Debunking Risk
Column
The Risk Of Not Investing
Chenthil R Iyer
Investing money has its own set of risks, but the risk of not
investing far outweighs the risks associated with investing
A
few years ago, I had a conversation with
a gentleman who had an amusing theory
about money. For him the best ‘strategy’
with money was to spend it all today! He
said, “The value of money depletes every year due to
inflation and hence buys lesser stuff every passing year.
So the best utility of the same could be derived only
right now.” Sometimes, it is best to walk away from
such arguments.
The unspent money kept aside may be eaten away
by inflation. However the definite loss of not saving
up such money is a 100 per cent by way of unplanned
expenditure. Therefore, the first habit that we need to
create for ourselves is the habit of saving the money
that has been earned over and above our budgeted
expenses. You may have heard the saying ‘work expands
to fill the available time’. Similarly, your expenses will
expand to exhaust the available money unless you
remove the potential saving amount into an investment
account.
The second habit to form is to systematically invest
the saved up money for achieving a set of financial
goals or milestones spread across your life-time.
Most of our financial goals are nothing but expenses
that are expected to happen at a later stage in life, be
it the higher education of your children or buying a
house. And, in many cases, the cost of such goals are
higher than the amount we can possibly earn or save
in a given year. This means that such goals require
the accumulated efforts of multiple years to achieve
fruition. The passive growth of your investments in
terms of the returns accrued will only ease out the
required efforts, and also possibly enhance the quality
of your goal achievement along with compensating for
the effect of inflation.
The most devastating
risk of not investing is lost
opportunity
We all know that investing money has its own set of
risks. However the risk of not investing far outweighs
the risks associated with investing. The primary risk
of not investing as explained above is that of over-
spending on unnecessary luxuries and fads today
and falling way short of the required funds when you
need the money in future for accomplishing your
financial goals, the most important of them being your
retirement. It has become a style statement these days
to say “I would be working till the last day of my life
and wouldn’t be retiring at all.” To such people, my
humble submission is that we cannot take for granted
our physical and mental capability to produce active
income beyond a particular age. Therefore it is better
to be prepared with an adequate corpus. Another
risk of not being prepared with such a corpus is the
uncomfortable feeling associated with having to
depend on your children for survival, especially after
leading a financially independent life for the most
part.
We have a tendency to like certain investments and
dislike certain others. For instance, those who like
investing in bank fixed deposits may tend to ignore
the fact that in the event of a default, the only amount
guaranteed to us across all banks is a paltry Rs 1 lakh!
On the other hand, if one dislikes equity, one may find
the risk of volatility of stock markets to be much more
than what it is. We have to realise that embracing
and managing risks is a much better option than
avoiding risks altogether. A closer study would reveal
that taking the associated risks of investing in various
asset classes such as equity, debt, precious metals,
real estate etc. are only helping us reduce the overall
risk of the portfolio since each of these asset classes
outperform others during different economic cycles
keeping it upbeat.
All said, the most devastating risk of not investing
is the regret of a lost opportunity that sets in at a later
stage in life!
Iyer is a an investment advisor and author of
Everyone has an Eye on Your Wallet! Do You?
www.outlookmoney.com July 2018 Outlook Money
37