Simplicity is always complicated! Most people who want to create wealth tend to take it too seriously. What they need to take seriously is the process to be followed and the temperament needed to build wealth.
Roshan and Narasimhan are friends and are inseparable. They have studied together and work in the IT industry, earn quite well and are nudging 40. Both are married and have children. They agree on a lot of things; but not on money matters.
Roshan has a swashbuckling investment style while Narasimhan is more sedate with money. Roshan has invested not just in stocks; he invests in startups, unlisted equity, cryptos etc. He also invests in REITs, land, small case & international equity etc. Roshan has negligible investments in fixed income instruments. He believes in timing his investments and moves in and out of various products as per market dynamics and his assessments.
Narasimhan has a much more sedate, disciplined style of investing. He invests in mutual fund schemes - both equity and debt. He also invests in FDs, Gold, NPS and Bonds.
Looking at their investment styles, it would appear that their wealth levels would be dramatically different. But in reality Roshan is ₹2 Lakhs behind Narasimhan, in spite of the aggressive investing style! That is because there have been many accidents in Roshan’s portfolio and losses. The profits from other investments barely compensated.
Do the right things - Narasimhan has done well for himself in spite of taking lower levels of risks as compared to Roshan. That is a lesson all investors need to imbibe.
He does not follow fads, does not time the markets, does not chase the assets doing well at that point etc. He is disciplined and does regular monthly investments. He has an advisor who oversees the portfolio & reviews it from time to time.
Focus on controllables - Also, Narasimhan has kept his expenses low. He follows the dictum of his advisor - focus on the controllables. Hence he keeps his expenses in check and the goals are optimally tuned. He does his investments diligently every month and follows the plan to the hilt. He invests before spending as he reckons it is a good habit to follow. Everytime his income goes up he puts aside a portion of it for investments.
He does not worry about the markets, economy, inflation, returns that his assets are offering at a certain point in time. He knows that these are outside the purview of anyone and should learn to live with it. He has enough money put aside for liquidity, contingencies and emergencies. Thanks to this prudence, it was smooth sailing during Covid period.
Avoid blunders - One thing that has helped him is that he has avoided blunders, thanks to his advisor. He has not got into unwanted insurance, real estate, exotic products or any high risk investment in quest of superlative returns.
Fortunately, his temperament also helps him here; he is averse to taking too huge risks and believes in a sedate, long term investment style. That is what has made his partnership with his advisor to really work well.
Security nets in place - He has taken adequate amounts of term insurance and medical insurance. He involves his wife Divya in the discussions with his advisor. She is aware of the contours of their financial architecture, though she may not know the details. However, she knows that in a crunch situation she just needs to just call the advisor.
Also, Narasimhan has made a will to ensure that the wealth transfer happens smoothly if there is an unforeseen event. All in all, his financial edifice is on solid ground.
Focus on life - Narasimhan understands that money is needed in life and needs to be tended carefully. However he is not obsessed with it. He treats it with respect but does not allow it to overwhelm him.
He believes in balance. He invests money to advance his career. He recently spent about Rs.6 Lakhs on a certification that would be useful for career progression. He spends time with his family, has getaways and holidays, attends family functions and maintains relationships. He also pursues his hobby of playing the piano and attends concerts. His other love is trekking, which he does from time to time.
He spends where necessary and refrains from throwing money unnecessarily. He drives comfortable sensible cars, plans vacations during off peak times and his goals have a tinge of realism. He keeps saying that he believes in cutting the coat according to the cloth.
Things to learn - Roshan and Narasimhan are very different in their temperament and approaches. Their portfolio sizes are very similar. But Narasimhan has been able to achieve this at a lower risk trajectory and is able to live a peaceful, well rounded life.
Roshan walks around like a cat on a hot tin roof - partly because of his personality and partly due to his investments and how it affects him.
Roshan is the cynosure of all eyes at parties when he recounts those thrilling accounts of his livewire money dealings! Narasimhan is in the background in such gatherings - his investments are boring & nothing worth talking about.
Who would you want to be - Roshan or Narasimhan?
Suresh Sadagopan is the MD & Principal Officer at Ladder7 Wealth Planners and is the author of the book If God was your Financial Planner