We have two enclosures near our office where people come to feed pigeons. There are tiny shops around which provide the grain. Feeding pigeons is an ancient traditional custom which is becoming increasingly popular in cities. So all around I can see only pigeons. On the terraces, window sills, shades and flying around. What happened to those tiny little sparrows and mynahs of yesteryears? They have more or less disappeared from the landscape! No one seems to be interested in feeding them!
Because of the karmic belief in feeding pigeons, we have started creating an imbalance in nature. In cities these birds have no natural predators, and are being fed aplenty. The other tiny birds like sparrows are less capable of surviving the difficulties of urbanization on their own. We keep feeding the naturally strong ones, while ignoring the ones that need help.Now we have an overload of pigeons in the city with dwindling population of other species of birds. I am sure if we dig enough we will find that this is not a very healthy situation for our city.
In investing too, people hold dear some beliefs. They keep on investing and handling their finances based on those beliefs, without trying to understand if it is causing an imbalance or adding nuisance value in their portfolios.
Most people start investing based on what they have seen their parents do. Till the recent past we have had more or less a closed economy. Investment choices were limited, Interest rates were controlled, so was competition. So fixed income instruments like fixed deposits offered high interest rates and ruled roost. Insurance was a monopoly and that formed the second choice as an investment. Gold was a revered form of investment. The cult of equity investing was not born. Investment in stocks was considered risky as there was no transparency in the markets. Purchase and sale of stocks involved physical exchange of certificates, transfer deeds and the clearing settlement period took time.
If we look at the goals and aspirations of that era, we would see that most middle class parents would aspire to make an engineer or a doctor out of their kids. Many would dream of sending them abroad for good. Buying houses at young age was unheard of. Most people would work years at their jobs to accumulate enough to be able to buy a house. White goods were limited to a television and a refrigerator. Holidays meant an annual visit to the hometown.
If we compare this to today’s world there is a vast difference. Aspirations have changed. Parents look at their children becoming global citizens. International schooling is considered as a first step for this. For youngsters in their first jobs, buying a home and a car is amongst the first things to do. Holidays are no longer restricted. The choice has expanded to include the world. White goods are a must have for most upwardly mobile.
Things have changed in the economy too. See the way business is being done today. There is so much transparency. This and the advent of fully electronic transactions on exchanges has paved way for making equity one of the best asset classes to be in. Our stock exchanges are state of art and amongst the best in the world. Furthermore, the tax system of the country too supports investing in equity. On the protection front there are stringent rules and regulations in place and there are so many agencies and forums that work towards protecting the investor interest. If you use a little bit of common sense and are careful, there are less chances of someone defrauding you in the name of investments.
When there is so much change in our lives and times, why are the investment options still rooted in the past? All these new aspirations and way of life cannot be supported wholly by the old world products. A portfolio with only real estate and fixed deposits can be considered for income generation, but it has to generate a positive cashflow after accounting for maintenance, taxes etc. Fixed deposits do give comfort with their predictability and familiarity, but there, taxes will eat way into these returns. Over a period of time inflation will start showing its results and might create a gap in the cashflow. Hence it is essential to look at creating a third source of income and wealth creation in form of equities.
Having only fixed deposits, or only real estate or only insurance policies or a mix of these in your portfolio might be detrimental to your financial health. Look at creating a health mix of asset classes appropriate to provide for your requirements. Equity is an ally for most irrespective of age. It should be treated as such. There needs to be a change in the beliefs of personal finance. It would be beneficial to have a more holistic approach and keep an open mind for services and products which you have never dealt with before.
So if you are feeding the pigeons do spare a thought for the other birds too. You can make a difference to nature as a whole by helping avoid the imbalance. You can stop the imbalance in your portfolio by looking at your money beliefs and behaviour. You can make the change and create a better life, a better world!