What is an Indian perspective on wealth?

What is an Indian perspective on wealth?

Is it more than the quintessential 'Roti, Kapda, Makaan?'

In this age of consumerism, Indians have ‘evolved’ beyond these basic needs to arrive at a more aspirational approach towards their riches. Then again in a sense, wealth is rather meant to be aspirational to our middle-class minds.

Wealth is a highly subjective term that varies on our own thoughts whether they are logical or quaint. At its core, it is basically more of a want-driven term with its roots in abundance.

There are 3 phases generally prescribed in wealth cycles-

Accumulation, Preservation & Distribution. 

The methods of management are diverse in each but certain basic principles exist which are uniform across ages, AUMs & even asset classes!

Rambling from the subject at hand, it becomes necessary to look at various human tendencies that guide us on the journey to wealth.

Basic behavioral prejudices mark us out as either weak or focused. It is essential to have a clear path to our thoughts and to channelize our emotions.

Of course, it is impossible to invest without getting emotionally invested in your wealth! But to allow yourself to be steered by your sentiments, will not work.

For instance, in the Accumulation phase, too much aggression and misdirected risk-taking could highly diminish your portfolio. However, being highly conservative at this stage is also not conducive to a good growth rate.

For this reason, it is ideal to firstly have a financial plan in place. Once investments are linked to goals, it becomes relatively easier for investors to stay the course and not take hasty decisions.

Setting out your goals on paper is not very tough. Apart from the basic ones like Children’s goals, Retirement, etc, they can range from anything like a New Gadget to a Plan for a Work Sabbatical.

Prioritising goals becomes vital. This is another part where your behaviour and attitude towards finances comes into play.

The want factor, to put it crudely: Greed exists in us all. But we must exercise caution and tame this particular quality to avoid getting blindsided and swayed by market phases or irrelevant fancies.

Several biases haunt us in this quest for wealth. These include-

Anchoring bias- depends on initial facts alone.

Confirmation bias- looks for information that supports one’s beliefs only.

Herd mentality- to go along with peers or societal beliefs.

Hindsight bias/Rear-view Approach- the feeling that one would have been able to predict an existing event.

Availability bias- mental shortcut relying on immediate readily available examples.

Some other behavioral traits that inhibit portfolio growth are-

Constant comparison, asset preference, brand affinity, instant gratification, trust deficit and ignorance.

Churning of portfolios is also a plague inhabiting over-enthusiastic portfolios. Again, we can see the relation of assigning goals to our assets. Once this demarcation is clearly made, there is no temptation to play around with the allocation of assets regularly. However, it is important to allow for a re-balancing of portfolios after a timely review, when the need arises.

Moderation is key. Being too aggressive or cautious, too negligent or overbearing, never pays off in the long-term.

A time horizon as such would not always arise when we look at our wealth; for is it not meant to be passed on? Our cultural mindsets dictate that parents provide for children and look after their own parents as well. Thus, every family’s financial plan becomes more of a wealth management strategy when it involves several generations.

Wealth management is a holistic process. It speaks of bespoke customization towards an individual’s finances. In this case, considering the complete assets of the investor is essential. Successful asset allocation can only be achieved once the entire picture of assets and liabilities is available.

Planning and execution of investments are not seen to be particularly tough once there is clarity on the goals and on the assets apportioned to those goals.

As we like to say, it is more important to manage risks rather than push for astronomical returns. A conscious cycle of portfolio monitoring, along with well-defined asset classes, can go a long way in building wealth and withstanding all market climes.

Written By 
Ms. Khordeh Anklesaria