As you celebrated Mother’s Day, most of you celebrated your hero. The heroism of moms stems from many of the things they do for us as children and continues even after we grow up. Those of us privileged to have witnessed that care and nurturing will also remember the simplicity.
She made small sacrifices to provide for you. Her ability to manage multiple things ensures that you do not feel inadequate. Those in their 40s and 50s would remember their parents and their frugality much more than those in their 30s and 20s. With limited access to information, parents relied on simple saving and investment habits. They put their hard-earned money into things they understood. Starting with savings, they put money aside in envelopes or other containers to help them remember upcoming payments. That ensured that none of the income was spent in one go. Your spending habits are as important as your savings and investments for long-term investing. Your mother showed you the way to save simply.
When it comes to investing, they allocated any surplus money towards real estate and gold. More than three-quarters of the households own property or gold, according to most surveys and their latest updates. Parents in the 1980s started investing in fixed deposits, and in the 1990s, in more sophisticated investments in the stock market. Their preferences towards savings and investing were based on their knowledge.
Modern parents have inherited their parents’ frugality. However, their approach to saving, investing and spending is spoilt for choice. There are too many avenues to spend money. Credit cards enable you to spend tomorrow’s money today. You can buy things you need or do not need today using personal loans or credit cards. Unlike your parents’ way of allocating expenses, you are not worried about putting physical money into envelopes or other places in the house. You have mostly automated your payments and spend digitally far more efficiently than your parents.
That holds if you have a sustainable income. The moment your income wobbles, you stare at a debt trap.
On the investment side, the presence of several options for mutual fund schemes, equity shares, stockbroking apps, wealth managers and their mobile outreach can only confuse you. Additionally, there are multiple options for insurance and other banking-related services. If you try to analyse every option, you will reach ‘analysis paralysis’. Making investment decisions every day can lead to decision fatigue. To avoid that, you need to take help from a professional advisor. Make your meeting with your advisor meaningful by suggesting a simple portfolio structure. Owning too many stocks or mutual fund schemes could lead to over-diversification. You could struggle to keep track of your investments.
When it comes to insurance, it is important to understand that it is meant for protection, not as an investment product. Unit-linked insurance plans and other structured products could increase complexity in your investment portfolio. Choosing too many endowment or money-back policies instead of simple term insurance is another thing you should be careful about. In the 1990s, an insurance agent was the first intermediary who probably spoke to you about savings and investments. However, it is a different world today. You can minimise the cost of your investments and insurance by choosing the right products or investment plans, and by taking professional advice online or engaging a financial planner. For example, using direct plans of mutual funds can reduce the cost of your long-term investment through systematic investment plans if you know the schemes you wish to invest in, especially in equity.
A simple portfolio of a few mutual fund schemes gives you access to a combination of assets that generate a return based on your ability to take risks. That is essentially based on your confidence in your income.
