[ad_1] Some stories never change. A mid-level manager working in the Middle East wants to come back to India. His children need to go to college soon, and it will be easier and cheaper for him to educate them in India than trying to send them elsewhere. He will still pay a premium fee reserved for returning emigrants like him, but he does not mind that. He wants his finances reviewed, and this Pandora’s box holds the same old horrors typical of such portfolios. He has one residential flat that his family plans to live in when they return. There are two more houses bought on the outskirts of the city. The wife’s parents live in one, and the other remains locked, with cracking and leaking walls. It also faces flooding every monsoon. Hasty decision, he rues. His wife managed to buy about 2,000 gm of gold during their stay abroad. She is very proud of her savings and sees the investment as a sign of their prosperity. She will not agree to sell or pledge any of it. Half of it will be passed on to the daughter, and the other half will remain in the bank locker to be worn on various occasions. The investment portfolio is a mishmash of stocks bought on the advice of friends and relatives. Some are performing well, most are making losses. There are bank deposits and half a dozen insurance policies. Mutual funds are new entrants to the portfolio, and he is unsure whether his investments in the past five years have been right. It is too little to matter in the larger scheme of things. His total assets are worth Rs.5 crore. The realty assets are valued at around Rs.3 crore; the value of gold is around Rs.1.25 crore; deposits are worth Rs.25 lakh; there are Rs.20 lakh of stocks, and mutual funds worth Rs.30 lakh. His primary worry was that the mutual funds seemed to be going up and down. Did he make a mistake, he asked. Almost 90% of his portfolio remains inaccessible and unusable, and he is worried about the 10%. He feels rich and wealthy. He tells me repeatedly how proud he is of their prosperity. This is understandable, given where he began and how hard he worked to get where he is today. Let’s list your financial goals first, I tell him. The usual list of education, marriage and retirement come up. His children’s higher education is the immediate goal that will pan out over the next five to seven years. He will have to spend on coaching classes, apart from private school, as soon as he moves back. He will have to find a job and regular income as well. He is currently not sure what he will do; he has plans of setting up a business, and some ideas on becoming a consultant or an adviser. He hopes to use the financial investments to get him going. You need an income for another 40 years, I tell him, and he is shocked. There is nothing in the asset portfolio that can fund the immediate goals. There are no assets that will generate the income he needs and, therefore, he is not ready to retire. He needs a corpus that will work for him, and with Rs.75 lakh, minus the funds needed for immediate education goals, there is too little left. He needs to sell two of his houses to generate funds. Since the third house is tough to sell, the second must go, even if it is a tough call. His in-laws can live with them, or live in a simpler rented property until the situation stabilises. The wife needs to be willing to sell some of the gold, so that the money can be used to buy financial assets that will grow and be available for use, as needed. The financial assets should be at least half or more of his overall assets so they they can work for him. What if I can’t do this, he asked. He did not seem confident about negotiating these drastic changes. If he is unable to do this, he will have to continue to work in the Middle East, and save and invest his income differently, for the next five years at least. Manage your children’s education, build your retirement corpus and come back later, I told him. It is cruel, he rued. It is, but directing all the savings to property and gold does not usually end well. Is this not a textbook thing, he asked. That may be the case, I told him, but what are the choices currently? What would you do differently instead of using the limited choices at this time? Property and gold are tough to sell; even tougher to use for their income or gain. Many emigrants build mansions that are incapable of being rented. They want their families to enjoy the benefits of their high earnings. Commercial property that can earn rent is not on their minds. The lure in these assets is visible. They enhance one’s social status and signal to the world that this family is wealthy. People like this type of attention. Financial assets, which lie electronically hidden, don’t offer that kind of optics. As long as the assets are being built, people feel good that these are growing in value. It is only when the financial goals come knocking and require funding that the crunch is felt. Even then, the choice, as this investor is likely to exercise, is to use whatever financial assets are available at the time. The can is kicked down the road. As long as we have a house to live in and choose a simple life, there won’t be a problem, he argued. I have enough money to educate the children, and that is all that matters now, he said, sounding like a martyr. This only builds higher, unrealistic expectations from children. The fact that their retirement is at risk is something people don’t consider seriously. In this case, he is still young. Another decade of high-income work will put the family’s finances in order. A traditional mindset, which includes a single income, property and gold, sacrifice for kids, and desire to return home early, won’t pass the sensibility test. However, it appeals to emotion and sentiment. The man in the middle feels like a hero, an achiever, a martyr, and a self-made millionaire. No one peels the layers, and denial rules. (The Author IS CHAIRPERSON, CENTRE FOR INVESTMENT EDUCATION AND LEARNING) [ad_2] Source link Post navigation Want to grow your money? Investing lessons you can learn from farming Some Investors Turning to ChatGPT for Money Advice