Always Follow WWHWW

Amar Pandit , CFA , CFP

Any guesses about what this cryptic headline is?

It has nothing to do with WWF, Wrestling or Wildlife.

It has everything to do with investing your hard-earned money.

Investor Nano - 11 Nov

Can you make sense of WWHWW now?

The financial services industry (and investors) generally have this backwards.

They always start at the top. They start with the WHAT (Which) of investing?

What (Which) investment /product should I buy? What should I buy? Which asset class should I invest in? What’s happening in the market?

What product to buy or an asset class to invest in is a decision that comes in much later.

First Begin with the WHY?

Why are you investing? Why is money important to you?

And I am not talking about Goals here. That comes second. Goals are “Where” you want to go.

For example, going to Bengaluru is a Goal. But why do you want to go to Bengaluru?

The initial pillar is all about why you want to go where you want to go.

In short, your Why = your Purpose.

Understanding why money is important to you is the bedrock of your financial life. You have to get this right.

Once your “why” is nailed, the next layer is “Where do you want to go?” These are your financial life goals such as retirement, child’s education, building that dream school for underprivileged children, helping out cancer patients and so on.

This second W is Where = Financial Life Goals.

Once you have got this right, you proceed to the next pillar “H”.

H is How = The Process you follow to make your financial decisions. How much to save, how much to spend, how much to invest, how much to invest in each asset class, when you will sell and so on.

After this layer comes the third W = The What of Investing (this is the famous one that most people seem interested in).

But the most important W in all of this is the WHO.

Who is that real financial professional who will care for your financial life and guide you in a world class way through the above steps?

Don’t ignore this step. Give it the importance it deserves. Just like we need the best brain or heart surgeon, so do we require a real financial professional in our lives.