The Most Essential Financial Resolutions for Beginners in 2023!January 10, 2023
Expert Advice for Your Financial Future: The Vital Role of a Financial AdvisorFebruary 27, 2023
Power of Patience & Discipline in Investing
Dashrath Manjhi was a poor laborer from the small village of Gehlour in Bihar. The nearest town to Gehlour with a proper hospital was Wazirganj. People from the village had to climb or go around a small mountain to reach Wazirganj. This became a big obstacle for people who needed immediate medical help.
Manjhi also lost his wife due to a delay in reaching the hospital. Deeply aggrieved by the loss of his beloved wife and extremely angry about the abject disregard by the administration, Manjhi decided to take matters into his own hands. Quite literally.
He started cutting through the hillock using just a chisel and a hammer. As expected, he was ridiculed for trying to accomplish such a herculean task all by himself but that did not deter him. It took him 22 years to cut through the hillock and connect his village with Wazirgarh. A distance of nearly 70 kms was reduced to just about 1 km.
It was only through discipline and patience that Manjhi was able to do something which seems impossible for any human being. If these two characteristics can help Manjhi cut through a hill, imagine what they can do for your investment planning goals.
Investing in a disciplined way helps you overcome the volatility of the market and takes you closer to your investment goals. There will always be short-lived dips and spikes in the market, but when you have the power of patience and discipline along with the guidance of an experienced finance advisor, you can rest assured.
SIP - Your chisel and hammer in investing
Dashrath Majhi had only his chisel and hammer as his tools. You also need a simple tool like SIP to build considerable wealth over the years. SIPs or Systematic Investment Plans are investment options with regular payment options, usually monthly. It is a wonderful tool for investors who want to invest a small amount over a period and let it grow with the market.
The investor can choose the mutual fund scheme for his SIPs along with the date on which an amount will be deducted every month. SIP investments can start at as low as Rs 500 per month. Since you invest every month irrespective of the current state of the market, it averages out the risk and gives a better return over a long period. You can choose to redeem all the funds in one go or opt for a monthly income plan that gives you some amount every month.
If done with patience and discipline, SIPs can prove to be very powerful investment tool in the long run. As shown in the picture, SIPs can fetch better returns over a while even after dips and spikes in the market. However, an important factor here is the duration of the investment. SIP is a tool for the long run. It builds wealth slowly and gradually. The longer you stay invested, the better would be the returns.
The picture here depicts how SIPs overcome the minor fluctuations of the market only to emerge as real winner. Over a period of 17 years, Rs 10000 invested monthly has become Rs 73,37,442. The returns turned out to be 13.60% which is significantly higher than the fixed deposit rate of around 6-8%. The exact rates and returns may be different in different situations and are affected by many factors, they will be higher than the traditional FD returns in the long term.
Although the returns in this journey justify the long wait, it wasn’t easy for the investor. The dips increased the fear and anxiety. And it was difficult to not give in to the pressure of exiting and diverting all the investments to the safer avenues. Spikes on the other hand, tempted the investor to put more money into the investment. The patience to stay invested for this long and the discipline to not give in to the temptations has resulted in the returns that SIPs promise.
How does an experienced distributor or advisor help you?
Mutual Fund Distributor (MFD) or Registered Investment Advisor (RIA) is an experienced investment professional who has the desired knowledge and skills to understand financial market. He can help you make a strategy to achieve your financial planning goals. An experienced advisor knows that in investing, one solution does not suit all. Each investor is different in terms of goals, investing capacity, risk appetite, and overall financial behavior. On contrary to the investing platform an advisor designs a customized solution for everyone.
Financial behavior is crucial when designing an investment strategy. How much does an individual invest, how does he or she make investment planning decisions, is he or she able to keep up the commitment to invest regularly, and how much risk he or she is willing to take, how he or she will react to the different equity market cycles are all important aspects of financial behavior. An advisor can gauge and understand your financial behavior and use this knowledge to design an investment plan for you.
Ideally, your financial advisor, depending on the ongoing discussion with you, will suggest suitable products at different times, will keep your greed, fear in check and will help you navigate uncertain times in the financial market with ease.
No matter how thoroughly an investment strategy is planned, it is bound to see some hiccups because it is impossible to project the market movements with 100% accuracy. But an experienced advisor who has seen a few market cycles knows how to react and respond to dips and spikes. He can help the investor overcome the fear of the dips and keep a tab on greed during the spikes.
He can regularly monitor the portfolio and takes proactive measures to address the changes in the market. This makes sure that your portfolio is always aligned with your financial goals. Just like a fitness coach who suggests a routine for you based on your fitness goals, your body type, and your eating habits; an experienced financial advisor will help you choose the investment tools according to your financial behavior and investment goals.
Power of patience and discipline
An age-old adage says that an ocean is made up of many tiny drops. Sounds too philosophical. Right? But it is true. It takes about 20000 drops to fill a 1 litre bottle.
Similarly, tiny investments in SIPs can actually help you create considerable wealth over a while. Patience and discipline are the keys to this wealth-creation technique. We are living in a world of glamour and there is constant pressure to upgrade our lifestyle. The latest mobile, the biggest TV, foreign holiday, and expensive clothes are too attractive and seem necessary to survive.
You need immense discipline to overcome the desire to indulge. Small amounts invested now can reap large benefits later. However, having discipline is easier said than done when the world around is always luring you to indulge. The fear of missing out on the best and the latest is too much to handle. Right? So, what is the way out? Look at the bigger picture. Some pennies invested now will grow manifold over the years and take you closer to the financial freedom you desire.
Patience is the underlying secret ingredient while creating something magnificent. All the greatest creations in the world were possible because the creators had the patience to go through the process. Patience not only helps you stay on the path but also helps you ignore the short-term mayhem and stay focused on the bigger picture. It also gives you the insight that a long journey will have its ups and downs.
When you put patience and discipline together in your investment journey, you become focused on your financial goals and commit to the cause without being affected by the volatility of the market. Let us try and convert this knowledge into actions that will help you improve your patience and discipline.
- Carefully plan your financial strategy with the help of your investment advisor and break it down into smaller milestones
- Commit to a monthly amount you will invest in SIPs. The amount should be enough to help you reach your goals but not so much that it puts pressure on your essential monthly expenses. You do not want to deprive yourself too much in anticipation of future gains.
- If your income increases, increase the amount of monthly investment proportionately
- Pick a date or multiple dates and give a standing instruction to debit the amount from your bank account
- Dates should be closer to your salary credit date. This way you will put aside the amount to be saved before you use the rest of the amount for monthly expenses.
- Whenever you have something extra to spare, try and add it to your investments.
- Keep your financial advisor updated about any changes in your income and expenses or any new financial goals you want to set for yourself
What NOT to do?
Enough has been said about what to do and how to do. But there are things you should refrain from doing to stay focused.
- Stay away from news regarding stock market. While it is good to stay updated but too much information, some of which might be misleading, will only make you upset and impatient. Have faith in your advisor to do the thinking and strategizing.
- Do not check your portfolio very frequently. Your finance advisor will send you timely performance updates of your portfolio. Checking it frequently will make you anxious and lead to fear or greed. Remember, you are in it for the long run.
- Do not ask or pay heed to advice from friends and colleagues. It is not “one size-fit all”. What worked for them may or may not work for you. Your financial advisor has made an investment strategy for you based on your goals and investing capacity. It is a perfect fit for you.