Diversification is misunderstood by many of us, and we are herd investors. We are quick to invest our money just because someone says it worked for them. Let us take an example of investing in gold. We have noticed with many of our clients that their assets are skewed towards gold. Historically gold has only given 3% to 5% yearly returns, which does not help anyone grow their wealth since such rates barely beat inflation. I must clearly state that we are not against any asset class – One must understand that emotions have little value if you want to reach your financial goals, precisely the reason why you need the guidance from Client First Capital, a specialist in financial planning services.
Similarly, lots of us are heavily invested in properties, especially flats. As the name suggests, we might end up having ‘flat’ returns in near future. For centuries, our ancestors have used real estate to create wealth, but what we don’t understand is they had bought land which is scarce in nature. On the other hand, small investors cannot replicate that, in the current time investment growth through real estate is only a game suitable for ultra-high networth investors.
The third biggest issue is with fixed deposits. Many of our clients are NRIs and they regularly remit money to India to invest in fixed deposits at higher interest rates thinking they will make more money since developing markets typically have lower interest rates at 0-2% per annum. The point to note is that developing nations also face higher inflation rates, therefore the relatively higher interest rates get eaten away in currency depreciation, resulting in poor financial planning.
Likewise, inadequate insurance planning is another big issue we face in our everyday interactions. Most of our Asian clients want their money back from insurance products – They do not recognize that insurance is not to earn money, but it is contingency planning for a rainy day. We strongly advice that insurance and investments must be treated differently, and one must have insurance before they approach investing planning.