The lockdown has meant new family traditions for all of us
One of our most cherished ones is the balcony tea party with the kids every Sunday evening. I’ve had some of the most interesting conversations over hot chocolate, green tea, and coffee. This Sunday, my son Samar asked me something to which I truly didn’t have an answer.
“Papa, how much money is there in the world?”
(Parenting Tip: If you don’t know the answer, ask another question)
“Why do you want to know this Samar?”
“Because I want to acquire it all” (a mix of concern and Sindhi pride sets in by this time) “What will you do with all of it?”
“It will be fun, na, Papa!”
(P.S. – As per Rankred, money in circulation is US $37 trillion. Money in the form of investments, derivatives and crypto exceed US $1.2 quadrillion.)
After having dealt with the basic necessities of life, what we all collect money for is one of the most personal and unique things about us. Having managed some of the wealthiest families in India, I’ve seen this first hand.
Some collect money to give back, to redirect it to causes they believe in.
Some do it so that others can travel the same paths they did. Others do it to encourage entrepreneurship. For some, it’s about leaving a legacy—a name for future generations to admire. Sometimes, it is to be able to have a good life.
And then there are some, like Samar, who are just doing it for the fun of it – it is just a number that they want to scale.
But is there more to this than just knowing how people think? To me, the answer to what money means to us is the first step towards managing it better. As a wealth manager, it helps to know the investor’s money motivations better.
There are two critical factors to keep in mind when designing the portfolio for an investor:
1. establishing the loss threshold This clarity helps us define how much risk we can take with it.
Recently after the brouhaha over Nithin Kamath’s salary, I heard him speak about his mental model for business decisions at Zerodha: before taking any decision, he defines what the loss would be if the decision goes wrong. He would then proceed with it only if he could sleep with that loss. Investing is very similar: we need to create portfolios keeping in mind what would happen if the worst came true. Except that, we won’t just lose money, but what it means to us. It would mean not being able to do what we saved up for in the first place.
(At dezerv. this is core to our investing model, but more on that another day!)
2. Understanding the tenure
The response to this question also puts the time horizon into perspective. If this money is for a good life when we retire, then we need to create a portfolio that has assets that will grow over the long term.
Some of the most interesting folks I know have taken unplanned sabbaticals in their careers to discover new experiences. If you’re one of those, then your money needs to be available when you do want to take that plunge, and not locked up in long-term instruments.
(Side note: This podcast of Karan Bajaj on how the sabbaticals he took shaped him)
For wealth managers as well, this clarity can help serve the client better. In fact, the best wealth managers I know never talk about mutual funds, equity stocks, or bonds with high yields. They would rather use your time to understand you better and to bring out what this money means to you. And then apply that understanding to building the right portfolio for you.
So instead of first thinking about how to grow your money or worrying about it safely, let’s find out what it means for us. Talk to your family about it. Maybe even write it down. Once you have that, managing it will be a cakewalk, for you and your trusted advisor.