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New Year resolutions for the year(s) ahead...

Monday, December 12, 2016
By Jayant Pai

Jayant Pai
CFP and Head - Marketing, PPFAS Mutual Fund

It's that time of the year again. A time to look back, reflect and ruminate. It is also a time to look ahead, resolving to learn from our past mistakes.

The gyrations of the year gone by have once again proven the point that equity returns being lumpy and non-linear was driven home forcefully. While the Nifty 50 is up around 7% since December 10, 2015, it has not been a one-way street. Precipitous downturns have been interspersed with soaring spikes. Investors, who have attempted to time every move, have ended up disappointed...and poorer.

While shifts in market cycles rarely coincide with the turn of a calendar year, this is as good a time as any to re-orient ourselves and jettison certain calcified behavioural tendencies which may be detrimental to our financial well-being.

Here are a few new year resolutions which you can keep in mind:

I will not deviate from my pre-determined asset allocation: Asset allocation is often determined at the beginning of each calendar (and sometimes, financial) year in consultation with your Certified Financial Planner. However, during the course of the year, we could fall victim to various influences and be tempted to deviate from the same.

More often than not, this is detrimental. Some investors prematurely broke their bank fixed deposits and piled onto equities during the latter half of calendar 2015 (much to the chagrin of their Financial Planners) as they felt that these were not providing high returns.

I will not predict anything: It is tragic to see the number of man-hours wasted in making predictions (although it does provide jobs to many in the financial markets). We all will be happier if we come to terms with our inability to predict anything, let alone something as nebulous as market movements. It is preferable to channelise that energy into more productive activities. If you do not predict you will also spare yourself a lot of disappointment, because most predictions invariably go wrong.

I shall not remain glued to business channels on TV: Just as we admonish our children when they watch too many cartoons, they too should caution us against watching business channels (except, perhaps, for entertainment value, and that too for only 30 minutes a day). First of all, most 'experts' who appear on such channels indulge in making predictions. Then their time horizon may not match yours. For instance, long term may mean one year to them, while for true investors it may mean at least one business cycle.

I will bolster my knowledge: If you believe you are capable of taking personal finance related decisions yourself, it is imperative that you equip yourself with knowledge from the right sources. However, given the numerous options available, it is equally vital to know which sources to avoid. You should go one step backward and gather knowledge from primary sources such as books on investment or personal finance written by credible and acclaimed authors whose statements have stood the test of time. Benjamin Graham and Robert Kiyosaki are two such examples. I will befriend the internet: Today, besides acting as a fount for knowledge, the internet has also emerged as the most cost-effective execution tool, be it for banking transactions, insurance or mutual funds. Two good examples are online term plans and Mutual Fund Utilities (MFU). Hence, those who are "internet-phobic" could resolve to surmount their fear in 2017. If we focus on implementing these resolutions to the best of our abilities during 2017 we may avoid welcoming 2018 with Joe King's memorable quote "New year, same resolutions...”

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