It’s well known fact that emotional and financial wellbeing are intrinsically linked. A weaker financial situation leads to stress, anxiety and contribute to multiple health issues, impacting emotional wellbeing. Watch our financial experts discuss Financial Wellbeing and Emotional Wellbeing.
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00:00 Hello and a very good morning to all of you.
00:07 We welcome you again as we bring you the third episode of this popular investor education
00:11 and awareness initiative of Aditya Birla Mutual Fund in association with Outlook Money.
00:17 I am Vishwa and it is a pleasure to be back as your host for the day.
00:21 Most of you would agree that one's emotional and financial well-being are intrinsically
00:25 linked.
00:26 Being in a poor financial situation can cause stress and anxiety which may impact one's
00:30 emotional well-being.
00:32 On the other hand, poor mental health can hinder one's ability to effectively manage
00:36 their finances, impacting their financial well-being as well.
00:39 So in a time like today, when both these factors are being impacted by the coronavirus crisis
00:44 and all that the pandemic has brought along with it, it is imperative to give special
00:49 attention to your well-being, both physical, both financial and emotional.
00:54 And to help you to do that in the best possible way and to guide you through this process
00:59 of improving one's level of well-being, we have with us some eminent personalities with
01:03 extensive experience and expertise in the domain of financial as well as emotional well-being.
01:09 Our first guest is Mr. K S Rao, Head Investor Education and Distribution Development, Aditya
01:14 Birla Sun Life Asset Management Company Limited.
01:17 Mr. Rao, an anonymous of IIM Calcutta, has spent over two decades in the mutual fund
01:22 industry and in his current role, he leads his organization's efforts toward investor
01:27 education.
01:28 We are also joined by Mr. Amit Trivedi, author, speaker, trainer and a blogger with over 26
01:33 years of professional experience in capital markets.
01:37 As a trainer, he has trained over 83,000 participants through almost 1300 workshops across 130 locations
01:43 in the country.
01:44 Both Mr. Rao and Mr. Trivedi have done extensive work in the area of investor education and
01:49 have been with us throughout this journey of creating financial awareness through this
01:52 webinar series.
01:54 But today we are also joined by Professor Kavita Ranganathan, Associate Professor in
01:58 the area of Finance and Strategy at TFI Management Institute.
02:02 Her teaching and research interests are in the area of behavioral economics and finance.
02:08 So without wasting any time, let's get straight into it.
02:11 My first question is for Mr. Rao.
02:13 Mr. Rao, how do you define financial well-being and how does it impact one's life?
02:18 Yeah, good morning to everyone.
02:20 It's thanks Vishal for having me here.
02:23 Indeed, it's great to be part of an eminent panel with Amit and Dr. Kavita.
02:28 It's an honor to be there.
02:29 And at Aditya Birla Sun Life Asset Management Company, it's a privilege to partner with
02:33 Outlook Money during this webinar series and during these unprecedented times to enable
02:40 the investors to take informed investment decisions.
02:43 Indeed, today's topic is one of such topics which enable us not about the markets but
02:49 about the well-being.
02:51 As you rightly said, Vishal, like you know, the financial well-being is interrelated to
02:56 the broad well-being of life.
02:58 In fact, there is a study conducted by Gallup some time back, which is conducted with over
03:04 2 million people.
03:05 There are 2 million people who got interviewed and across the world this is.
03:10 And their findings on the well-being, it has been discussed, it's broadly categorized into
03:14 five.
03:15 It is like, you know, there is a career well-being and social well-being, financial well-being,
03:21 emotional well-being, and the last one is the physical well-being.
03:26 And incidentally, if we can look at all these three, financial well-being and emotional
03:30 well-being are interrelated to other two, other three.
03:34 But holistically, it will become total well-being of an individual.
03:40 And since today's topic is on the financial wellness, I can say financial wellness is
03:45 something, it's a state of healthy living, a state of healthy living through the active
03:49 pursuit of financial knowledge.
03:52 And it's a planning and it's something like a goal setting to live your best life.
03:57 It is a holistic approach and not only about money, but it's about the life.
04:02 It is a holistic approach about money and living.
04:06 And it's doing more of what you love and more of what brings you joy while managing your
04:12 finances better.
04:14 And financial well-being, I was doing some research around, it's broadly divided into
04:20 five other elements which can make things reasonable for the people to look their well-being
04:25 better.
04:26 The first one is how you can have a clear path to achieve your identity by financial
04:32 goals or financial objectives.
04:35 And the second one is how one can control day-to-day finances.
04:39 Third one, ability to absorb the shock.
04:42 You know, that's our current scenario of pandemic.
04:44 We are all one kind of shock, you know, how we can absorb that.
04:48 And of course, the fourth one is how you can evaluate the financial options available to
04:54 you for investing.
04:55 And the last one is anything you take addition.
04:58 I think Amit and me, we were working across over the last six months on various webinars.
05:03 I think today it's for me 99th webinar per se.
05:07 All of us, we are making an effort to make it, to give a clarity and security to the
05:13 people.
05:14 And financial well-being is clarity and security to individual, to leave behind if something
05:19 happens so that people can live peacefully.
05:22 Here, the goal is to achieve financial well-being and it's a state of health.
05:27 I'll just sum it up in such a way, once outlook in the life should be positive and end of
05:32 it, you should be satisfied the way you manage your money and making better financial choices
05:36 through the knowledge.
05:37 That's what we imparting through Outlook Money today and knowledge and planning.
05:41 And when you can manage your money better and you feel better about your finances and
05:46 you will gain sense of security and that will give you a supporting on your psychological,
05:52 mental and emotional well-being.
05:54 I think you have a short question.
05:56 I have a long answer for you.
05:59 Thank you so much.
06:00 It's quite insightful.
06:01 And as you rightly pointed out, all the different well-being of the human are interrelated.
06:08 So Professor Kavita, since your expertise is on behavioral economics, I want to ask
06:14 you when it comes to specifically emotional and financial well-being, how are they related
06:19 to each other?
06:20 Are they co-dependent or does one lead to the other?
06:23 Yeah.
06:24 So, first of all, thank you to Outlook group and Aditya Birla group and Mr. Ramit and Mr.
06:31 Rao and Mr. Vishal for having this conversation.
06:35 I think it's very important aspect when we speak about financial literacy.
06:41 So basically going to your question, Vishal, let's take a step back and look at it more
06:48 fundamentally.
