During a recent discussion, which was held as part of the investor education and awareness initiative of Aditya Birla Sunlife Mutual Fund in association with Outlook Money, experts spoke about how various learnings can help build a successful financial life. The experts who participated in the discussion were K.S. Rao, the head of Investor Education and Distribution Development at Aditya Birla Sun Life AMC; and Amit Trivedi, an author, speaker, blogger and trainer.

The Biggest Teachers

An individual can have multiple teachers in life—from money itself to events such as the Covid pandemic to their parents, teachers and even their own mistakes.

“The greatest teacher in anyone’s personal life is their own mistakes,” says Rao. People may make mistakes while investing, but if they are careful enough, they won’t repeat it the next time.

Trivedi elaborated how money can be the biggest tutor. “Every time someone interacts with something relating to money, there is a lesson to be learnt,” he says.

According to Rao, the last two years of battle with the pandemic has taught us some valuable lessons. The most important lesson being the importance of having an emergency fund and taking care of one’s health. Rao explained through an example. “Suppose you have a lot of money invested in assets. But since all of the money is invested, during an emergency, you may have to bear losses to be able to sell your assets and take cash out. Having an emergency fund would have solved this,” he says.

Lessons From Volatility

Trivedi advised people that equity is a volatile asset class, but over longer periods of time, it can outperform any given asset class, “Hence, people should invest and stay invested in equities, but if people have a short-term requirement, then that money should not be put in equities,” he says.

Trivedi further shared an insight regarding a common question which people have about how long is long-term, since it is said that equities perform well in the long term. “This thought is flawed for there is no fixed definition of long term, equities don’t work like that. However, if you have invested in equities, then you will increase your probability of getting a good return, but that still does not guarantee returns,” added Trivedi.

Trivedi also highlighted an analogy about having adequate insurance and said that having sufficient and appropriate insurance can save your accumulated wealth. “Creation of wealth by cutting down expenses, reducing debt, others and investing that is important, but protecting that wealth is also equally important,” he says.

The Role Of Financial Literacy

Financial literacy can play a big role in helping people choose the right investments that are suitable to specific goals.

According to Rao, “Financial literacy and knowledge about mutual funds is essential. Investors need to understand not only that mutual funds are important for their long-term goals, but also which mutual funds are good for their goals, for there are so many different types. An informed investor is a protected investor.”

Strong Foundation

While life teaches many lessons, financial and otherwise, the strongest foundation is laid when people are younger, and parents have a huge responsibility in this regard.

The best way to impart financial discipline is through action. Says Trivedi, “Children don’t listen, rather they observe how their parents behave and then pick up whatever is convenient for them. So if you want your children to have financial discipline, then you must start being responsible with money yourself.”

Sometimes this can get tricky as parents may need expensive items to suit their profile. So, if you are buying an iPhone for business or other purposes, explain that it is a necessity for you but may be a luxury for the child, says Trivedi. “Parents should sit down with their children and list down what exactly the purpose of large-ticket purchases is in their life.”

It is never too early or too late to discuss money with your children, so start now.

Disclaimer

• An Investor education and Awareness initiative of Aditya Birla Sun Life Mutual Fund.
• All investors have to go through a one-time KYC (Know Your Customer) process. Investors to invest only with SEBI registered Mutual Funds. For further information on KYC, list of SEBI registered Mutual Funds and redressal of complaints including details about SEBI SCORES portal, visit link https://mutualfund.adityabirlacapital.com/investor-education/education/kyc-and-redressal for further details.
• Mutual Fund investments are subject to market risks, read all scheme related documents carefully.