To learn how to invest needs to be seen as an essential life skill – almost akin to knowing how to use a computer. This post summarizes some of the reasons why we need to get over the fear of finances and learning how to invest is so critical.
Reason 1 to learn how to invest: One bad investment can destroy years of hard-earned wealth
It’s extremely common for even highly educated individuals to lose years of accumulated savings to bad investments. Several only realize too late. And most never do. Cardiologists, Professors, Bankers, CEOs, Entrepreneurs, Engineers – the level of education does not matter when it comes to undertaking financial mis-steps.
The same story repeats year after year.
REASON 2: THEre’s RAMPANT MIS-SELLING
This 4-year Harvard led study, speaks about the ‘rampant’ mis-selling which occurs in the Indian financial market due to agents and advisors being driven primarily by commissions. Insurance middlemen often make 30-45% as commissions on the products they sell; which means more than 1/3rd of your hard earned money wouldn’t be working for you. There’s even a documented case of two LIC agents who were making more in commissions, than even the chairman of LIC.
REASON 3 TO LEARN HOW TO INVEST: compromised sources
All our conventional sources of knowledge on investing are either compromised or inadequate. In most middle class families, the advise on investing is taken from elders. Unfortunately, most elders in India only believe in investing in FDs, Post Office Schemes and Real Estate.
Our workplace, typically only discusses investments which are already in vogue and overly popular – and consequently, overpriced. At one time, there was the rage of Infosys stock, another on Gold, and yet another was on Bitcoin.
Our third source of information advise, are financial middlemen – insurance agent, relationship manager, and investment advisors. Unfortunately, they’re driven by commissions.
But look what a single good investment can do. The below chart shows how a lump sum investment of 1 Lakh would’ve grown between 1998 and 2015 when invested in different asset classes.
REASON 4 TO LEARN HOW TO INVEST: Commissions everywhere
- 8500 Crores of investor wealth was consumed by mutual fund middlemen in the form of commissions in FY 2018 alone.
- More than 95% of financial advisors in India, are commission agents.
- Motivated by these high sales commissions, several advisors and platforms allow you to use their investing platforms for free, and even provide free financial advise.
- Many also masquerade as financial education providers. Direct plans of mutual funds far outperform their regular counterparts by a huge margin.
The final verdict?
There’s absolutely no way out. You’ll need to learn the skill yourself.
Because no one; absolutely no one, will take care of your money the way you would.