06:49 Right.
06:50 So what are we talking about here?
06:52 What are emotions?
06:53 So if we were to describe ourselves as human beings, we know that emotions are an integral
06:59 part of us.
07:00 So if you remove emotions from a human being, you will be kind of reduced to perhaps a set
07:07 of rules of logic and probability, which has no passion.
07:12 So emotions kind of give you passion and passion allows you to act.
07:17 So emotions are a very important part of a decision making process.
07:22 Now, why are these two considered different?
07:24 You know, these two constructs.
07:25 So we're talking about financial well-being and emotional well-being.
07:28 Why are these two constructs first of all considered different?
07:32 I think it goes to, you know, economics and finance, like going back to 1800, 1900 traditions.
07:40 So economics and finance, that's where we are trained, kind of considers emotional decision
07:47 making as separate from rational decision making.
07:50 Right.
07:51 Now, the question is, why?
07:53 Why was it that economics and finance did not accept or, you know, kind of involve emotions
07:58 in decision making?
07:59 The short answer to this would be that at one point of time, perhaps emotions could
08:04 not be measured or emotions could not be predicted.
08:08 As financial economists and economists, we are all obsessed with predictions about making
08:13 predictions in the future.
08:15 So all of this goes back to economic, our training in economics and finance, where emotions
08:21 were not part of, you know, a rational decision making process.
08:25 Right.
08:26 But today, if you look at research in behavioral economics and finance, at least past 20 years,
08:32 the most seminal work by, you know, Robert Shiller, which talks about greed and fear
08:37 and how about investor sentiment, which rules financial markets.
08:41 Right.
08:42 So the short answer to your question is that emotional well-being is not separate than
08:49 financial well-being, unless an investor is emotionally secure, emotionally satisfied,
08:55 he will not be, you know, financially well off, especially when we want to think of well-being
09:01 as an experience, you know, as like, like Rao sir said that it is an experience of happiness.
09:08 It is an experience of prosperity.
09:10 Right.
09:11 So unless you're emotionally secure, I don't think you will be able to achieve financial
09:16 well-being.
09:17 Right.
09:18 So you are saying that emotional well-being is precursive to being financially well as
09:24 well.
09:25 But my next question is for Mr. Rao, is it important to be financially well, to be emotionally
09:32 well?
09:33 And is there a single formula for achieving that financial well-being?
09:37 What is the path to improve this kind of this kind of financial wellness?
09:40 I wish.
09:41 Thank you so much.
09:42 And in fact, Dr. Kavita has given a wonderful example on that.
09:46 And she spoke so well.
09:47 It is true, like emotions comes first to the finances, for emotion, because we are all
09:53 emotional and any decision will have a very different, even in the risk taking side, our
09:57 ability to take the risk, good times and bad times will undergo dramatic change.
10:01 I think emotions play a very vital role.
10:04 And having said, I think there is nothing called a single universal formula available
10:09 or possible to derive what is that each of us can look at for the financial well-being.
10:14 As Amit and me, we were discussing with you sometime back in the last seminar, when we
10:18 talk about the personal finance, the person comes before the finance.
10:22 And so the person is of the emotion and finances, like it's different for each one of us.
10:27 Now, four of us are sitting in the panel and four of us will be behaving very differently
10:31 for our own finances, given the situation of our life, our financial current status
10:36 of finance and current understanding of things.
10:38 And we are emotionally very different.
10:40 Of course, but there are some proven steps to achieve financial being.
10:45 But one needs to work on it and these steps are not applicable to everyone in the equal
10:52 way.
10:53 You need to look at each of us where we are.
10:55 But in the end, financial well-being is something you need to look at.
10:59 The key to control is to do the finances.
11:02 And as Dr. Kavita said, it is like managing your mind, managing your emotions.
11:08 In fact, sometime back, we used to run a workshop called Master Your Mind and Manage Your Money.
11:13 First, before you are managing your money, what you need to do is you need to master
11:17 your mind.
11:18 There is one thing we always used to emphasize is managing your money is most important.
11:24 And whether you are managing your money or money is managing you, that's where your emotions
11:28 comes in when we are managing.
11:31 And at the end of it, all of us need to look at how my capacity to absorb all these financial
11:37 risks and for my emotions, I am responsible.
11:40 You need to take care of that first.
11:43 And at the end of it, these financial changes, unforeseen life events are happening.
11:47 At that time, how you manage your emotions first, then the finances come later.
11:52 Any given circumstances, like there is some panicky report, something maybe I'm seeing
11:56 in today's morning newspaper, then I may go and read it.
11:59 What is working is my emotions at that point of time.
12:02 But if you can look at the financial wellness, the five steps which I was talking about,
12:05 it's predominantly like the first step we always talk about financial literacy.
12:10 The financial literacy is, this is for the financial well-being I'm talking about, not
12:14 for the emotions.
12:15 And one is the first is the financial literacy.
12:17 This is basically when I'm starting investing, understanding the basics of the personal finance.
12:23 I think these are the very big topic we can dwell a little later.
12:26 And the second one is the financial capability.
12:29 Financial capability is one is being knowledgeable and also capable to make better financial
12:34 decisions.
12:35 So I'm graduated to a level two.
12:37 And the third level is a financially secure.
12:40 Financially secure is when your income is enough to cover your monthly expenses and
12:45 your debt obligations well, and you have multiple income streams.
12:49 Then you are financially secure, your financial well-being at a level three level.
12:53 And financial level four is you are financially independent.
12:57 Financially independent is you are securing not only your assets, will be securing all
13:01 your income streams and your expenses and your, you are meeting all your expenses and
13:07 future obligations.
13:09 And the last step, which we discussed last time was the financial freedom.
13:13 That is financial well-being is the ultimate.
13:15 I think it's a doctorate for all of us.
13:17 I think it's like, you know, it's the way you've got substantial wealth and here your
13:24 wealth covers your lifestyle, your expenditure and making money is not a priority for you,
13:30 but living of your choice.
13:31 And this is where the true financial well-being comes.
13:35 Right.
13:36 So from meeting, you know, daily expenses in a proper way to being financially to attain
13:43 financial freedom.
13:44 So, right.
13:45 So, but financial freedom can be obtained by investing, right?
13:49 So in that context, I come to Mr. Trivedi to invest right in this scenario of low interest
13:54 rates.
