Anshul Sharan, Co-Founder & CEO, Elever

An IIT & IIM alumnus having 14+ years of diversified experience in strategy, product, risk, and operations, Anshul leads the Elever team towards its vision of improving a customer’s lifestyle by creating an affordable and personalized goal-based investment app. Anshul loves to work on solutions that impacts masses both directly and indirectly. From his personal life experiences and also going through experiences of his friends/family and peers, he realized that there are no affordable, unbiased, and personalized advisory services available to help people achieve their financial goals and improve their lifestyle. This realization acted as a catalyst to start his latest venture – Elever.

 

We Indians are natural savers, but we are not good at investing. Most people believe that their savings cannot go wrong, while their investment can; therefore, they primarily save in FD/RDs rather than investing. 

Most of the people who invest do so because:

  1. They want to save tax
  2. Their friends or family members advised them
  3. They think that the value will always go in a one-way upward trajectory
  4. They believe that returns will take care of the cost of investing
  5. They believe investing in physical assets (gold, real estate, etc.) is the only and best option

The above implies that they don’t realize:

  1. The role of inflation
  2. The risks involved in each asset class
  3. The risk appetite one has
  4. The cost of investing in an asset class
  5. The opportunity cost of not investing in an asset class (especially equity)
  6. The importance of defining lifestyle goals and aligning to investments

Implications of non-alignment of lifestyle goals with investments

I talked to a friend aged 40 last week, and he mentioned various investments (primarily real estate & gold, and some exposure to equity & crypto) he has done to date. His singular aim is to achieve a corpus of Rs.5 Cr by the time he retires.

When we talked more, it came out that he has:

  1. Not taken a personal life insurance plan to date
  2. Not built an emergency fund in line with his 6 months expense
  3. Not taken sufficient health insurance (mainly depending on employer’s group health insurance)

The above scenario is something I find very common in most people I have interacted with. They would not have taken care of either one or all the three. Therefore, people should first take care of the above hygiene requirements before investing.

Next, when I asked how you will take care of your child’s higher education, child’s marriage, annual vacation (domestic/international), purchasing your next car, etc. His simple answer was that I would liquidate from my investments. But he had no clue about the impact this may have on his singular retirement goal.

Based on the above example, it’s important to note that everyone has dreams and financial goals to achieve, but most people don’t define these goals before investing. If we don’t define our goals, goals remain as dreams.

The other important aspect that people don’t realize is that once you define goals, it helps prioritize goals and decide which one to liquidate in case of untoward incidents. So, it ensures that essential goals are not touched, while others can be used to take care of emergencies. Without proper goal definitions, one may risk deprioritizing important goals.

Lastly, since we have not defined goals, people don’t realize the consequences of mismatched risks. Not every goal can afford to take a high volatility investment portfolio, nor does every goal need a low volatility investment portfolio. However, please note that one should not have an investment portfolio with higher volatility than their risk appetite.

Steps to align your lifestyle goals with investments:

  • Define your goals: It’s essential to define each lifestyle goal without ambiguity. It should spell out the following:

The target amount of the goal (Inflation is a critical component to consider to arrive at the target amount)

Time horizon to achieve the goal

Purpose of the goal

  • Prioritize your goals: Once the goals are defined, you should prioritize goals based on their importance and impact. It helps one to classify and categorize their goal in a pragmatic manner and become a decisive investor. Importance is the criterion that measures the necessity and criticality of the goal in mind. And impact measures aspects like monetary benefit and improvement in lifestyle, apart from having positive/negative effects on other goals. 
  • Assess your risk profile: It’s important to assess one’s risk profile, basically understanding one’s appetite to take the quantum of risk. However, please note that you need to understand your risk tolerance (emotional ability to take the risk) and risk capacity (financial capability to take the risk). It will help define the returns one should aim for and not simply chase higher returns.
  • Diversify: There’s a famous saying, “Don’t put all your eggs in one basket.” It is wise to have multiple diversified investment vehicles in today’s choppy financial world, viz., equity, debt, gold, real estate, etc. Based on your risk profile and each goal tenure, you should have a diversified investment portfolio for each goal. Long-term goals can afford to have high volatility investment portfolio (higher exposure to equity than other asset classes) because of the time it has to recover from the downturn. Still, medium-term goals (1 to 5 years) need to have a relatively low volatility investment portfolio (higher exposure to debt than other asset classes) with much more assurance of achieving a goal. One should only invest in liquid and steady assets like debt for emergency funds and short-term goals. Important to note that gold is a hedging product than an investment product.
  • Invest: Once the above 4 steps have been performed, you may start with goal-based investing. However, before investing, one needs to understand the costs of investing. One must look for low-cost investments like Index Funds or Exchange Traded Funds (ETFs) to get exposure to equity, debt, and gold. Though people can choose to invest through mutual funds as well, in the last 5 years, almost 90% of the active funds have underperformed their benchmarks, plus their costs are on the higher side, even in direct mutual funds.
  • Review: Once the investment has been made, it’s critical to monitor the following periodically:
  • Your risk profile – If your financial conditions have improved or deteriorated, there will be a change in your risk profile, and accordingly, the investment portfolio needs to be changed
  • Your asset allocation – If any asset class has significantly changed its allocation because of the market scenario, it’s time to rebalance your portfolio to the right mix based on the risk profile and goal time horizon.
  • Your portfolio performance – If the investments are not on track to achieve a goal, you may have to increase investments to achieve the desired goal or vice-versa.
  • Your goal priority – If there are any personal life changes, you may have to reprioritize your goals to match the new change.

Aligning your lifestyle goal with your investment choices ensures that you are always in control of your goals, which fundamentally improves your lifestyle over time.

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