Majority investors are like infants in the field of investment, wherein they are totally unaware about the good and bad of the industry. It is at the end of the financial year when they review their investment and acknowledge their decision. When review is not positive enough, they lose hope and enthusiasm for sustaining the investment let alone adding to it. However they never go in to depth to understand why the review is not favorable or rather whether the review really is not favorable?
As humans we are predictable and make mistakes in haste or spur of the moment. However these mistakes can be repaired easily if given time and patience. Making mistakes is part and parcel in every human life, but solving them makes every individual a great personality. Most of the times these mistakes are curbed by self-motivational efforts, however psychological study suggest sometime humans need that one push to go beyond and be successful.
Parents always strive to take care of their children, since they are continuously prone to mistakes. In this process they improvise on ideas to keep their children away from danger or to route them to mannerism and ethics. For instance assuming there are chocolates and fruits kept on the table for hungry children. Now be it any child, it will always opt for chocolates even if they aren’t hungry, however if the chocolates are hidden, they shall have no option but to eat the fruits whenever they are hungry. This improvisation will later prove to be hugely beneficial to children and the mother will be successful in curbing their bad habits. This improvisation was nothing but manipulation of emotions of children and thereby making them future ready. A nudge is nothing but manipulation of these human emotions to keep them away from mistakes. Let us look at few of such nudges which are essential for both investor as well as advisor in order to succeed in this vicious world of investment.
Human mind always craves for rewards, which is nothing but a return on the invested time and efforts. These rewards are the fuel to the investment of such time and efforts. Saving from your income is a tough task, but given certain incentives, this task may become a bit easier. In reality saving requires habit and habit is a continuous process, wherein beginning is the most difficult part. If human mind is manipulated in the beginning, sustaining it won’t be difficult. This is the nudge which every individual investor will require at first, to paint a fruitful picture. Thus investors and advisors alike can rewards to the family members and investors respectively to motivate them to save more and get treated more.
No investor understands the difference of a 5000 SIP compared with a 10000 SIP, as for naked eye it is just another additional 5000 Rs per month or 60000 per year. So what difference just a 5000/60000 per month or year will make nothing? Think again, because in reality if a 5000/month SIP after 3 years can take you to Manali for vacation, while a 10000/month SIP in same time can take you to Europe. Often the investment amount may not give you the right awareness for the right amount of savings, however the future projection might.
If something happens by default, it happens only because someone does not do something else. Every individual loves default, because it saves them from the stress of choice. Whenever we buy a phone, it asks us to choose from default settings or customary settings, in a blink of an eye we choose the default option and later when the requirement arises we try to find the customary settings. Whenever we talk about savings only one thing comes to mind by default Fixed deposit, whenever term insurance is talked we end up with endowment plan, when tax savings is the requirement we rush to LIC premium.
One of the most common characteristics of any human being is forgetfulness. This is the reason where mistakes occur just because of forgetting the simplest of things. For instance forgetting keys of your car or house and getting yourselves locked out until help arrives. On similar note in investment if you try and understand which simplest errors have cost you or your investor in the past, the results will be positive. ECS bouncing charges due to lack of sufficient balance on time or paying unnecessary exit load on redemption or forgetting to deposit minimum amount in your PPF account. These errors must be eradicated by analyzing them when occurred and putting in place a mechanism to stop it. Just like seat belt warning helps you wear it before your start your car.
Just when you say investment, your ears get flooded with options such as mutual fund, fixed deposit, tax savings schemes, government bonds, Life insurance plans, endowment plans and what not. This is as vague as saying “I want to buy a Car”. Now when you want purchase any car, you select the one which suits your needs such as if the family is big, you may want to buy a SUV or if city travel is the requirement, you may want to go for a hatchback. Similarly when it comes to investment one should know what the ultimate objective for such investment and then invest in appropriate instrument. Decoding complexities by understanding the requirements is essential to know where to invest, otherwise it will create havoc in choosing the instrument.
In this twenty first century, people believe in fast response. Be it food, goods delivery, customer grievance and every other field. Slow becomes obsolete whereas quick and fast is preferred in every aspect of life. Investment may be fast, easy and user friendly, however its result takes time. This time makes every investor impatient and thus forces them to liquidate or to look out for other investment options. However if these investors are fed with consistent feedback of their investment, they may stay long enough no matter how slow the results are coming.
Nudges are nothing but a push that is required for investor or advisors alike, as these little pushes may well determine the desired outcome. These nudges may seem insignificant at start, but once applied may prove powerful enough to achieve the impossible.
(The author is founder, Money Mantra; views expressed are personal)
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These nudges may seem insignificant at start, but once applied may prove powerful enough to achieve the impossible
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