13:55 So what are the options one can look at to create a corpus that can achieve financial
14:00 freedom eventually and as soon as possible, of course.
14:05 Thanks Vishal and thanks Mr. Rao for this wonderful initiative of reaching out to people
14:11 out of money is doing a commendable job in trying to educate people, making them aware
14:19 through such initiatives.
14:21 And Vishal, a wonderful question that a lot of people are concerned about these days that
14:28 interest rates have come down to such levels.
14:31 What do we do?
14:32 Now, financial freedom, because you mentioned that phrase in your question, I'm referring
14:36 to find your freedom.
14:37 It's a very vague term and to that extent, a lot of people would not be able to see something
14:44 which is that vague.
14:46 And in that case, it's better to define that financial freedom by putting some amount that
14:55 just much should be my, you know, even if I consider that as just a milestone and not
15:00 the final destination, but having that amount in sight is always a better idea.
15:06 So let's say somebody may say one crore, somebody may say 10 crores, somebody may say two crores,
15:09 whatever could be the amount of 50 lakhs, depending on where one is.
15:13 So that's my next milestone and by when do I want to reach that.
15:18 So this is, in other words, defining the financial goal.
15:22 And as I said, it may not be the final goal, but it's a milestone.
15:25 So this is step number one that one needs to start off.
15:29 And that would set one on a path to planning for achieving that first goal.
15:36 Number two, overall, if you see the goals, and this is one part of it, the second part
15:42 of that is look at your own situation, your own requirements, what do you need money for?
15:47 And that lists down your responsibilities and your dreams.
15:52 Also, again, this is another term for financial goals, and how do you plan to achieve those?
15:58 Now, I'll come to the low interest rate scenario in such case, because all these financial
16:03 goals are to be adjusted for inflation.
16:07 And whenever inflation moves down, interest rates move down.
16:12 Both almost always move in lockstep.
16:16 So to that extent, the value of the goal also gets adjusted downwards when the interest
16:23 income is also getting adjusted downwards.
16:25 Now, once you calibrate both, then not much change is required to be done as far as the
16:32 planning is concerned.
16:33 The only caution that I would suggest out here is, and as both Mr. Rao and Kavita mentioned
16:41 about the emotional aspect of it, whenever the interest rates go down, majority of us
16:46 have a habit of only looking at the nominal rate of interest, which is without adjusting
16:51 for the inflation.
16:53 What we are supposed to look at is the real rate of interest, which is the rate of interest
16:57 offered by various instruments minus the inflation.
17:01 And that almost always remains in a very narrow range rather than fluctuating the way the
17:07 interest rates are fluctuating.
17:08 When we've seen interest rates as high as 10% a few years back, and today we are at
17:12 around close to 5%.
17:14 But if you look at the real rate of return, then it's remained around 1% or maybe half
17:20 percent, not much of a difference there.
17:25 And to the extent that calibration doesn't require much, which means simply because interest
17:29 rates have gone down, one should not start chasing risky investment avenues.
17:37 A lot of people, when they chase those risky investments without understanding, eventually
17:43 neither that higher interest rate nor the capital comes back.
17:47 I would simply want to caution people against that.
17:50 Right.
17:51 As you rightly pointed out, and other panelists have also pointed out, emotions play a very
17:57 important role in one's financial well-being and even the way people invest their money
18:03 and all.
18:05 So now in today's times, the year 2020 has shown us so many things that we had not even
18:09 imagined.
18:10 And this kind of a crisis often leads to some mistakes based on emotions that one must avoid.
18:18 So my next question is for Professor Kavita, what are these common mistakes that one commits
18:22 at these times and how can they avoid them?
18:25 Okay, so let me try to answer this question, giving a background of how emotions are perceived.
18:35 So there are two schools of thought over here.
18:37 So one school of thought thinks that emotions are bad, basically because of emotions, we
18:43 kind of make behavioral mistakes.
18:47 And there is this other school of thought, which thinks that emotions are good.
18:51 Now why are emotions good?
18:53 Because when you are emotional, you tend to act, keeping aside whether the action is right
18:58 or wrong, at least you tend to act rather than not act at all.
19:03 And emotions actually drive you and basically make you focused.
19:07 So sometimes like how Amit sir was saying that it is important to focus on details,
19:15 right, like for the example that he gave was on real interest rate and nominal interest
19:20 rate.
19:21 So emotions kind of tend to kind of, you know, train you to focus on details.
19:25 So these are different schools of thought, which says emotions are good or emotions are
19:29 bad, right?
19:30 Now, let me let me take the latter view that you know, for example, we say that emotions
19:36 are bad.
19:37 And let's look at some well documented evidence out there.
19:42 And why I say we have to look at well documented evidence because suppose you Google behavioral
19:47 finance and you Google behavioral biases, you will come across some 600 700 list of,
19:53 you know, by behavioral biases that is discussed out there, which basically means that it reduces
19:59 every human being to irrational, irrational people, like we are basically irrational and
20:04 we don't make good decisions all the time.
20:07 So that's why it's important to look at well documented behavioral biases.
20:13 So the first classic example is that, think about it like, like, like, suppose people
20:19 face gains and losses, right?
20:21 So evidence suggests that people are risk averse in gains and they are seeking in losses.
20:27 What does this mean?
20:28 When you have a gain, you kind of sell off your gains faster, and you hold on to your
20:34 losses for longer, right?
20:36 So if you look at this behavior, it's been proven that this behavior has not led to wealth
20:43 creation for people.
20:45 So people stick on to their losses for long.
20:48 Why do they stick on?
20:49 Because of regret.
20:50 They do not want to accept their losses.
20:53 They believe that unless they square in their losses, they accept their losses, they are
20:57 not theirs.
20:58 Right.
20:59 But at the same time, when you get a gain, you kind of sell the gains very fast.
21:04 Right.
21:05 So this is also this also this behavior kind of comes from the fact that because losses
21:10 hurt us two times much more than equal sized gains.
21:14 Right.
21:15 But this is this is what psychology tells us.
21:19 But this behavior loss aversion, which we call it, which is a technical term, this has
21:24 proven that people have lost their wealth because of loss aversion.
21:29 So that's the first example.
21:31 The second example, which is extremely classic, proven across naive investors, experts, everyone
21:38 is overconfidence.
21:40 So let's keep aside finance for a while.
21:42 So this is a very interesting experiment which was done in the US.
21:46 So especially people were drivers like people who drive on the road.
