Though we have many types of investors in India, one can zero down on a broader category of 5 of them. Deciding which type of investor you are is key to a successful future of financial planning and happy financial health. Without that, you cannot possibly even know what financial planning strategies to adopt.
It’s like first finding out what illness you have and them taking medication for it – medication first makes no sense, does it ? So first zero down on which type of investor you are and then take measures to becomes the best one.
Holding back on the sermon-
Let’s check on the types of investors we have in India.
The Laid Back Savers
The Laid Back Saver is a person who takes pride in the fact that he saves a lot of money and does not spend anything at all.
While not spending profusely is great and saving a lot is even better, not investing the saved money is not wise. With an inflation rate of around 8% – 10% that we have witnessed, a person who has parked all his money into savings accounts is earning negative interest. So this type of investor is not utilizing the surplus he has with him to grow his corpus so he is laid back. He is limiting himself to grow rich and meet his future ambitions.
Such people have less assets and their personal net worth grow at a snail pace. They also have fewer liabilities as they are hesitant to take on loans, even if it will build an asset for them.
The Prodigal Spender
The English meaning of prodigal is extravagant. In the context of our discussion, it means a spendthrift – a person who spends money recklessly. Such people usually posses an unflinching hobby of weekend window shopping. They are shopalcoholics and like to spend money every time. In a way, they are the alter ego of the The Laid Back Spender.
For many investors, spending can be a new found love when they start their careers. Historically they do not have had enough money previously to spend given their humble backgrounds. For some it can be a status symbol to shop each week. Many find it could be a way to relieve themselves of personal and professional tensions. Whatever be the reason, a large frequency of trips to the mall and other venues of shopping paradises will not bode well for the person’s future.
Such types of investors don’t have much savings – their expense is a large portion of their net take home salary resulting into less or no savings.
Since such investors don’t save much money, they have lesser personal networth and hence are at the wrong side of money management almost always.
The Stock Market Lovers
This type of investors invest heavily in equities. Within this class you will get a set of people who for the love of their life, trade very frequently and earn a decent sum on the stock markets. They think they have all the tips and all the breaking news reach them first.
They are very passionate about discussing stock market tickets and even take the daily papers to the loo each morning to look up the stock prices. Some make money while others don’t. Often, most of them lose their capital as well.
Then there is another class who knows that well, trading too frequently on the counter is not going to get anyone quick money and that systematic investment planning of mutual funds can do the trick as well. So they plough their money into equity through mutual funds.
But both these category of investors invest heavily in the stock market and as a result have no debt portfolio at all. So their portfolios are studded with innumerable stocks and mutual funds but there is no healthy asset allocation.
With such a volatile portfolio, they take undue risk which is not in line with their actual risk taking capability. They take on aggression when actually they should not and so their portfolios are very very volatile.
The Loan Collectors
As the name itself demonstrates, such category of investors take on loans right left and center. So they might take a personal loan to make a down payment for a house they want to buy or take a salary loan to pay off their credit card bill.
They often do not understand how loans work and cannot differentiate a good loan from a bad loan. For such type of investors, the EMIs occupy more than 50% – 60% or even more of their net take home. Daily living expenses is eating in the rest of the money. They are hardly left with any to save and invest.
Loan Collectors end up investing in bits and pieces here and there. They have no target in mind but take up huge loans to meet their short term demands. And when the interest rate on their loans rise, their EMIs increase leading to collateral damage.
Such people are sitting targets for credit card and personal loan companies .
The Intelligent Investor
While a perfect investor’s existence can be challenged, intelligent investors exist. Such types of investors are the ones who do careful financial planning and invest according to their asset allocation. They spread their investments across equity, debt, real estate and gold and don’t get greedy with jeopardizing their goals.
These types of investors invest in the best and minimal products. They track their goals each year once at least. Also, they are brave enough not to get married to their investments. Hence can quickly get rid of products that will reduce their original capital.
Intelligent Investor are the role model for all investors – unfortunately, such categories of investors are very less in our country.
Which kind of investor are you dear reader ?
@Radhey,
Good one. I am a mix of both – The Stock Market Lovers and The Intelligent Investor.
@Rakesh, What is the % split between the two ?
@Radhey,
I am overall an Intelligent Investor (thanks to bloggers like you), all my finance are well managed. Its only that i have a passion for equity and i have huge investment in it I fall in that bracket. Overall i have over 80% of my portfolio in equity.
@Rakesh, Yes, the bloggers are helping people in becoming an intelligent investor.
@Vivek,
Radhey and other blogger are educating a lot of readers on personal finance. They are taking time out from their busy schedule and doing this.
