We recently liquidated some investments to fund a friend’s business venture. The distributor who sold the product to us many years ago called to inform us that there seemed to be a problem with the redemption process. He worked with us through the entire situation, coordinated with all the agencies involved, and ensured that we got the funds as required. One of the many instances when I feel grateful about having someone to manage our investments.
Do-it-yourself (DIY) is attractive. Especially for someone like me who works in the investment space and tracks products and markets for a profession. DIY is also exciting and seems like a very adult and responsible thing to do. Many express surprise when I tell them I don’t manage my own money. Let me explain why I have chosen to delegate this task.
Like many others, I prioritise my job and life over money management. My energies are directed primarily towards my work, home, relationships and interests. Spending an enormous amount of time with a long list of bonds, stocks and fund names is something I prefer not to do. Whenever I have tried it, my money has suffered because neither do I make the decision, nor do I let someone do it for me.
This is not just my experience. I have several very well informed friends who cannot devote enough time to make sensible investment decisions for themselves, even if they are experts on the matter. I admit that I don’t have the time and skill for tying this up well for all its components—information, analysis, processing and tracking. I choose to delegate instead.
When I have to make the decision about where my money should be invested, I am overwhelmed by the choices that exist. As an investor, all I have is publicly available information from the media. There is no way to go behind the published numbers. I do like the many ready lists that analyse the products and create a sensible shortlist. But then I like to take a look at the numbers, run over the analysis, ask my adviser the questions I have, seek explanations to my satisfaction and make the decision. I prefer this consultative process that is backed by data curated for my specific questions and doubts.
My adviser cannot get away with a passive recommendation of products. Nor am I readily signing off the papers after one meeting. I pay my adviser a fee for the recommendations he makes. If I am using a distributor, I know that he earns a commission from selling the product to me. Both are willing to work for their fees, and my interest is high as it is my money. They provide the information I need and offer data and analysis to back up the products we short list. It is my responsibility to protect my money from vested interests of anyone who may seek it and I don’t shy away from it. I am only ready and willing to take help in the process, rather than work alone from scratch.
I keep reasonable expectations. No one can time the markets and that is not what I expect my adviser or fund manager to do for me. Nor do I want to select products so well that I always hold winners on hand. As long as I have good quality processes and products, I am willing to take the ups and downs of the market and the cycles in my stride. How the money is allocated between various options and choices is a decision I make, based on my needs and preferences.
Just as fund managers earn to beat the benchmarks, I wish we had advisory professionals who managed asset allocations and earned a fee for delivering an alpha for that macro choice, but we don’t yet have a marketplace that enables and rewards such expertise.
As for the products themselves, call me a stooge, but I prefer mutual funds. I know that a sensible process is in place for constructing, reviewing and managing a portfolio. I trust that for my money, wholeheartedly. The presence of competition, information and performance evaluation makes it even better for me. With some efforts at fund selection with my adviser I can rest assured that the money is deployed and is working well. My lists are reviewed annually and money is invested through the year in the same funds whenever I have a surplus. My returns beat the benchmarks and inflation and I wouldn’t ask for more.
A small portion of the corpus is invested directly in equity with friends, just for the fun of fundamental analysis and value investing. This corpus sometimes beats the funds; sometimes it does not. There is no point in having a long list of this and that. That portfolio can never beat the index. The direct stock portfolio needs to be bold and concentrated. It is risky and it cuts both ways. It is small enough to not hurt.
I lean on my advisers and distributors because the approach where someone implements the joint plan we have agreed upon, and completes the paperwork, is valuable to me. Someone else is looking at the portfolio even as I am busy with my work. They tell me when something is not working and that is precious to me. I don’t need every choice to be a winner as long as I don’t mindlessly hold losers. Since they can view my money dispassionately, it helps.
That combination of fund managers who manage the portfolio, advisers who manage the products, and distributors who manage the process creates an outsourced team that earns its keep from making my money work. Left to myself, I might not devote the time, or might be too biased, or get too attached to notice what is not working and plug the leaks. My money will be fine as long as it is not idling for want of my attention or losing in my denial to accept failures.
My distributor who swung into action for a process lapse I made many years ago, did not make any money from taking care of my redemption. By assuming that the world of fund managers, advisers and distributors are out to get us, we may be missing the benefits of working with unbiased outsiders who take pride in their jobs. There is a middle ground between DIY and the mindless abdication of all money decisions to others. It only takes some involvement, engagement and teamwork.
(The author is Chairperson, Centre for Investment Education and Learning)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
