I like motorcycle (bike) riding. Generally, I like to ride in a group but sometime I like to go alone. Last saturday was one such day when I did solo ride. I would like to relate the experience and use it as an analogy to explain why should one either fully listen to the investment advisor or should fully do it on its own. There should not be a middle way where you take service of advisor and in between or sometimes you invest as per your will.
The most important aspect of any planning is goal setting. So during this ride my goal was to ride from my Home which is in Thane (Maharastra) go up to Murud-Janjira Fort which is around 160 kms and while coming back take costal route, ride up to Rewas Dhakka where I can load my bike in a Ferry boat and travel up to Bhaucha Dhakka and from there ride back to Home. Similarly, at the time of financial planning you may have different goals like, retirement, educations, vacation, marriage etc. Let us take an example of retirement as a goal.
During riding, once the destination is decided I need to plan for the route. So I asked my advisory – Google Map. Google map showed me two routes. Route A : Thane – Khopoli – Roha – Murud-Janjira Fort & Route B : Thane – Karnala (old Goa Highway) to Murud-Janjira Fort. I choose Route B.
Similarly, when you ask the advisor for a goal of retirement planning, s/he may give you different options. Lets us assume Options A : SIP in Equity Funds without any rebalancing. Options B : SIP in Equity & Debt Funds with rebalancing.
I reach up to Vadkhal Naka exactly following google map. Before Vadkhal Naka I took tea break where I closed the google map to save some battery and also thinking now I know the route so I do not need map navigation. Unfortunately, I missed the left turn I need to take at Vadkhal Naka and went straight ahead. After about 20 -25 kms, I realised my mistake and again turn back to my advisor i.e. Google Map. Now the real issue started. I could not get internet connection.
Let us see how this may happen in financial life. Let us say, you opted for Option B i.e. SIP in Equity & Debt Funds with rebalancing. You started SIPs in funds suggested by your advisor. You advisor diligently do rebalancing on yearly basis and accordingly change the funds and allocations. After few years, you start feeling this is easy job and you stop going to your advisor. You are doing it on your own. Suddenly you feel things are not going the way you expected. Now you again turn back to your advisor, and he is for some reason not available.
As I was not getting the internet connection, I though let me check with a local auto driver way to my destination. Now that person without knowing from where I am coming and my further plan after reaching the first destination, showed me a way.
Similarly, as your advisor is not available, you ask few people you know what to do with your investment. It is very much likely that they advise you without understanding your goal and your past investment pattern.
Now I was following, a route which was suggested by auto driver. That route was not as expected by me. Full of potholes and at times no road at all. However, I need to reach the destination so I kept riding. This affected performance of my bike as well as my mind and body.
Here, in your financial world, you have started following advice given by some random person. You also feel you are moving on a patchy & rough environment. But you can not help it as you need to create wealth for your retirement. You may fall for a wrong fund or wrong asset allocation, which will affect your financial health.
After around 30-35 kms, I again stopped for rest and tried my luck with network. Fortunately, this time I got good connectivity and set my destination on google map and started navigation.
After frustration, you again approach your old good advisor and fortunately this time he is available. He analys whole situation and re-plan your entire portfolio and way ahead.
After this point, I just kept riding as per the google navigation. No doubt it took me through some odd roads, but I was sure that it will take me to the destination in very efficient way. Only issue I faced was contingency. The entire route from thereon was isolated. No food, no water and with blessings of god Sun on my head. And I finally reach my first destination one hour delayed. My initial plan was to visit Murud-Janjira Fort for about an hour and ride ahead to Rewas Dhakka. But unfortunately I had to skip the fort visit and have to start riding towards Rewas Dhakka after having lunch.
On this side, you have again started following the advice given by your advisor. It is going on well but you may need to miss some of your goal like vacation or a buying of car, to achieve ultimate goal of retirement. Unfortunately, google map can not plan for contingencies. But your advisor can. Be ready for some unforeseen requirements. Keep liquidity as recommended by the advisor.
I reached my destination but with some pain. Have I followed the google navigation throughout the journey, I could have reached not only in-time but also without much hassle. I might have not looked at the google map in first place and still have reached the fort in-time, completely by “Do it Yourself” way.
The real issue was, I took advisor’s help and stopped following it mid way.
In goal based financial planning, you can either plan completely yourself or take services of financial advisors. The real challenge is to stick to one route. Do not leave any route in middle, else further journey will be painful.