OK, so we’ve heard about twenty something
software programmers who have never seen anything smaller than a hundred
rupee note, and for whom "bank" is just an uncool four-letter
word. But in the real world, most of us save. Our parents saved, our grandparents
did. They taught us that saving is a good habit, a lesson we hand down,
in turn, to our children. In fact, as Indians, poor as we are, we have
a pretty decent savings rate.
But why do we save and then invest our
savings somewhere? The answer seems to be too simple to be blowing in
the wind. We save to earn more money. Yet, does that really explain our
motives in investing? There must be more to it than meets the eye.
We always invest for a specific purpose.
For instance, we invest in life insurance to save on taxes. We put money
into recurring deposits to, say, part-finance the down payment for a house.
We invest for our children’s education, for their imminent weddings. We
also invest to take care of our own needs after retirement.
If there are so many different reasons
for investment, can there be a single, grand, all-purpose solution to
the investment dilemma, one holy mantra that will take care of all our
problems? Perhaps we should put all our money in equity? Or maybe in mutual
funds? Or just buy prime real estate? Or play the pork belly futures market?
Ah, life may be full of colour, but
nothing is truly black-and-white. No investment avenue can, by itself,
meet all our needs. Every investment need requires a combination of solutions.
We need to build a portfolio.
Motives for investment may vary, but there are some common desires. We
want our investments to give us some return. We want our money to be safe.
And, in case of an emergency, we want our money back, quickly. Hence,
there are three criteria to evaluate every investment avenue:
We have to use these criteria to assess our investment needs. For instance,
if you want to put away money for retirement, safety will be the most
important criterion. A safe investment avenue that gives you a decent
annual return will be good enough for you. What about the money your father
sent you for the down payment on your car? You haven’t even decided on
the model! You’ll probably keep the money in your savings bank account
so that you can withdraw it quickly.
Different motives, different needs, same good habit.
"I can resist everything but temptation." -- Oscar Wilde
If you are investing you have, one, a well-defined time period for the
returns you expect on your investment and, two, you are fairly sure of
the returns you will get. In other words investing does follow a method,
it could be a method you adopt from a financial expert or could be self-defined.
The difference with speculation is then about the degree. Once you invest
the difference will be more apparent. Take it from us, if you follow a
method you almost wipe out any chances of making losses and making money
is not that difficult.
Speculators succumb to the temptation of putting their money for short
periods expecting to get rich quick. Some do succeed but its all by fluke
and hence, what has been seen is that most of the losers are ones who
fail to cap this temptation.
So when you go investing make sure that you are aiming and shooting and
not shooting and then aiming. And don't ever follow Oscar Wilde.