@Rakesh, Right and some are helping people to resolve their issues too, which is truly great.
@Rakesh, Keep up the good work Rakesh. Self confidence is a good thing to have.
Keep learning and teaching us as well.
@Radhey,
Thanks Radhey, self confidence was which i was lacking in. Moving towards right direction now.
@Rakesh, Good luck buddy! you seem to be on right track now.
I am evolving. I was a laid back saver few months ago, then became a stock market lover and now aiming for intelligent investor.
@Vivek,
Aiming for intelligent investor, i don’t think so. You are already an intelligent investor.
@Rakesh, I might sound like one but my investments are not yet aligned to that. I am slowly trying to achieve that.
@Vivek K, “Evolving”, hmmm interesting word to use…
@Radhey Sharma, Thanks Radhey. We all learn through experience throughout our lives so evolution is always there.
@Vivek K, “Learning through experience” is the biggest learning in my mind.
I wonder how everyone else does it but when I have a learning, I write down the do’s and don’ts in a diary (yahoo notepad).
I then refer back to it in case of stock market highs or lows to keep my sanity at a the right level and not get carried away.
I have often missed the obvious in-spite of having learnt new things because there were so many new learnings, that I forgot some of them.
@Radhey Sharma, Hmmm interesting point Radhey. We learn from experience and if that learning is not used in next few weeks it takes a back seat and eventually forgotten.
It’s a good tip to make a note somewhere, I shall consider doing that.
@Radhey,
Learning through experience, same for me too. I have come a long way. From burning my hands in stock market i am striving to be a wise investor.
Well I am a laidback saver for now.Being a student I am still now grasping the basics of investments..but will definately become a intelligent investers thanks to bloggers like you.
@coolguy91, All the best to you !
@coolguy91,
It’s very encouraging to hear that you as a student is very keen to learn financial planning. Radhey has written some wonderful articles which will help you gain good knowledge. I started late so i have a lot of catching to do. All the best to you. Keep contributing here.
@coolguy91, The day you start working you should start investing, it will help you big time in the long run. You can get all the tips here. 🙂
All the best!
@all
I have been overwhelmed by the response.thanks for all the good wishes guys.I would like to start investing as I have accumulated around 15k for it.Would you guys advice me where should I start investing.I am looking for long term investment.Currently i only have a savings accumulated.
@Coolguy91,
Your welcome, we are all here to help each one and learn more.
Before you start investing please do read the basics on investing. Radhey has written some wonderful articles. To start you can read about mutual funds-
https://www.thewealthwisher.com/2010/07/15/what-is-a-mutual-fund/
https://www.thewealthwisher.com/2010/07/18/advantages-of-mutual-funds/
@coolguy91, I would suggest you to start with opening a PPF account and SIP in Mutual Funds. Since you will be investing in MFs for the first time, start with one or two balanced MFs.
As your horizon is long term, don’t panic with short term losses but keep monitoring your MFs once a year.
You may also consider taking a personal accidental and health insurance, may be once you start working.
@Vivek,
Good suggestion, You can’t go wrong with the above advise.
I would also like to add to take an online term plan once you start working.
@Rakesh,
I think term plan is better suited once you have someone financially dependent on you.
@Vivek,
Yes, I assumed that his parents would be dependent on him.
@Rakesh
Not if they have done a good financial planning 😉
@Vivek,
Sorry i did not understand by good financial planning.
I’ll give you an example, i just finished my education and take up a new job. I have no investments and have parents dependent on me. Since my pay scale is less i take a term plan for 50 lakhs. After a year if i die in an accident my parents would get the 50 lakhs and that would help them sustain for many years.
@Rakesh
The example you have given makes sense. What I meant was if parents have done good planning they would have built a good retirement corpus.
Term insurance to me makes more sense for spouse and child who don’t have enough money to survive for rest of their lives.
@Vivek,
Agree with you but most of our parents would have LIC and EPF as their investments then. It’s only since last few years people have realized that.
@Rakesh,
Yes, you are right. LIC has been all time favorite. Hence, the term I used “good” financial planning. 🙂
Moreover, many parents save in PPF, FDs, NSCs and other govt debt instruments as well. Although it cannot beat inflation but it is good enough for their retirement.
Having said that, taking term insurance and choosing a nominee is a personal choice.
@coolguy91, Another advise coolguy: please don’t fall prey to products that has investment and insurance mixed with each other. People who start earning often fall prey to such products because of lack of knowledge and in a hurry to save tax.
@Coolguy91,
I think this is a great tip from Vivek. Beware of your relationship manager in your bank, he will try his best to sell you these products.