Sensible Measures without getting Too Ambitious

Sensible Investing
Sensible measures without getting too ambitious – these 6 words from an old RBI press release caught my attention.

RBI governor Raghuram Rajan’s recent announcement to not take up the second term, triggered a desire in me to read up whatever I could find about him. So I landed up on a press release (link), which had some key points in a speech made by him.

Talking of this announcement, the media is full of debates around the so-called Rexit (Raghuram Rajan’s Exit). I read up a lot and still have no answers to questions related to Rexit’s implications for the Indian economy.

But I am quite impressed with the PSU Bank cleanup that he initiated. There are few more initiatives that I think were in the right direction. To cut a long story short, I am of the opinion that having him around as the RBI chief would have been better for the economy than not having him.

But in life, we can have anything but not everything. So I guess, we will just have to do with a good Prime Minister for the time being. 🙂

Now getting back to the 6 words that caught my attention…

Sensible measures without getting too ambitious.

I feel these words can act as Level-1 Guidance for people looking to put their personal finances in order.

These words are neither as comprehensive nor as spectacular like these. But are still worth pondering over for few minutes (atleast in my opinion).

When we invest, its very natural to be influenced by the recent performance of the asset we are investing in. So when for example, stocks have given 15% plus annual returns in last 5 years, it becomes the new normal. People start believing that same (or higher) returns can be achieved ‘easily’ in future too. This is also known as the recency bias. People tend to believe that stocks will behave like bonds with guaranteed returns! Now is that sensible? Hell no!

We cannot take high-returns for granted. No matter how much we want something, we should be sensible about what we believe in.

Similarly, using a low inflation in your personal finance calculations can reduce the required monthly investments today.

But when the day of reckoning comes and if actual inflation is higher than your assumption, you will be short of the required funds for some very important goals of your life.

Ofcourse you can borrow and bridge the shortfall.

But why borrow when you can plan better today? Why not assume a higher inflation in your calculations and invest more from today itself? So that there are no rude shocks later on?

I am not advocating completely sacrificing the present in preparation for the future. But turning a blind eye to realities is something that is not acceptable.

Remember that returns given by any asset won’t necessarily match your expectations or those calculated returns that you need to achieve your goals. Markets and assets have no regard for your wishes. They take their own bloody path.

So lower your expectations. Don’t be too ambitious. If it means investing more today, so be it. Be sensible enough to do that.

As for RBI, it will be interesting to see who gets into Mr. Rajan’s shoes and continues the reforms he had initiated.

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