In my role as a financial advisor I come across clients with varying temperaments. Some portray themselves as conservative investors, some as opportunistic investors and others as aggressive investors. Of all these it is the aggressive investor that piques my interest, for the simple reason that I love to get behind the thoughts of such investors and like to discover what makes them tick. I always want to know what makes them aggressive as investors and if they really are as aggressive as they think they are.
Recently I came across one such client who called himself an aggressive investor. He approached me with the confidence of a self proclaimed aggressive investor and asked me to invest accordingly. He said, “I am open to risks Ashish, go ahead and invest aggressively.”
I could no longer contain myself and asked him what he meant by being an aggressive investor? To this he replied that he did not mind high risk investments which could lead to high returns, even if it meant occasional losses or negative results.
I decided to probe a little deeper, so I asked him if he would be ok if an investment of 2.5 lacs went down to 1.5 lacs? ‘No issues at all, it is a part of being an aggressive investor,’ was his confident reply.
I was still not the one to let things rest easy so I went on with, “what if an investment worth 25 lacs dropped down to 15 lacs, would you still be ok?” “Yes, yes”, was the confident reply.
It was now time to hit where it really hurt so I coolly asked, ‘so I guess you would be ok if an investment of 2.5 crores goes down to 1.5 crores.’ There was an instant outcry from my client, “no way Ashish. That would never be acceptable.’
I had achieved what I wanted. Mathematically all the losses were in the same proportion. So why did the bigger amount elicit such a reaction? Why could he not accept the loss when the numbers were bigger, although his loss percentage was the same?
The answer to these questions is a simple fact. My client was ok with losses in smaller amounts as it did not affect his life plans. As soon as the losses were big enough to affect his dreams they were not acceptable. It is important to understand that you are not making investments to earn or amass profits, but to be able to meet and fulfill your financial dreams. So let us focus on your dreams and goals rather than proclaim you as an aggressive investor each time you make an investment. Focus on your financial goals.
As an investor, you should be focused on creating wealth over a period of time, wealth to help you achieve your dreams and keep you comfortable post retirement. And mind you, you will be able to achieve substantial wealth only when all your investments are generating decent returns and not small amount of investments here and there.
The crux of the matter is that most investors are unaware of their risk-taking capacities. When the market is Bullish and doing well even the local Paan wala bhaiya becomes an aggressive investor and when the market is dull and showing bearish trends an expert fund manager will be averse to taking risks.
As a financial advisor, I truly believe that it is my duty to guide my clients towards the fulfillment of their goals rather than towards a risky or non-risky portfolio. I firmly believe in the mantra “focus on your goals, on wealth creation rather than trying to be an aggressive investor unaware of your limitations’.
