It’s that time of the year when long distance runners around the country run marathons and half marathons in cities across the country. Financial planners and advisors say that similarities exit between long distance running and executing long term financial plans. “Long term wealth creation is not like 100-200 meters sprint. It’s like marathon, which should be executed over years in a methodical manner,” said an investment advisor.
In long dis- tance run- ning they say “when the going gets tough, tough gets going”. In some cases, this holds true for long term investing as well.
M:The Goal for a runner running a marathon or a half marathon is to run the full course, that is to run the 42-km long stretch in one go.
F: The first thing an investor should set all the long term financial Goals. Some of the Goals could be retirement, children’s education and their marriage, buying a house etc. Financial planners and advisors say there should never be any investment without a Goal.
M:Therunnerstartsslowly,runs 4-5 kms daily during initial days and increases the distance by 10% every time the body gets used to the distance.
F: An investor should start investing with small amounts, keep on investing every month and then increase the monthly investment amount as his/her income increases. A systematic investment plan (SIP) in a mutual fund scheme works in the same way in which one could start with as low as Rs 500 per month and increase the monthly investment amount every year or as and when the investor’s income increases.
CHANGE OF SURFACE
M: As the runner gets used to the surface on which he/she is running, the trainer pushes the runner to change the surface. From plain surface, the runners then starts running on uphill and down hill roads, on sands and other surfaces also.
F: Usually financial planners advise an investor to start investing in a simple product, say a mutual fund scheme working of which he/she could understand easily. Once the investor gets used to about how the scheme works and gains confidence, his/her financial planner or advisor usually advises the investor to invest in some other schemes which are slightly more complicated and may also carry slightly higher risks.
STAYING THE COURSE
M: During the run, there would be ups and downs but the runner has to overcome all such obstacles and complete the course.
F: An investor aiming to generate wealth in the long term, one should keep away from being moved majorly by the market’s short term ups and downs, which are referred to as volatility. When an investor is investing for building his/her retirement corpus, he/she should stick to that Goal even during volatile market phases. Here one should try to give away the urge for instant gratifications for long term rewards.
M: It’s important to maintain a steady pace through the 42-km run. And never start at a very high speed.
F: According to a long distance runner who also advises investors about investing, like in long distance running, for long term wealth creation too one should never start with a large sum of money. Even if one has a large amount at his/her disposal for investing, it’s always advisable to put the money in a Liquid Fund and start an systematic transfer plan so that the whole system works like an SIP from a Liquid Fund. This way the investor spreads out the risks and averages out his/her cost of acquisition.
REVIEW AND REBALANCE
M: The runner, at regular intervals, needs to check if he/she is running as per the plan. If not he/she may has to change the pace.
F: During the financial journey, the investor also needs to review his/her financial plan. And in case his/her investments are found to be off track, he/she needs to rebalance to bring it on track.
NO SHORT SPRINTS
M: During a run, a marathoner should never try to increase his/her pace suddenly and start running very fast. Trainers train long distance runners to maintain a steady pace that he/she is able to maintain through the race. They are allowed only minor variations in speed.
F: For a long term investor, it’s important to avoid the short-term attractiveness of trading on tips and market information. Tips could earn fast bucks, but it’s almost impossible to successfully make money by trading on tips. So long term investors should avoid the lure of trading on tips.
M: Once the runner completes the marathon, he/she should not stop immediately. He/she should run slowly for some short distance and then rest.
F: According to financial planners, after investing for years, when the investor reaches his/her Goal of accumulating the planned amount, there is no need to stop investing, unless the investor retires.