WRONG RISK PROFILING - MILLENIALS INVESTMENT GRATIFICATION

 In a country like India, it is being found that investment decision and choosing a menu of food items in a restaurant is influenced by the order given on the other table by someone else.  Do you know why Zerodha has seen such surge in trading account opening? How many of you have seen the advertisement that through investment and trading one has purchased Mercedes Benz or has purchased a new house or a girl claiming she became financially independent at the age of 24 with a car, house etc?  We don’t see SEBI banging these heads of the advertisement otherwise they should not have come with such provocation of investment gratification.

 Sorry to say in many places it is being found that comparison lines are being drawn between why one needs an investment advisor? Well, the answer lies best in this thoughtful research insight. How many of you liked those stories and jumped into the opening trading account in equity, currency, commodity and Mutual fund?  These advertisement plays on your behavioural aspect of investment and works mainly on that person who can be framed into temptation based mindset.  Even educated people also get into this behavioural trap of investments. Margin funding and pledging investment and taking a loan for further reinvestments to make quick money is a behavioural aspect of investment.  The provocation of short term gains from every corner of the society is eroding the investor’s mindset and damaging the long term wealth creation.

No risk profiling can capture or help neither can be guided these investors who are framed under this behavioural aspect of investments. No risk profiling can capture this provocative investment decision since the behavioural aspect of investment the decision is missing to measure the reason behind any investment decision and selection of products.  As debt funds are not performing lets investment inequities have become the blind barometer for every investor without accessing how much risk of plunge can be absorbed by the same investor.

 When the pandemic strikes the certain spike in Trading & Demat account opening have been the biggest proof of this short term investment gratification. That has been the reason why Zerodha became larger market shareholding for the Trading account segment. These online modes are honey trap followed by those advertisements.

The behavioural approach towards investments changes in every “Emergency Situation” like GFC and current pandemic. I will not be boring you all with past stories but more towards the future pattern of changes.  Investment decision and redemption decision is all influenced by behavioural pattern and lesser due to better understanding of risk. Risk profiling has its own limitation. Behavioural aspect towards investments is beyond greed and fear factor. Quick money and following the neighbours' style of investment is the most often key decision-maker for investments. Do you know when penny stock becomes favourite –it’s only when quick money philosophy instigates the hunger.

The patience factor has disappeared from the investor map. Checking NAVs and fund value every day is a habit for an investor.  Every market high lead to be the birth of new investor with no objective of long term wealth accumulation and all short term quick bets from these newly born investors.

Patience has a huge impact on wealth accumulation. It’s more required than the money required for creating a long term wealth.  The below data is related to the Mutual Fund industry of India where Systematic Investment Plan (SIP) investment trend matched withholding period is matched and it is being found that over 50% people discontinue their SIPs in less than a year in direct mode and 27% under regular mode. Well, don’t bother on the closure number of SIP the later number is less since most investors don’t know how to redeem or they are stuck where the former is easy to stop or redeem.

The reason being that long term is only on papers and not on investor mind while doing investment.  Short term mindset based investments make the killing. When these investors who exit after 1 year with not much gain simply defame the investments and the related product.  

 These investors who exit within one year have frame mindset created from someone else investment strategies.  I have opened up a trading or investment account, lest start again with investments again and this time I will make super quick profits-these are investment gratifications. Yes, Investment has turned out to be part of gratification a behavioural aspect.  Millennial has become the biggest victim of this investment theory where short term gains and instant investment gratification has become the norm. Well, the matured ones are also a big victim of this framed mindset.They carry fear factor of losses and all negative vibes towards investments. From here they get into other investment traps in search of security often called chit funds and other scams.

Coming to long term weal the creation and portfolio holding the best example which we could get to explain is mentioned below where REAL returns various asset-classes (1802-2012) - $1 invested in US$ cash = $0.05 $1 invested in gold = $4.52 $1 invested in T-bills = $281 $1 invested in bonds = $1,778 $1 invested in stocks = $704,992. 

 

There is a big debate in the market that do we need investment advisor in flesh and blood or do we need Robo advisory where automated process and advice followed with transaction execution is given. We call these online platforms as honey traps where flesh and blood are not in place. The millennial are becoming short term focussed and long term thinking is subject to changes in life.  This behavioural aspect is being adopted where investment has become social status and showing the portfolio of one's investment in Facebook or Instagram has now become a status mandate. The behavioural aspect of investment in this pandemic and post-pandemic will change a lot. Those who made quick significant short term money will also lose the same at a much shorter period and then these investors will develop another behavioural mindset where past legacy will control their future wealth creation.

Behavioural risk profiling is the need of the hour and investment advisors are the best tools for human-based , feeling involved in risk assessment. Simply asking a few questions and algorithm-based risk profiling does not mean behavioural aspect is included. Human behaviour changes everyday and hence the investment also changes accordingly. An Investment advisor comes into play where he gets the Investment objective defined so that all corners of the client is covered managed and understood by both.