Returns cannot be your Goals in Investing
DIPIN
Returns cannot be your Goals in Investing
In a seminar, where I was talking to a group of young investors, I repeatedly told them to have Financial Goals before they start investing. Annoyed by my repetition, one young guy stood and said, my goal is to achieve 30% returns per annum. Can you help me to achieve that? Now let me clarify his statement to all of you.
• The world’s richest and the most successful investor of all times “Warren Buffet” could not achieve 30% return consistently over his 50 years of investing.
• His rate of return on investment is mere 24.7% p.a.
• If you would have invested Rs.1 lac with Warren Buffet 50 years before, you would be worth more than Rs. 621 crore today. This is just equal to what was his compounding rate of 24.7%.
• But if your rate of return would have been 30%, your 1 lac would have become closer to Rs.5000 Crore.
For god sake, I can’t give that much return to people, if someone can achieve that, pleasecontact me, I shall give all what I have. For sure, I will give Rs. 1 lac.
What this young guy said was not new to me and most of the investors think that they are investing because they need to earn high returns. In fact, I thought the young guy had at least an idea of how much return he wanted to earn, most people we talk just land up asking for HIGHER return. There is no definition of HIGHER RETURN that they have.
Investing just for earning return cannot be anyone’s target or AIM. शायद इसिलियेभगवान ने कफ़न में जेब नहीं बनाई. Money is not the end rather it is a means to an end.Having more money cannot make you happy, but fulfilling your dreams can make you happy. All of us have certain dreams in our life and those dreams need to be fulfilled to lead a happy life. In the hindsight, we all land up investing for our goals only, it is the long term goals for which we don’t plan or for that matter we are not clear.
Let me explain you in other words.
• We all have savings account and we keep money there. Even though we may not really need the money, but still we are comfortable to keep the money there even at the lowest return of 2-3% p.a.
• The reason we have our money there is one of our financial goal, that is EMERGENCY. So even if we are getting high returns elsewere, we prefer to meet our goal than to earn high return.
I am not trying to say that we should not be hunting for returns. But returns are by product of investing, the main aim is to achieve our Financial Goals. Typically people go wrong in Financial planning when it comes to their Long Term Goals. Achieving long term goals involves careful study of few factors.
• What will be inflation factor over the years
• What product mix we have to take so that the goal can be comfortably met
• What should be the periodic investment towards that goal
• What should be the strategy in case of any mis-happening
Just aiming at returns will not lead to goals. If I ask you, my aim is to drive fast, would you agree. Or if I say, I want to take the train that has highest speed. It sounds odd. You definitlely need speed when it comes to travelling but speed cannot be your goal. Your goal is the destination that you want to reach.
“An investor without investment objectives is like a traveller without a destination.”
Also at times, driving should be a mix of speed and caution, we should strive for balance and not just speed. Similarly, we always advocate for a Balanced Portfolio which will help you in achieving your Finanical Goals.
Keep your asset allocation intact and you will then not only achieve your goals but also have desired speed as well.
Dipin Kwatra
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