Your money

by Manshu on July 16, 2009

in Opinion

A few years ago, my mom’s friend — a middle aged widow came to us with a mutual fund certificate. She said that she had found it in her late husband’s papers and didn’t know what it was. I told her that the paper represented a decent amount of money and that this was a type of investment that fluctuates daily. There was no guarantee of returns or even that the capital is protected. In fact her mutual funds had already lost about 30%, but she could still sell them for a decent sum.

I told her that it is better for her not to be invested in something as volatile as this and she should instead cash it and put the money in a fixed deposit. That way at least her capital will be protected and the interest will be extra money that she can earn.

To me, stocks and mutual funds are risky assets and you should invest in them only if you understand that risk. You should also have a decent bit of money in secure assets before investing in stocks or mutual funds. That was my reasoning and I explained it to her.

Then it was her turn to talk.

This dear lady explained to me that she never dreamt that this little piece of paper was worth so much. She was pleasantly surprised to know that the money could even grow.

She said that for her the money never existed and if she let it be, it might grow into something more significant and then she could use it to pay off her son’s college fees or some other big expense like that.  The sum as it stood today was big, but not big enough to enable her to pay off any big ticket expenses. On the flip side, if the value were to decline, since the money never existed for her, she’d be happy with whatever she got.

That made perfect sense to me and I wished her luck. Her hopes of what she could do with the money if it grew far exceeded her desperation with what would happen if she lost it. So, the risk was well worth it for her.

I was tempted to talk her out of it but it’s her money and if she knows what the pros and cons are, it is her decision after that.

After that particular experience I have always been careful to stay away from specific advice about buying or selling something. If someone asks about something, I try to explain the features of a product or some key aspects of a company (to the best of my knowledge), but I rarely ever say anything about what you should do with your money. It is your money and I have no idea what you should do with it.

It’s your money, your dreams and your decision.

{ 3 comments… read them below or add one }

ctreit July 16, 2009 at 2:56 am

We are indeed all different. Unfortunately many professional advisers don’t bother finding out what the exact circumstances of a client are, but they don’t draw the same conclusion as you do. They still want to give advice. Kind of silly, isn’t it?

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jason July 16, 2009 at 7:01 am

If you don’t take risks you may not make money though. Good points but I would say it is OK to take a risk here and there. You never know, that risk may turn into a great reward one day down the road.

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Manshu July 16, 2009 at 10:39 am

That’s very true Ctreit, I once had an old friend who became a financial adviser spend an hour telling me why I needed to buy a house. Number of questions he asked me — Zero.

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