Your colleague as your Financial Planner!!

Many of us take our financial decisions based on our family members, society, friends, or colleagues’ recommendations or suggestions. We feel they are more informed or know more about us than we actually are. Hence, we blindly follow their recommendations.

colleague as your Financial Planner

However, majority of times such blind following will backfire you. Let me give you an example of what happened with two of my clients.

Your colleague as your Financial Planner!!

Recently a guy called me to share about his financial life and guidance and he referred one of his friend also. Let us say the first guy as Mr.X and his friend as Mr.Y.

During our discussion (discussion on his financial data) with Mr.X, I found that Mr.X is investing in equity mutual funds and also in direct stocks.

As usual, I asked the reasons behind choosing the funds or stocks. Mr.X replied that majority of his decisions are based on his friend Mr.Y’s recommendations and he simply follows him.

Then I asked Mr.X that how well Mr.Y is educated or informed to guide him. Mr.X replied that Mr.Y is in sales and hence he feels Mr.Y is more informed than him. He is heavily invested in mutual funds and stocks and in fact for a long. Hence, Mr.X judged that Mr.Y is more knowledgeable about equity.

I just informed at that level itself that don’t follow anyone blindly as your financial life is entirely different from others and it’s UNIQUE.

After few days, I received a call from Mr.Y. I found that he is holding lot of stocks and equity funds in his portfolio. Again I asked the same question that I asked to Mr.X that on what basis he is investing in the funds and stocks.

Mr.Y informed that he has subscribed to one stock recommending service and joined their Telegram group. He is just buying based on whatever the recommendations they are providing. I asked him what is his view of the long term. His reply shocked me that he want to hold it for the long term for around 2-3 years.

In fact, Mr.Y is in the sales profession means not equity-related. But he is in the sales team of a software company. But as per Mr.X, Mr.Y is very knowledgeable as he is in sales and he knows the companies better. Mr.Y doing stock buying and selling since long and hence he is knowledgeable.

This is how we assume others as more knowledgeable than us and we blindly heed. What we can learn from both is –

  • Your financial life is UNIQUE on this earth. You are the right person to customize as per your requirement and none can customize this for YOU.
  • Loss of few lakh for your colleague may not bother his financial life. However, loss of few thousands may impact your financial life in a big way.
  • The way you grown up and the way you understand the risk is entirely different than others. Hence, risk appetite changes from person to person. Don’t try to replicate.
  • Just because someone is investing in any product or assets since long does not mean he or she is expert. Majority of investors follow the herd. Don’t be in this trap of herd mentality.
  • Your colleagues, friends, neighbors or relatives are not your financial planners. In fact if you follow their advice blindly, then you may be under loss.
  • Your colleague may be sitting with 20% or 30% profit. But it does not mean by entering TODAY you will also generate the same returns. In fact even if your colleague enter today, generating the same past returns may not be possible.
  • Read…Read…Read and then Digest…Digest..Digest to your level. Then only act. If you can’t understand, then it is far better to keep the money in Bank FDs rather than BLINDLY following someone as if they are experts.

6 Responses

  1. I am 45 yrs old with goals for my retirement at 60, daughter’s marriage in 10 years, son’s higher education in 12 years, no loans, having property as well.
    I do have my Floater health insurance, employer term insurance, LIC Whole life endownment and decent FD balance.
    Other than my PF (24%) & NPS (10%), I would like to invest in these funds out of my monthly investible income for next 14 years (will rebalance in next 3 years).
    Large Cap – Canara Robeco Bluechip Equity Growth ( 20%)
    Mid Cap – Axis Midcap Growth ( 25%)
    Small Cap – Kotak Small Cap Growth (40%)
    Gold – SGB (15%)

    Can I further diversify by including one more popular small cap (Axis small cap or Quant small cap) taking share from my existing small cap fund (Kotak small cap)? Any other type of diversification necessary? Please advice. Thanks.

    1. Dear Ramesh,
      Financial Planning can’t be done over the comment. Because I am not sure what is your current asset allocation and risk profile. Also, the logic behind choosing these funds is unknown to me.

  2. A fine piece of advice for blind decision makers. I am going to share it in my social groups to make them aware of the dangers of blind following

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