AVOID UNREALISTIC CAPITAL PROTECTION DUE TO FEAR
1. Ground reality
· As long as money is there, we are happy, even if it is lying unutilized and idle.
· Our obsession with the protection of our capital is harmful for wealth.
· It is not possible to put the money to use and protect it as well.
· And if we place it in a bag in our backyard, it will lose value over time.
· The returns from investing can come only when the money is made to work.
· It would be easy for all of us if investment choices were simple, straightforward, and came with that one factor that pleases us—no damage to the invested capital.
· If we take risks easily when it comes to several critical decisions in our lives, why do we seek the unattainable capital protection in investments?
2. What is our typical behaviour?
· Studies suggest that we are not too capable of making complex decisions involving many variables.
· We simply use rules of thumb that make it easy for us.
· We are willing to eat food as long as it smells good.
· We are willing to trust the car dealer and manufacturer as long as the short test-drive feels good.
· We are willing to use skincare products based on endorsements by celebrities.
· We stand at the shore, staring at the unknown waters, unwilling to dip a toe.
· When it comes to finance, we run back to capital protection because the thumb rules we frame in our mind are broken too often and the promise of performance is too far away in the future.
· When there is a deep fear of the unknown, we choose to clutch on to capital protection.
· It is our search for simplicity that encourages us to seek capital protection from our investments.
· It all sounds reasonable when we ask for ‘at least’ capital protection after having ‘lost’ a fortune.
3. What do others do with our money?
· When we let someone else use our money, he invests it on our behalf.
· Anybody who uses our money, including the bank, is using it to build assets.
· Any asset-building activity cannot be done without taking risks.
· The return from these assets will be used to provide us the return on our invested capital.
· How financial assets will perform in the future is an unknown variable for all investors.
· Even the best-managed businesses can collapse, and well-thought out strategies can misfire.
4. Why do we get duped by others?
· We are very prone to making errors when we seek unrealistic simplification, as we buy into tall claims easily, and even more when the capital is returned as promised.
· The return of capital is good investment in our minds, and fraudsters, therefore, play on this need.
· We also trust ‘experts’ and think that we can follow their ‘advice’ blindly, as this fits our need for simple rules and visible performance.
· Soon enough, we have exposed ourselves to inconsistent stories like
o You won’t lose money in an IPO.
o You should sell when a fund manager changes.
o You should buy on a Monday.
o You should buy before the budget.
· What is worse is that we are given more false promises and theories even when our capital erodes.
· From speculative trading portals to distributors, exposure to organised lying and cheating abounds.
5. How should we overcome our fear of risk?
· We can understand risks in investing if we are able to sift out the risk that is avoidable.
· Until then, we will run back to the need for capital protection, however unrealistic it may actually be.
· It is not only a theory but an investing reality that there is no return without risk.
· When students go to an engineering college to study, without a promised job, have also made an investment and are faced with the risk of low returns.
· When tourists who ate at a less-than-satisfactory restaurant, or people who found that they married the wrong person, have also taken risky decisions.
· There is no rule in the book that would have helped them make better choices with predictable outcomes.