21:51 They were asked this.
21:52 Do you think you are a better driver than an average person?
21:56 And more than 70 percent of the responses came in that we are excellent drivers.
22:01 We are much better than the average.
22:03 So then what explains for all the road accidents that happens on the road?
22:07 Right.
22:08 So this whole overconfidence or what we call as misplaced confidence.
22:12 Right.
22:13 It's kind of it's proven even in financial markets.
22:16 A very interesting study by Barber and Odeen, which around 1980s, which proved that people
22:22 who trade a lot.
22:23 Right.
22:24 They do not create wealth.
22:25 Right.
22:26 And so they basically create lesser wealth than people who don't trade as much.
22:31 And in fact, in that research, they have also proven that men trade much more than women
22:36 in the financial markets.
22:37 And, you know, it kind of if you compare men and women, probably, you know, men would be
22:42 perhaps making more losses, not because of financial literacy or anything, because of
22:47 simply a behavior called trading.
22:49 Right.
22:50 And the third example which comes to me and which I would say I'm also like plagued by
22:55 that behavioral bias is it's procrastination.
22:59 Right.
23:00 And, you know, the whole the whole idea is let me put aside a thing.
23:04 I will do it next week.
23:05 Let me exercise next week.
23:07 Let me start my SIP next week.
23:09 You know, all the time.
23:10 So we are like human beings and we do this all the time.
23:14 Right.
23:15 So these are some examples of biases or, you know, we could say that we could become
23:21 better by being aware of these biases.
23:25 And there are various avenues now.
23:27 So one is awareness that you're doing something wrong.
23:31 The second is, you know, there are many interventions which is provided by the government or by
23:37 the state.
23:38 Right.
23:39 So the classic example for such an intervention is nudging nudges.
23:42 I don't know if you have heard of it, but nudging is very popular.
23:47 It's it's it's a work that's come out of Richard Taylor and some of his colleagues.
23:52 So these are kind of interventions which has helped people come across these behavioral
23:58 biases, come away from these behavioral biases and maybe improve their financial.
24:04 Right.
24:05 That's a great example of, you know, how people hold their losses for longer and sell off
24:08 their gains sooner.
24:09 And a lot of people may have committed these mistakes recently when markets were going
24:15 through such volatility, you know, due to covid crisis and overconfidence, of course,
24:20 you know, it's a it's a major dampener when it comes to people creating wealth.
24:25 So in times like this, there may also be, you know, a need for maybe taking a relook
24:31 at one's financial goals.
24:33 One cannot have the same financial goals and, you know, move in the same direction at the
24:37 same pace when times are right.
24:39 And when times are difficult, then one has to revisit them.
24:42 So Mr. Rao, my question is for you in such a scenario, how and whether one should actually
24:48 revisit their goals, redefine them and change their strategy of investment?
24:53 Yeah, I think.
24:55 Thanks Vishal once again, I think I'll just start from where Dr. Kavitha left.
24:59 It's I fully agree on those emotions which were played very well.
25:03 And most of us, there is something called on 2020 when it started, we started with a
25:09 lot of optimism and myself, Amit and another friend of us, Harish, we were going across
25:15 the country to talk to the people creating something called 2020 vision, taking from
25:21 the optimist who will create your 20 by 20.
25:25 You know, this is a time you need to look at your vision very differently.
25:29 And let us be very optimistic.
25:30 This is just how it started elsewhere in the world, but not in India.
25:33 And we were very, very positive and optimistic.
25:36 And now situation is changing dramatically.
25:39 In fact, yesterday I was reading an article now 2021 vision is when I go to my optometrist,
25:43 they will show to me the letters U, V, W, P, Q, R, S, you know, that's in the order.
25:50 Now we were asking whether market is upside, whether your recovery is economy is U or V
25:55 or W. And our entire vision got understanding, it's changed.
25:59 And people talk about now Q, it is we do not know how it is happening.
26:03 And there is another way it's an effect.
26:05 Yes, given the scenario, it is personal finance I need to relook at.
26:10 And you know, whenever something somebody thinks of relook, I always get this nice example,
26:14 which has comes from Albert Einstein.
26:16 Albert Einstein was a professor in Princeton University in 1935 to 1950, I think.
26:22 In 1948 and 1949 for his students, he set the question paper, the first year 1948 batch
26:29 and he would give the question paper.
26:31 And when they moved to second year 1949, he gave the same question paper.
26:36 And assistant of that Albert Einstein comes to him, "Professor, there is something wrong.
26:40 You have not seen these questions I've already given to them.
26:43 They know the answer.
26:44 And shall I change it?"
26:45 And Albert Einstein replied to him, "No, no, no, don't change it.
26:49 Questions remains the same, but answers have undergone dramatic change."
26:53 And when I look at 2019 and 2020, I think our emotions remains the same.
27:00 Markets have undergone dramatic change.
27:02 And I need to look at myself because it's a dramatic change.
27:06 And earlier I am very optimistic, over bullish, earning more than what I need.
27:11 And it's like this is a quote which comes from Will Smith, American actor.
27:17 What he says is, "Too many people spend money on they have not earned and to buy things
27:23 they don't want and to impress people they don't like."
27:28 And that was the situation for me in 2019.
27:30 And 2020, I need to live for me.
27:33 I need to live for the family.
27:35 And I need to ensure that life, livelihood, and I need to take care of the society with
27:39 charity because if I'm having surplus, everyone got impacted and we need to support.
27:44 And this uncertainty of the pandemic, yes, we need to relook.
27:47 And earlier I used to tell in the financial planning, start your long-term planning allocation
27:51 first.
27:52 Now have a vision for your long-term plan, when you want to retire, how you want to retire,
27:57 fantastic.
27:58 But work on the short-term first because your contingency comes the most priority.
28:01 "Aane wale do saal mein mai kya karna chahata hu?"
28:04 First two years ke liye you can make your budget.
28:07 Then make your goal two to five years, you fund for it.
28:10 After that, you think of your long-term.
28:12 Means, you know, your entire strategy and allocation need to undergo change.
28:16 Probably year beyond the emotions, you need to be the realistic and you need to be the
28:20 actual.
28:21 I think that's where we need to work on it.
28:23 Right.
28:24 That's quite an insight.
28:26 Emotions remain the same while markets have changed.
28:28 So my question is for Mr. Trivedi, markets have indeed changed.
