Some expenses are worth it

A combination of circumstances triggered the thought of writing about whether you need a distributor/coach/advisor/expert to help you with your investments. Ever since we started working as distributors, we have not been able to make headway with certain clients who often find paying brokerage a waste of money. But a recent experience with my son has helped me find a response to that logic.

Good times
My son, after having finished his engineering, started work as a software engineer in the US. Like any novice investor, he got enticed by cryptos and a few stocks that were a rage in his friends' circle. He was one of the many Robinhood account holders, where execution was so smooth that he started to feel like a fund manager. I realised the mistakes he was making, but it was better that he learnt his lessons early in life when the stakes were lower.

However, it hurt me to see his hard-earned money being invested mindlessly (at least, in my view). I struck a deal with him. For every $500 he invested, he would put $1,000 in a passive or an active mutual fund in the US. He agreed.

Bad times
While the going was good, he kept telling me my choices were boring. But when the sharp correction engulfed most of his investments, he lost close to 40 per cent of the capital invested. Many times, in the last couple of months, he called me to say he would have been better off keeping the money in the bank. Many times, he had the intense desire to sell whatever was left of it and quit.

It does hurt to see a loss, after all. The pain of losing 40 per cent is more than gaining a higher amount. Behaviour psychologists term it as 'Asymmetric Loss Aversion'.

My advice to him, which fortunately he abided by, was to hold on. All I said was that he should stop tracking it daily if it pained him as much. Left to him, he would have converted paper losses into actual losses!

Since then, the markets have bounced back a bit, and today, I received a call from him saying that he had recovered his capital. There was no loss at the portfolio level.

But something striking happened. When my son shared his trading screen, we saw the difference in the performance of unresearched stocks and mutual funds/ETFs.

That left me thinking, "What if I was not in this field? What if he had not acted on my advice? What if he had no one to talk to? He would perhaps have been sitting on a 40 per cent loss."

This would have impacted his psyche, and he would always consider equity investments risky.

I am very sure that many would have reacted the same way my son did in those bad times.

While a coach/distributor/advisor may not be able to improve your investment performance, the person may be able to help you ride over rough patches. I am in no way implying that you do need an advisor, if you can manage your emotions while investing. But many fall prey to event-driven news, panic or greed.

If someone can help you look at the big picture, you will add wealth in the long run.

Nick Murray, in his book - Simple Wealth Inevitable Wealth - explains it well. In the Indian context, we do many chores ourselves to save money. We can drive our car to work, cook meals, clean our house, etc. But have you heard of anyone operating on themselves to save the cost of a surgeon or fighting a legal battle to save the cost of a counsellor?

Crucial matters are best handled by experts. And managing money can be one such area.

Shyamali has been navigating the asset management world for over 20 years, working with everyone from the seasoned super wealthy to absolute beginners. She has a knack for understanding the human side of investing and empathising with investors, something that shines through in her writing. She can be reached at [email protected]

Also read: Debt is riskier than equity