When it comes to investment what do you do? Do you follow DIY? Do you take help from a salesman or do you prefer a qualified financial planner? I am sure your answer will be either DIY or Salesman. Let’s try to ponder about investment style followed by you – DIY, Salesman, and financial planner.
DIY, Salesman or Financial Planner what is your choice?
DIY Investor – Do it yourself
DIY is the most famous word nowadays. Almost every website is in favor of DIY (do-it-yourself) when it comes to investment. However, I am not in favor of DIY. There is nothing wrong with DIY if you have knowledge, skill, time, and ability to manage your investment you should follow DIY. Recently I had a conversation with one of the readers. He was a DIY investor and made losses. He shared that DIY is adopted by him to save more money. I asked him a simple question.
- What else do you do to save more money?
- Do you build your own house?
- Do you make your clothes?
- Do you grow your food on your farm?
- Instead of going to the doctor do you go to the chemist for the treatment?
He was unable to answer my questions.
Well, when you become DIY investor emotions come in between your financial goal. You will be afraid to take a certain decision and get carried away by greed, fear, and anxiety. DIY investors are likely to make the following common mistakes.
Common mistakes made by DIY investors
- DIY investors get excited by new financial products and they invest without understanding the product.
- They invest in the product because of the recommendation of friends and family members.
- They react to any negative news and sell their investment.
- They watch the price first before investing.
- They don’t do enough study or research before selecting any product.
- The DIY investor does not consider investment seriously.
- They believe in Robo advisor or free advice.
Qualities required by DIY Investor
You can be a DIY investor if you have following qualities.
- In-depth knowledge of financial matters
- Your financial situation
- Time & Capacity
- Control over your emotions
Investors influenced by sellers
Second type of investor are highly influenced by the sellers. They prefer to ask a seller when they want to invest. This type of investor believes that insurance agents, mutual fund distributors, and relationship managers from a bank are the best people when it comes to taking financial advice. I ask a simple question to this type of investor.
What do you do when you have a heart problem?
- Do you visit a chemist and take medicines suggested by him?
- Do you contact the hospital agent for the medicines?
- Do you visit the compounder and take medicine prescribed by him?
No, you simply take an appointment from a cardiologist and take the medicine suggested given by him.
Insurance agents or mutual fund distributors are sellers. They do not charge any money, as they get a commission from products purchased by you. They will try to fit your requirement with the product available with them. They are interested only in their commission and nothing else.
You should strictly avoid sellers while making an investment decision. I have enough examples of misselling done by these types of sellers.
Examples of misselling –
How Rs 50,000 was reduced to Rs.248?
The classic case of misselling was reported by Livemint, where Mr.Kapoor was influenced by an insurance agent to purchase SBI Life Unit Plus-II single-premium ULIP. An agent convinced Mr.Kapoor by saying that ULIP will give an advantage of free insurance. Mr.Kapoor purchased a policy without understanding the effect of mortality charges and end up reducing his corpus to Rs.248 in 5 years.
How 5 Lac was reduced to 4.11 Lac in 1 year?
Livemint reported one classic case of misselling of a financial product by a relationship manager. One senior citizen visited the bank to open a senior citizen saving scheme account in December 2014. He wanted to invest 5 Lakh in SCSS as his only source of income was a fixed deposit. A team of relationship managers brainwashed him to invest the money in ULIP. He was promised to get 14% assured return from ULIP. He purchased ULIP and ended up making big losses.
How 3.2 Lac was reduced to Rs.11678 in 6 years?
Another case was reported by Money life. In this case, the HDFC Life Young Star policy was sold to senior citizens. After paying a sum of Rs.3.2 Lac for 6.25 years @ Rs.12500 per quarter, the policy was closed by paying Rs.11678. This means 96% wealth of investors was eroded in 6.25 years.
In all the above examples, one thing is common that is a conflicting area of interest.
Investor supported by Financial Planner
The third type of investors always takes advice from a certified financial planner. As they know certified financial planner is best when it comes to managing finance and investment.
Financial planner offers the following advantages –
- They can extend you expert advice related to any products.
- A financial planner will do risk profiling and study your financial situation.
- They will draw up a financial plan with a list of financial goals and methods of achievement.
- The financial planner recommends investment products with your interest in mind.
- Explain the risk and features of the recommended product in detail.
- Balance your portfolio across various asset classes.
- They make sure that you are saving enough money to fulfill your financial goal.
- Update you with the latest change affecting your existing investment.
- They make sure you don’t end up making any mistakes.
- Suggest a strategy to come out from debt.
- Financial Planner can save your time and energy.
The following infographic will help you in selecting your financial advisor.
Which investment style do you follow DIY, Salesman, or Financial Planner?
Do you think you should consult a financial planner?
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