28:31 In March, when the markets tanked, the five-year SIP returns were less than one would have
28:36 earned even in bank deposits.
28:39 How do you explain that?
28:40 You know, now over the last four, five months, we have seen a surge in equity markets like
28:47 never before.
28:48 I can't say never before, but a tremendous surge.
28:52 And when economic conditions have not improved that much.
28:56 So how do you explain all these things?
28:57 And do you feel that equity has failed over the long term to create long-term wealth?
29:03 So thanks, Vishal.
29:05 It's a wonderful question.
29:06 A lot of people are bothered about this right now because, yeah, 10 years long-term SIP
29:14 equity, I mean, well-managed funds, fantastic fund managers.
29:19 And still what I see in my account statement is less than what fixed deposit could have
29:22 given to me.
29:23 So why should I trust?
29:25 Unfortunately, going by that, a lot of people have made a classical mistake of getting out
29:32 of equity mutual funds and buying shares directly themselves without realizing that between
29:38 a fund manager and myself, I'm still the amateur versus a professional.
29:43 I mean, it's like when Roger Federer loses two matches, I can't go and play Wimbledon
29:48 against him.
29:49 That's the kind of behavior that people are witnessing.
29:53 Now coming back to the question whether equity markets have failed.
29:57 No, equity markets have not really failed because let's understand that equity is a
30:02 high risk investment avenue.
30:05 And whenever there is a risk involved, the implied understanding should be that there
30:14 is no uncertainty.
30:17 The uncertainty is extremely high, which means even for a long period, there is a possibility
30:24 that one may earn low returns and sometimes even negative returns.
30:30 Just go back a few decades and between 1992 and 2002, over a 10 year period, Sensex delivered
30:39 negative returns.
30:40 So over a decade, it delivered negative returns.
30:43 So that does happen every once in a while.
30:46 It's just that the probability of such an event is low, extremely low.
30:52 So does it mean that equities have failed?
30:54 No, equities have played true to their nature.
30:56 It is just that this turned out to be an unfortunate situation where a global pandemic, a once
31:02 in a century kind of an event took place.
31:05 And that event also happened when the overall economy was also not doing great.
31:10 So when the economy was not doing great and an external event happened, both combined
31:15 together and they wiped out returns for maybe the last two to three years in one stroke.
31:23 Does it mean should I change my allocation?
31:26 Well, looking at that fall, had somebody removed money from equity markets, the recovery that
31:32 followed, one would have missed out on that recovery.
31:36 And that again, is another surprise that equity market keeps throwing.
31:40 Is there a relation between economy and equity markets?
31:45 I mean, almost never in the short term, but almost always over longer periods of time.
31:50 So to that extent, if the economy continues to grow, equity markets are likely to grow
31:55 in line with the broader economy.
31:58 Right.
31:59 I just have a follow up question.
32:02 You know, while those who invest in equity markets do expect some risk, but as you mentioned,
32:06 you know, a few months back, the markets corrected by almost 30-40%, right?
32:11 And you mentioned that, you know, it's a once a century kind of an event, but yet what would
32:15 be your advice to equity investors at these volatile times?
32:21 So you know, Rao sir gave a beautiful analogy of the question paper was the same, but the
32:28 answers changed and the answers changed simply because the knowledge level of the students
32:35 had changed.
32:36 Okay, now, if you simply look at those students, then their knowledge level had changed.
32:43 But if you look at the professor, the professor's knowledge had not changed as much as the students
32:48 simply because the professor had studied earlier and had studied whatever had happened earlier.
32:54 So if simply one looks at what happened in 2020, that came as a big surprise, big shock.
33:00 But if somebody who studies the history of markets, then in last 40 years, that is 1979,
33:05 the base year of Sensex, till now, equity markets have fallen seven times by more than
33:12 30% from the top.
33:15 So this was the first time it happened for a lot of people who joined the market in last
33:20 decade.
33:22 But somebody who at least studied, even if not being present for that person, this was
33:27 not a surprise.
33:29 The other thing which also happened was in the last decade, 2010 to 19, the daily volatility
33:35 had also muted significantly.
33:37 The daily price movements had also moved, I mean, muted significantly.
33:41 And that got heightened in January, February and March this year.
33:45 And of course, subsequently, it just continued.
33:49 I'll come back to the same point which I made earlier.
33:52 It is the very nature of equity markets to be highly volatile and uncertain.
33:58 So to that extent, if you don't see that volatility, start thinking that there is something wrong
34:05 going on.
34:06 If you see heightened volatility, be comfortable that it is showing its true nature.
34:12 And when it shows its true nature, the potential to deliver high return is also very high,
34:19 because the high returns largely come because of those uncertainties and volatilities.
34:26 If you expect flat returns, then you get fixed deposit kind of returns.
34:31 So that's what I would say.
34:32 So have faith, the faith in the Indian economy, the faith in the population and we as a country
34:38 has shown tremendous amount of resilience.
34:41 And if that continues and the economy grows further, there will always be some episodes
34:46 of temporary downturns or uncertainties.
34:51 But otherwise, I'm not really too much worried.
34:54 Right.
34:55 As you said that, you know, those who have been market for a long time, their reaction
35:02 to this kind of volatility is different.
35:04 And those who are veterans, those who are not veterans, who have not been in the market
35:09 for a long time, they react differently.
35:11 So Professor Kavita, I want to ask you, what do you think of people's understanding of
35:16 investment risks, be it veterans or be it the newbies?
35:20 Are people in general able to clearly evaluate the risk while taking investment decisions?
35:25 Okay, so let me let me basically start with an example.
35:33 Again, away from a bit away from finance.
35:35 So this was a question that was posed to, you know, Europeans and Americans.
35:39 And this question was, so suppose the weather department tells you that there is a 5% chance
35:44 of rain.
35:46 And how do you think people will interpret it?
35:49 So people in Berlin were asked this question.
35:52 And so Bert Giorenzo was a very famous psychologist, basically ran this experiment.
35:57 So some people came and said that, you know, 5% of the region will get rain, 5% of the
36:03 time it will rain today.
36:05 Apparently, there was also another person who said that 5% of the clouds seem to be,
36:12 you know, cloud bearing, like rain bearing clouds and they will rain.
36:16 Right.
36:17 So in New York, the response was more, was largely about that 5% of the time it is going
36:23 to rain.
