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Why Do You need to Learn?

Tell me a fund manager or a stock broker or basically anyone who works on commissions who ever said something like:

“The economy looks gloomy, please sell your equity investments and cash out; I will see you in a few years by when markets should look stable again”

If you think that in future these things would be said to you, join me for a walk sometime and we can start from the beginning.

Please don’t confuse me as saying that all fund managers and mutual fund companies are bad. I certainly don’t mean that. I am just saying that it’s a professional hazard for them to be negative. Some of them may become conscious of a possible turmoil in the economy and may realise that it’s best to reduce exposure to equities and allocate more money to fixed income (i.e. government corporate bonds, FD’s etc). How many do that is another thing. There are others, who do realise subconsciously but keep hoping for a revival until it’s too late. Then there are some who genuinely don’t see it. Yet another lot never pays attention.  They all manage sizeable funds.

The inability of the finest fund houses, around the world, to protect client moneys in times of economic turmoil should by now have convinced you that, “the best person to manage your money is ‘YOU’.

Learning the basics of finance will not only help you manage your finances better, it will also make you realise about money making avenues which you never knew existed. While it is important to invest, what is even more important is to know the various avenues for investment and which one is the best for you. 

For example, if you invest Rs. 1,00,000 in a scheme which pays you 9% interest p.a. how much will you accumulate after 10 years? The answer to that simple question would depend on how frequently your money was compounded and the results can vary considerably. If your money was compounded monthly, you will have a corpus of Rs. 245,135.71. If on the other hand your money was compounded yearly, it will add up to only Rs. 236,736.37 (that’s 3.43% less). So just a little bit of knowledge and being careful could make you earn more over time.

This was with fixed income investments. Needless to say that when you invest in equities, the amounts could vary a lot more significantly and you must be a lot more careful with your decisions. The art of stock selection is in knowing which companies will do better than the others in favourable economic conditions. It is an art which is absolutely essential to learn if you want to accumulate wealth over a period of time.