for it, but themselves.

Meeting life goals requires consistent, committed, disciplined approach towards one’s finances. Contrary to popular wisdom, modest savings build a huge cash-pile and helps meet goals, which seems impossible, at first glance. The plodding of the tortoise is least exciting. The hares seem to have the decisive edge. Yet the hares win much less than tortoises.

If you are looking for excitement, you should go to horse races. For achieving goals however, old fashioned consistent investments with a long-term orientation, helps you romp home.

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