36:24 So if you take extrapolate this example to financial markets, and if you simply open
36:29 a mutual fund brochure, right, so what is the kind of statistics that you find there,
36:34 especially risk statistics?
36:35 Right.
36:36 So if you look at a mutual fund brochure, you will see that there is average return,
36:41 there is standard deviation, which is basically a classic measure of risk.
36:45 That is what we have been, we have been taught.
36:48 There is something called Sharpe's ratio, it goes on information ratio, Sortino ratio,
36:53 blah, blah, blah.
36:54 So this, all of this means that how do people basically understand risks, the way risks
37:01 are communicated and whether investors, first of all, understand basic risks, the way they
37:07 are communicated.
37:08 Do people understand when you say 5% chance, do people understand it better than if you
37:15 say 5 out of 100 times, 50 out of 1000 times, 500 out of 10,000 times, right?
37:22 So risk communication becomes extremely important when you are, you know, basic trying to understand
37:28 how people understand investment risks, right?
37:31 So I would say that the first thing is about risk literacy.
37:36 And this is an important question which the industry needs to ask, because industry communicates
37:41 these risks to investors, right?
37:43 So industry first needs to ask how should risks be communicated so that people try,
37:49 so that investors, whether it is name investors or experts with whether they understand the
37:55 way industry wants them to understand risks.
37:58 That's one.
37:59 Second is, you know, like the previous example, which I gave, one needs to understand the
38:03 psychology behind risks.
38:06 So imagine, you know, you're telling, you're telling your client that your client comes
38:10 to you and says that I want to develop a portfolio, I want to develop an investment portfolio
38:16 to basically, you know, to create wealth for my daughter's wedding.
38:21 Another client comes and tells you that I want to create an investment portfolio because
38:25 I want to go on this lavish, you know, world tour, right?
38:29 But the kind of risks that this client is willing to take to create an investment portfolio
38:34 to fund his daughter's or her daughter's wedding will be very different than the kind of risk
38:40 that the client is willing to take to fund a vacation.
38:43 Why?
38:44 Because there is psychology of this, right?
38:46 So there is a much more emotional attachment to the portfolio that you want to create for
38:51 your daughter's wedding, vis-a-vis if you want to take a lavish vacation, right?
38:55 So I think there is much work to be done to understand the psychology behind these risks.
39:02 And going back to both, you know, what Mr. Rao and Mr. Amit were saying that, so suppose
39:08 somebody started investing in the financial market, say in 2002, and they saw, looked
39:14 at their portfolio, you know, this April or this May, but everything was in red, the way
39:20 they would react to it would be very different than somebody who started their portfolio,
39:25 say in 2019, and started looking at their portfolio, which is red, right?
39:31 So what we say, what we call in psychology as the recency effect, right?
39:35 That kind of impacts our, the way we, you know, try and understand about risks.
39:42 Right.
39:43 Thank you for these wonderful insights.
39:46 I think this would really help our viewers.
39:49 We have been talking about emotional and financial well-being throughout this conversation.
39:53 I want to take a step back and, you know, again, go back to what has happened during
39:57 COVID and how it has affected people's financial well-being.
40:01 A lot of people have faced salary cuts, a lot of people have faced job losses, or just,
40:05 you know, losses in investments, like Professor Kavita was mentioning that, you know, somebody
40:10 who may have started their journey in 2009, investment journey in 2019, and had seen that
40:15 30, 40, 50% losses in the portfolio.
40:17 Now that has to, that is bound to affect the emotional well-being of that person.
40:22 So I want to ask both you and Mr. Trivedi, how can one maintain their emotional well-being
40:28 at such times?
40:29 Shall I take it first?
40:31 Yes, sir, please.
40:33 Okay.
40:34 I think, you know, this pandemic has created definitely a lot of chaos to us.
40:42 And every one of us need to evaluate our priorities and to handle at this point of time, I personally
40:48 feel we need to go back to the basics.
40:50 And this lockdown has helped us to live more frugally.
40:55 For example, like, you know, if I'm spending 100 rupees earlier, in the last six months,
40:59 I would have spent 60 rupees.
41:02 And you know, today, like last six months, in my 25 years of career, my credit card bill
41:06 is zero.
41:07 Then, you know, there are some positivities and there are some negatives.
41:11 And how I need to look at to get my financial well-being is, it is a time for me to reconnect
41:17 with my money very differently, and to take control of my finances.
41:21 And to taking control of the finances, the way, one is, you know, what is my earning
41:26 now?
41:27 And how I am, my future earning, how it looks like, the first thing.
41:30 And second one is how I can, what is the way I spend, you know, understanding my own spending.
41:35 That is the second parameter to look at.
41:38 Third is I can audit all my finances at this point of time.
41:42 You know, we know, as a company audit, we audit all the things every year, every quarter.
41:47 How many times we audit our own finances?
41:49 In fact, we created one wonderful book where, you know, you can keep writing of, you can
41:56 just, because we are into the system, but is it better you can write down and so that
42:00 you can think very differently?
42:02 I am a brain-based coach and when you are writing down, you think very differently on
42:07 things or when you are seeing on your system or on the Excel sheet, you know.
42:12 And this is one you can look at.
42:14 I think we'll share this link available to the audience.
42:17 They can download, pre-download this book and they can do.
42:20 And after auditing your finances, what you need to do is, I think, Kavita said about
42:25 emotions.
42:26 How you spend on your emotions.
42:28 You know, you need to audit your emotions.
42:30 In fact, in the coaching, I keep telling the clients, my coaches, how you write your journal.
42:35 In the journal you are writing, you are typically, you are watching how your emotions are there
42:40 during different times so that, you know, tomorrow I am getting prepared for things.
42:44 Third is, last one is, you know, now you need to take time for us to determine your needs
42:50 and wants.
42:51 Now we are having a perfect clarity in the last 180 days between discretionary spend
42:55 and non-discretionary spend.
42:57 And if you can do that, audit and spend time with the family to check with your finances
43:02 because finance impacting the entire family, not one individual.
43:06 It's a family financial decisions.
43:08 And allocate money according to the goals combinedly you come back.
43:12 And this will reduce your money stress and this will increase your happiness quotient
43:17 on the way you invest your money.
43:19 Even sometimes you may feel like, you know, the little I have, but more I have to spend
43:25 now.
43:26 You know, that's an opportunity.
43:27 I think I leave it to Amit here to take the technical aspect of the...
