Hot tips to Financial Success

Friday, August 17th, 2018

If you switch on any business news channel, or look at websites like MoneyControl, you will normally be flooded by the latest hot tip or suggestions for the next “multi bagger” stock. Viewers of these channels are looking for shortcuts to make wealth and these channels readily serve up exactly what investors want to hear. You will get many tips, using derivatives, futures and options, on how to leverage your money to make that quick buck. Even the forums are full of users who give “advice” on making money in intra day trades. Is it any wonder then that derivatives and futures form the bulk of the trading activity in Indian markets?

Christine Benz at Morningstar captures this mentality beautifully in her note:

What gets annoying to me is when people start treating food like it’s part of their own personal science project. Aided and abetted by pseudo-food scientists peddling cookbooks and packaged meals, they surmise that if they could only find precisely the right things to eat–or avoid–they’d be able to start losing weight and running marathons. So they jump from fad to the next; one week they’re avoiding gluten, a month later it’s dairy, then they’re drinking cider vinegar. If you dare raise the possibility that eating and feeling well is more about boring old balance–focusing mainly on whole, plant-based foods while also allowing the occasional indulgence–than it is any sort of nutritional alchemy, they don’t want to hear it. They’d rather keep searching for the magic bullet.

What I find interesting–and at least a little crazy-making–is that a nearly identical phenomenon exists in the realm of finances. Just as many people seek a magic nutritional formula to help them get in shape and feel better without a lot of sacrifice, so do many people gravitate toward investment alchemy to help solve their financial problems. If they can just find the right mix of investments for their portfolios, they think, or hit on a hot stock or two, the rest of their financial plans will fall into place without a lot of heavy lifting on their part.

 

Unfortunately, creating wealth is actually quite boring and takes patience, time and a bit of luck.

Of course, investment selection matters. Morningstar.com has an unparalleled array of tools for picking stocks, mutual funds, and ETFs that align with your goals. Luck invariably plays a crucial role in financial success, too, even though a lot of the lucky ones among us don’t like to admit it. But don’t underrate the mundane financial jobs–the no-fun, super-unsexy financial equivalents of eating lots of fruits and vegetables and logging 10,000 steps a day. Do a passingly decent job with them over many years and it’s a near-certainty the rest of your financial life will fall into place.

 

So what are some of the keys to financial success? The article goes through some of them and I would encourage you to read the whole piece, but to summarise:

  1. Maintain an appropriate savings/investment rate
  2. Build your human capital so that you can increase your earnings potential
  3. Stick to an appropriate asset allocation
  4. Get adequate insurance
  5. Reduce the impact of costs such as fees, taxes and emotional decisions on your investments

I think thats as good a starting point as any on the road to financial success.


About the author

Rishad is the founder of Kairos Capital. He started his career with Standard Chartered Wealth Management and has extensive experience in markets, particularly in terms of mutual funds and stocks.

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