Pain & Gain
The entire purpose of a human’s life can be summed in the simplest words that of seeking the maximum gain at minimum pain. We constantly seek out ways to reach our goals with paths of least resistance. A television remote control is a classic case. Hide the remote from yourself for a week, you will end up watching the same channel for say an hour at least. However in reality we rarely do that, we are constantly changing channels to get the best of information / entertainment that the TV has to offer. I have experiences in which I have surfed television channels for maybe an hour, without ever registering anything of value or entertainment within it.
Frank Viktor, the holocaust Survivor and the author of the best seller “ Man’s search for Meaning”, based on his life in a Nazi Concentration camp says “As humans we cannot avoid pain or suffering ; however we have the power to Choose how we respond to that”.
No where is it more apparent than in the Investing world, we choose investments which are expected deliver high returns to us (say like Equity funds) yet when the first sign of volatility hits us, we recoil with the intent that we do not want to experience the pain of seeing negative value in our portfolio. So we exit when the stock market is in a low and re enter when there is a hype and the markets are back in their highs.. this action of entering based on market hype and exit when one’s portfolio is down due to market oscillations can overtime be very detrimental to the wealth creation.
The way to proceed is to determine the ideal Asset Allocation that is suited one’s goals, temperament and needs. Based on such Asset Allocation , look at creating a basket of portfolios into Fixed Deposits, Bonds, Mutual Funds, Equity and anymore as case may be , suitably diversified. Once done, this should rarely be disturbed but for some minor resetting.
Remember the mental pain experienced by investing in a volatile asset like Equity Mutual Fund and the long term that you are expected to stay invested will be suitably rewarding in the form of superior returns over that period of time. I daresay that Equity Mutual Funds over a 10 year period provide at least twice as much as the returns that your bank FDs provide thereby helping you create long term wealth.
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