One way to interpret the battle between the ‘good’ and the ‘evil’ is within. As you celebrate the victory of the good over the evil, you must nurture good habits. There are so many things that you can take note of as you review the year gone by. A lot of your future wealth depends on your money habits today. We have often discussed the influence of emotional and behavioural issues. But there are simple things to learn that can go a long way. A fundamental habit is to save first, invest, and spend whatever is left.
It is essential to understand that your money situation differs from anyone else’s. That is the first step towards inculcating good habits. The ‘personal’ in ‘personal finance’ means that when you are dealing with money, you are unique. If you want, you can keep emotions out of financial matters.
When you bring rationality into the picture, you will see that most money problems have a solution. With prudent budgeting, you can manage your income, investments and expenditures effortlessly. If you have problems with the complexity of the knowledge about money, you will realise that you do not have to be an expert to manage personal finances.
In the book ‘The Psychology of Money’, author Morgan Housel emphasises the aspects of human emotions and money. He argues that financial decisions in the real world are far more complicated than the textbooks. It is difficult to separate your emotions from your decision-making regarding money matters.
However, good financial habits can help you overcome the hurdle of learning complicated financial knowledge. Solid financial knowledge can do you no wrong. But, if you are new to investing and uninterested in learning about finance, you must focus on your actions. Those are things you can control.
Many of you already do that by hanging on to tangible assets like real estate and gold. For a long time, it has been an issue of debate whether gold is an investment. The long-term returns on gold have been similar to those in the Sensex or Nifty over 20-year phases. That is a significant achievement for the precious metal as the global consumer and institutional demand remains strong. It is a natural hedge you use against inflation.
That has rewarded Indian households estimated to have nearly 27,000 tonnes of the yellow metal. The value of that gold is nearly $ 3 trillion at current prices. It is more than half the value of all shares traded on the Bombay Stock Exchange or the National Stock Exchange. Despite all that household hoarding, it is not a liquid investment. It is an asset with a lot of emotions attached.
Most of you like to keep that gold in the form of jewellery that you sell or mortgage only in case of an emergency. Households are seen using gold for short-term loans. The rise of companies that offer only gold loans and their stock market success is a testimony to that behaviour.
The dramatic surge in gold prices could also be due to the geopolitical risk due to international wars. At the same time, equity asset prices are record-high in many markets despite relatively slow growth.
There is a perception of a risk of a sharp fall eventually. Fear is pushing many towards gold. Despite similar returns over 20-year phases, the price trajectory is not similar for gold and shares. It may be a good idea to split your investments into equity assets and gold simply. The only thing you need to learn is to find a professional advisor to help you make an asset allocation. That does not require you to know about finance. Give your money the time to grow and invest regularly.
When you have the money, you look for assets at a relatively low price to invest your savings. To get anywhere, you need savings. You need to get into a habit of creating a pool of savings every month to fuel your investment habits. Unless you succeed
in doing that, the discussion over investments and complexities related to them is meaningless.