43:32 Yeah, so sure.
43:33 Thanks, sir.
43:34 You covered it beautifully.
43:35 Well, on the, to great extent, on the emotional side or the behavior side and how do we look
43:41 at finances, I would actually take an example from sports and let's take any competitive
43:47 sport, whether it is tennis or football or cricket or whatever it is, but the winner
43:54 wins because the winner scores more than the person who loses.
43:59 And just look at it, the finances in the same manner that the winner does not win by only,
44:08 you know, scoring, one has to also protect.
44:11 So let's say a football game, the team that scores three goals can also lose if the opponent
44:19 scores four.
44:21 And these four goals with the opponent have scored are your expenses.
44:26 And the three goals that you scored is your income.
44:29 How do you play the game of life?
44:31 And how do you win the game of life is by scoring more continuously than what you are
44:37 spending.
44:39 Now this is a big lesson that has come to us.
44:42 And in order to save properly, which means you are not spending too much or you are not
44:49 allowing the opponent to score too many goals, your defense must be very, very strong.
44:53 Now this defense is what Mr. Rao was talking about, where you do the audit of your emotions
44:59 and you do audit of your own finances.
45:02 Are you spending at the right place?
45:05 Are you spending the right amounts?
45:07 Or are you a bit more reckless?
45:11 And that recklessness often comes from one of the emotions that Kavita mentioned about
45:15 the drivers.
45:16 Oh, I have the ability to earn more than the others.
45:19 I don't bother about my expenses because I can cover it up through my income.
45:23 And often it doesn't happen because a pandemic like this also taught us the lesson that people
45:28 who are actually high flying, and this is no pun intended, but many high flying jobs
45:33 and high flying careers, they were more affected as compared to some of the more mundane jobs.
45:41 On the other hand, there were some mundane jobs which also got very badly affected.
45:48 So it won't spare anybody in a particular manner.
45:52 Who spared?
45:54 The people who had stronger defense when it came to their expenses and the people who
45:59 were reasonably well.
46:01 So even if I can save a few more goals, if I score one less goal, I'll still be able
46:08 to win my match.
46:10 So what I would say very quickly now is keep an eye on the expenses.
46:17 Keep a contingency fund or an emergency fund which takes care of some months.
46:24 So maybe three months, six months, one year, depending on how vulnerable you think your
46:29 income is, number one.
46:31 Number two, from that emergency fund, the next step is to have some sort of risk cover,
46:39 which is where insurance comes in.
46:41 It could be health insurance, it could be life insurance, etc.
46:45 So contingency fund, insurance, and after that, you start looking at what are the loans
46:51 that you need to service and then comes the question of your short term, medium term and
46:56 long term goals.
46:57 Once you looked at everything in this manner, in this particular form, then things start
47:03 becoming relatively easier for one to manage because then you can actually decide that
47:10 out of the goals that you've listed, which goals are important and critical and which
47:16 goals are good to have.
47:18 Kavita gave a beautiful example of the daughter's wedding.
47:23 I would actually say daughter's education.
47:26 And far, far, far more important goal or my retirement, far more important goal than having
47:33 that vacation.
47:34 And I believe in 2021, they are starting a bus service from Delhi to London.
47:39 Somebody may be planning for that.
47:41 But if you can't do that bus service, bus journey, it's okay.
47:46 What you want to fund is your daughter's education first.
47:49 So important goals and less important goals.
47:52 And then out of the important goals, you divide those goals in terms of which are more urgent
47:57 and which are far in future.
48:00 Once you start that approach, then planning becomes a lot more easier.
48:03 That's how I would put it in simple ways.
48:08 Right.
48:10 So basically you talk about two kinds of goals.
48:12 One, the goals in football and the ones that are the financial goals.
48:16 And you talked about prioritizing the financial goals, right?
48:19 And always having more goals in attack against your opponent, actually.
48:24 So now my question is, what if there is someone, a wealthy individual who can score as many
48:30 goals, who can fund as many financial goals as possible?
48:33 And how should they look at investing their money in these things?
48:38 Fantastic question, Vishal.
48:39 And a lot of people come with this kind of an argument that I've got more than enough.
48:44 Now, if it really is more than enough, and I was just reading the other day a book by
48:50 Joseph Heller, the book's title is Enough.
48:54 Sorry, sorry, I forgot the name of the author, but he quoted this book by Joseph Heller called
49:00 Catch 22.
49:01 So the book Enough starts with a conversation between Joseph Heller and somebody.
49:06 And somebody tells Joseph Heller, referring to one hedge fund manager, that this guy has
49:11 got more, he makes more money every year than the amount of money that you earned by selling
49:17 this bestseller called Catch 22, one single book.
49:21 So Joseph Heller gives a smile and says, yeah, but still he doesn't have what I have.
49:28 And this guy was shocked.
49:29 What is it that you have and this guy doesn't have?
49:31 He said, enough.
49:33 I have enough.
49:34 He doesn't have.
49:35 Now, when you are wealthy enough, how do you define that wealth is very important.
49:43 The wealth should be able to fund all your life's expenses, including the financial goals
49:49 without the need to work.
49:53 Then you are a wealthy individual.
49:56 But then comes the responsibility.
49:58 If I am wealthy enough, will I be able to provide enough for my next generation?
50:04 And if I am able to do that, then as Mr. Rao mentioned sometime back, can I do some charitable
50:09 activities?
50:10 Now, see, my goals are funded.
50:15 I will simply add my next generation's goal or what I want to live for my next generation
50:23 and what I want to live for charitable causes.
50:26 The moment I start defining those goals, then goal-based planning becomes easier.
50:30 Now, these are also good to have goals, which means it gives me a little bit of flexibility.
50:35 But without deciding on the destination, it's a very, very scary situation.
50:42 You know, just yesterday I was reading one of the articles that people are so fed up
50:46 of staying at home that some of the airlines have started a service called Flight to Nowhere.
50:52 So you board the flight, they move around in the sky for a couple of hours and then
50:58 put you back in the same airport.
51:00 And for that, the airlines are charging and people are spending money.
51:04 It only reminded me of a lot of investors who invest in that manner.
51:09 They invest their money when they don't want to go anywhere.
51:13 So they take a round, come back, airlines makes money.
51:17 So all the financial intermediaries will make money and the person would not enjoy it at
51:21 all.
51:22 So even if you are wealthy, even if you've got more wealth to offer to people, decide
51:27 whom do you want to offer to.
