Are You Hitting Your Money Mark?
Amar is a CFA Charterholder and CFP, having over 20 years of experience in IT and Financial Services. He is very passionate about spreading financial literacy and has authored four bestselling books on Personal Finance.
25 Sep, 2017
<h(1)>Why am I earning, why am I saving and why am I investing?
The answers we’ve repeatedly heard for the above questions are along the lines of, “So I can send my kids abroad for college”, “So I can retire early and comfortably” or “So I can take a trip around the world”.
And yet, some investors’ actions seem to suggest they’re focused on something else; they’re focused on beating the market.
In our never-ending quest to make as much money as possible, we look to invest in top performing funds or create an all-star portfolio but how many of us have actually succeeded in doing so? Beating unrealistic benchmarks isn’t a Financial Plan.
A good Financial Plan is investing in something that matters to you as it is only when you invest in something that truly matters to you do you stick to the plan and more importantly, experience the true happiness.
Figuring out your investment objective is a good place to begin. So, start with the “WHY?”.
<h(1)>Looking beyond beating the benchmark
As Carl Richards (The Behavior GAP) says – If we make beating the market our primary focus, it becomes incredibly difficult to behave. Instead of working towards something tangible that aligns with our values, we try to outguess what the market will do next. And that’s the very behaviour that can hurt our goals the most. In some ways, I suspect very few of us can afford to “beat the market” (whatever that means), particularly if we’re doing it at the expense of everything else we said mattered to us.
So, when you’re tempted to play the game, I suggest you line up your goals and compare it to beating the market. Do you really want to give up one, or even all, for the chance (because it’s highly unlikely you will) of beating the market?
To understand the point better, imagine you’re travelling from Point A to Point B and your ONLY focus is the speed with which you’re moving. This kind of a single-minded approach is bound to come at a cost. This COST could be a lack of control over your vehicle, as also failure to account for other important parameters like the fuel gauge, engine temperature, road conditions, etc.
<h(1)>Ending up in Your Boca Raton
In his book the The Intelligent Investor, Benjamin Graham wrote – “I once interviewed a group of retirees in Boca Raton, one of Florida’s wealthiest retirement communities. I asked these people, mostly in their seventies, if they had beaten the market through their respective investment lifetimes. Some said yes; some said no, most weren’t sure. Then there was the one man who said, “Who cares? All I know is that my investments earned me enough to end up in Boca Raton.”
This was the perfect answer and reveals the exact attitude we should aspire to emulate. After all, isn’t the whole point of investing not just to earn more money than average but to be able to earn enough money to meet your own needs? As Ben Graham says, “The best way to measure your financial success is NOT by whether you are beating the market but by whether you have put together a Financial Plan and a Behavioural Discipline that are likely to get you where you want to go.”
<h(1)>So, here’s your Investment Idea for the month:
Remember that it doesn’t matter if you cross the finish line before anyone else. All that matters, is that you DO actually cross the line.
So, the next time you catch yourself wondering about, “Am I beating the SENSEX?”, pull out the paper on which you’ve written all your goals and SMILE.
Congratulations, you have now focused on the one thing that really matters.