It’s a cliché whose essence has never been appreciated enough.

“If you fail to Plan, you plan to Fail”.

Planning is extremely crucial to almost all aspects of our lives. A student is supposed to plan her studies before competitive exams, a surgeon is supposed to plan before a complex surgery, and a soccer team needs to plan ahead of the next game with arch-rival. We also plan so extensively for our annual vacation!! But no matter how meticulous we draw a plan, there are things always out of control. But that doesn’t lower down the relevance of making a plan in the first place.

Imagine you have decided to take the family out for a 15 days vacation. You have packed your bags and the family is beaming with joy. But wait….you forgot to decide the destination !! So, you don’t know whether you are travelling by car or plane! Whether you pack your bags with clothing for beach or mountains! …..and you know so many other aspects which would need to be addressed. Hence, the planning.

When it comes to investments, most of us are preparing for vacation without having a destination in mind.

People spend more time planning their next annual vacation then they spend time on tax saving or their retirement planning. A family would have spend far lesser time in all its history on discussing and reviewing Financial Plan once a year, then they actually discuss about hosting the daughter’s wedding in a span of 6 months before the wedding night. Don’t we know that Financial Plan is the enabler of wedding drama ? Then why this negligence !!

Just in case you are under an impression that it is your business/professional income that creates wealth, then do consider the bankruptcies of millionaire celebrities. Boris Becker, Michael Jackson, Nicholas Cage, Mike Tyson and MC Hammer are just a tip of the iceberg.

The very thought of creating a financial plan brings uneasiness amongst the family members. A financial plan, in order to be comprehensive and effective, requires answers to emotionally difficult questions. What if the spouse dies before……, or what if the family income gets reduced………., what if the business fails………..or some ailments…..etc, etc. Besides making an attempt to plug the risk gaps in family finances, a plan is supposed to clarify and document family’s financial goals like retirement, children marriage, education, vacations, car, etc . This require correct estimates and regular revisions periodic basis. Mostly, the goals thus arrived would look so arduous that majority of investors would lose heart there and then. Perhaps because they are being asked to adjust their present consumption spendings for future security sake. Future security is generally a debatable and relative term. YOLO (You Live Only Once) generation is not in a position to visualize the long term effects of increasing life expectancy, insure job scenarios and falling returns from investments.

Another major challenge is how people deal with money. Do they become emotionally stressed when there are downturns, or they get overly charged up when the markets are roaring and are perhaps overvalued. Are they over concentrating their wealth in their primary business? Financial success is all about staying in the path of discipline. This behavior has nothing to do with investors academic or professional background. It is more innate and also comes from childhood memories. Failing to stick to long term discipline can cause serious financial harm to people from all walks of life. Neither rich, nor poor is spared from the curse of reckless spending.  It is worth mentioning here that it is often just one big mistake that can take away your life’s fortune. For example:


Buying a villa on leverage that you could barely afford, during the market phase where the prices are obscenely high, from a builder who is also overly leveraged, without checking the legal approvals of the project.

This is insane, yet a lot of people during 2010-12 did this. They were all very educated and successful people.


How relevant is the above example? Perhaps you would also know someone stuck in the real estate muck as India grapples with its gigantic real estate mess. There are many examples here in the industry. People invested in real estate for their daughter’s marriage estimating a profitable exit, only to face the harsh reality even after 8 years of purchase.

Investors behavior affecting their financial success is not limited to greed or fear. Other biases where they form stereotypes are even bigger traps.

Rule of thumbs like Real Estate does not fall, or Gold is the safest asset, or Bluechip Stocks don’t fall much, small caps are risky, etc. are some examples here.  Again, these stereotype behavior has nothing to do with the level of education an investor’s academic or professional background. An IIM alumnus can act as irrationally as a Chartered Accountant who in turn can act as irrationally as a Banker, Shopkeeper, Teacher, Doctor, Economist, Tea stall owner, etc.

Investment success is attained with stomach, and not with mind. This is counter intuitive, but that fact of life. People have to stomach the pains of market cycles to accumulate wealth over long period. Application of mind in over-analysis of situation will make the biases active and thus making investor vulnerable to commit follies.

To overcome investor biases, a details financial plan is always indispensable. It should become the constitution for investor and advisor to follow the plan in spirit. Just for information of the readers, a Financial Plan is not a To-Do list cast in stone. On the contrary, it is highly flexible framework which helps in investment decision very objectively. A typical Financial Plan will address queries like:

  1. When and with what amount Retirement could be possible? What if there is a gap of +/- 5 years?
  2. What kind of education can we afford for child’s higher education 10 years from now? Accordingly, if there is a need to nudge the child towards a particular direction, that will help !
  3. What I am without job for 1 year? Accordingly, how much fund in emergency is required? How much leverage is manageable?
  4. There are several risks like life, health, home, public responsibility, etc. Are those covered adequately. If there is over insurance, shall we reduce to save cost?
  5. If our goals are 5 years, 10 years and 15 years away respectively, how shall we allocate assets differently? Shall we create different buckets or create a common investment portfolio?
  6. How and when we will enter a particular asset like Debt, Equity, Real Estate or Gold?
  7. Also, when and by how much will we exit a investment based on over valuation in the market and risks involved?

      ………………and more !!

All this above may look complicated, yet it is extremely simple to design and implement. A helping from a very good advisor will go a long way in creating this. Our experience of last 15 years tells us that once we start following a Financial Plan, the probability of making mistakes falls dramatically.

With written set of rules of investing, it guarantees peace of mind and better quality of life !!


By Sameer Rastogi

18 years of experience, PG in Finance and has delivered Wealth Management lectures at IIM Lucknow, IBS Gurgaon and IIPM Delhi. Contributed to various newspapers. Strength – Application of Economic fundamentals to Investment

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