51:30 Don't let somebody else take the wrong advantage of that.
51:34 That's what I would say.
51:35 Right.
51:36 Again, a great analogy, which I really, really enjoyed listening to.
51:41 And I'm sure I will be using it to explain finances to my friends.
51:47 Mr. Rao, I have one more question for you.
51:49 I want to ask you, again, a lot of people that I know also and a lot of people who invest
51:55 their money.
51:56 Now, during these times, a lot of them are forced to pause their SIPs because of financial
52:01 crunch due to some reason or the other.
52:03 So Mr. Rao, what would be the impact of pausing that SIP on their long term finances?
52:10 And what is your advice to these kind of investors?
52:12 I think, you know, it's most of the people out of panic, they would have closed and also
52:17 out of necessity, they have closed some SIPs in the month of March.
52:21 And you know, the predominantly when we did a research, it looks like people out of panic,
52:25 you are close.
52:26 Panic is that markets are going to fall more.
52:28 Our second is there is an uncertainty of how I can find.
52:31 But if you have the right financial advisor at that point of time, I think, you know,
52:35 he would have sat with he or she would have sat with you, sat with the person and said,
52:39 you know, what are the priorities, what to close and what not to close.
52:42 Having closed for the last six months, I think there is an opportunity when like, you know,
52:46 getting the units allotted the less and going up.
52:48 That will definitely have some impact.
52:50 But having taken this decision, it is like, you know, now is what is the correct decision
52:54 we can look at.
52:55 I think I'll quote here, Peter Drucker on the management, which is more relevant here.
53:00 Peter Drucker always used to say the greatest danger of the turbulence is not in the turbulence,
53:06 but the way you look at the turbulence with the old logic.
53:09 And you know, you need to have it.
53:11 And at this point of time, my pandemic will end, maybe, you know, beginning of the end
53:15 is already started.
53:16 Time to relook, I think, as Amit said, how you need to prioritize your goals and get
53:20 back where you can possibly you can restart your SIPs.
53:24 And that's a better way to rebuild your goals and relooking at your SIPs.
53:30 Probably like, you know, I was telling earlier, the frugal living, you know, currently if
53:35 I am living at 70% of my income, I mean, because of the pandemic, I know how to save now, you
53:41 know.
53:42 Today is the 180th day I am sitting at home.
53:46 A year before, I took 180 flights across the country.
53:49 And I think now flying nowhere as Amit's example, which I take it.
53:54 And now you have a lot of money to save.
53:56 Probably that you convert.
53:57 If not an SIP, you know, you can, one, you can do a step up SIP or like, you know, you
54:02 allocate that money to reallocate for the short term.
54:06 You can allocate in the next six months money to the markets.
54:08 And, you know, if you can look at whichever the Indian economy is looking at, whether
54:12 you, we, WQ or Elephant, whichever the curve it is opening, but everyone came to one logic
54:17 by 2022 Indian economy will be back to there.
54:21 Either time are you funded full and then get exploited, explore all the possibilities of
54:27 making money.
54:29 Right.
54:31 I think we are, you know, almost out of time.
54:34 So before we close, I will ask one question to each of you.
54:37 What is one lesson that people should take, take away from this conversation?
54:42 I put this question to Professor Kavita first, I'd request you to keep it short because we
54:48 have a paucity of time.
54:49 Okay.
54:50 So let me close with just, you know, one quote by Adam Smith, which he said in the money
54:56 game and he wrote the book and the quote is basically, you know, we are a bunch of emotions.
55:03 We are a bunch of prejudices.
55:04 We have, you know, all kinds of issues.
55:08 There's no problem with it as far as you are aware of.
55:12 So basically what Outlook and what Aditya Builder Group is doing is creating awareness,
55:17 whether it is about financial literacy, whether it is about emotional well-being.
55:21 And I think that's the first step we have to be aware to take action.
55:26 Right.
55:27 Mr. Rao.
55:28 I think it's to put it short, I look at today's financial well-being when we're talking and
55:33 financial well-being is a state of well-being, which should be, which is measured by quality
55:38 of your life, but not by just wealth.
55:41 I think, you know, having said that, never forget your SIP.
55:45 SIP is the systematic investment plan in normal mutual fund parlance.
55:49 But for me, SIP is little beyond that is save wisely, invest rightly and plan smartly.
55:55 And that will give another SIP to you in your life.
55:57 That is save, invest and prosper and create healthier and happier relations with money
56:02 so that you can have your emotional well-being and financial well-being.
56:06 Mr. Trivedi, you have, can you add one more point to that?
56:12 Yeah.
56:13 So my sense would be a lot of people look at money as something very important, but
56:19 let's understand the role of money.
56:22 Money is a means to an end and not an end in itself.
56:25 And that end really is the life that I want to live, the life of my choice that I want
56:31 to live.
56:32 And for that purpose, I need money.
56:33 And for that purpose, I need to plan my finances.
56:37 So always keep that life at the focus and not money.
56:40 Money is required, it is very important, but much more important is life.
56:44 And that's where that holistic well-being that Mr. Rav and Kavita also explained earlier
56:48 comes into picture.
56:49 Keep that holistic well-being in mind.
56:51 It's about your life.
56:52 All right.
56:53 Thank you so much, everyone, for your time.
56:56 It was a really interesting and insightful conversation.
57:01 And I personally enjoyed it a lot because it had a balance of financial advice and life
57:04 advice.
57:05 And I'm sure, you know, our viewers would also find a lot of, you know, valuable inputs
57:10 from take a lot of valuable inputs, inputs from this conversation.
57:15 And this advice would help them not only be financially well, but also being emotionally
57:19 well at the same time.
57:21 So I think it's a holistic conversation that we had.
57:23 And we would like to have much more, many more such conversations.
57:27 And I would request all of our viewers to be back for our next webinar.
57:30 Till then, see you and let's just meet them and sign off.
57:35 Thank you so much.
57:36 Thank you.
57:37 Thank you so much.
57:38 Stay safe.
57:38 Stay well.
57:39 Stay well.
57:40 Stay well.
57:40 Stay well.
57:41 Stay well.
57:42 Stay well.
57:42 Stay well.
57:43 Stay well.
57:44 Stay well.
57:44 Stay well.
57:45 Stay well.
57:46 Stay well.
57:47 Stay well.
57:47 [BLANK_AUDIO]