Personal finance has become trendy to speak about. No wonder there are so many social media influencers talking about how to manage various aspects of financial life. There are people giving stock tips, views on new fund offerings, bloggers sharing advice based on how they are managing their portfolios and even housewives giving their viewpoints.
Recently, I came across a video from an influencer (let’s call them SMIs) telling people how to split their investments. The advice was 40% in stocks and mutual funds, 30% in gold or corporate bonds, 20% in commercial real estate and 10% in cryptocurrencies. The SMI went on to say equities would return 14-18%, corporate bonds are as safe as bank deposits, etc.
Sadly, most of this is false. Equities can generate good returns in the long term, but the choice of the right scheme is also important. The 10-year category average return of mid-cap funds as of 14 April is 14.44% per annum (pa) and that of infrastructure sector funds is 7.60% pa. Incidentally, the highest return is the technology sector at 16.82% pa. Clearly, the sub-category and within that fund houses can have huge divergence in returns. The SMI says corporate bonds give better returns compared to fixed deposits for the same safety. Looks like the SMI hasn’t heard of the IL&FS and DHFL debacles. The SMI suggests investing in cryptos even though they are not regulated or officially recognized in India.
Another SMI provides highly technical views and advises people against regular SIPs. The SMI suggests making equity investments based on market timing. Yet another SMI gives stock views on a daily basis. The worst among all are wannabe TikTokers—students extolling intraday trading or homemakers advising women to invest in safe investments like insurance plans.
As an investor, keep this is mind…
* There is no preset allocation that works for all investors. This is because each individual has different goals and the products chosen and asset allocation will depend upon the time to the goal and the risk a person is willing to take. For the same 10-year goal, one investor may prefer debt instruments and another may prefer equity investments. An investor with a three-year goal will have to choose differently from an investor with a 15-year goal.
* It is always better to choose investments that have regulatory oversight. Instruments such as bitcoin, savings schemes from gold jewellers, etc. are not regulated and hence investors do not have any grievance mechanism and such investments should be avoided. Being unregulated is a red flag.
* Instead of basing your investments on a blogger’s experience, focus on what is in your control. Would you be able to invest each time the markets are down? Can you actually track markets daily and will your emotions allow you to put in money when markets are falling? Wouldn’t automating investing through SIP work better as you don’t have to keep taking decisions time and again? What you can control is how much and where you invest. This needs to be based on your financial goals and you should work with a financial planner to draw up a plan. Time is more valuable than money. Utilize some money to have a structured financial plan drawn up so that you can create time for what matters to you.
* Ask yourself where investments such as intraday stock trading, bitcoin, IPOs, etc. would fit in your portfolio. Can you tag them to a goal? If not, stay away. With real estate, do you have the time to manage it?
* Some basic questions to ask yourself before following a blogger’s advice: 1. Do I understand the product? 2. What is the post-expense, post-tax return? 3. Does the portfolio beat inflation? 4. What is the risk associated with the strategy being shared? 5. How accessible are my investments?
Remember, an SMI sharing experience on a product or service is different from sharing investing experience. This is because for any goal there are multiple pathways and what worked for the SMI is not necessarily the right way to reach your goal.
Last but not the least, SMIs are not certified to give financial advice and it is in your best interest to stick with the experts.
Mrin Agarwal is founder director, Finsafe India.