The free investor

No one likes a free person. All institutions (or other forms of organisation) want the people they deal with to be subject to their guidance and even control. Does that sound like something a guru would say? Well, if it does, that's not a surprise because Osho said something like this many times.

However, the question you will have is why I am talking about this. What does it have to do with personal finance investing? As you will see, a lot. I'll rephrase the above statement to fit personal finance better. None of the businesses through whom you invest likes a free person. They all want you to be subject to their guidance and control. If you were to decide freely how you should manage your investments and insurance, and take decisions based solely on that, then these people will make only a fair amount of money out of your actions. And then, if many people emulated you and started doing the same, many businesses would either have to shut down or radically change how they do business.

So what would this free person do? Very little, as it turns out. For protection, the free person would buy no other type of insurance except term. For investment, they would choose a small handful of diversified funds through their direct plans, start investing regularly and then hardly ever change anything. This person would end up maximising their own benefit and minimising the benefit of the various entities that provide and intermediate their financial services. By that, I mean, of course, that a relatively larger part of the money that their money generates would reach their own bank accounts.

Such a person would have no interest in fancy new investment ideas, intermediaries who pretend to give advice, insurance policies which hardly have any insurance, and all the new-fangled investment types that emerge far too often. The free person would prefer the silent strength of steady growth over the cacophony of constant market fluctuations. Their strategy would be patient, disciplined, and inherently simple - it would allow them to sleep soundly at night, with the knowledge that their money is working quietly in the background, accumulating value through the inexorable power of compounding.

One of the prerequisites for attaining this calm state is understanding what's going on. This is not a general motherhood statement. There's a specific issue here: that savers and investors need to understand how things work. Banking, insurance, stock markets and mutual funds look like black boxes to most of us. Therefore, we often don't recognise the motivations and goals of the people we are dealing with. Without a mental model of how things work, one can't deal with problems that arise. I read somewhere that when a car doesn't start upon turning the ignition key, most drivers turn it harder, putting more pressure on it. Subconsciously, they feel that the turn of the key starts the engine, whereas the key is just an electric switch. It's like pushing a light switch harder to try and make a bulb brighter. You can stumble through things if you don't understand them, but you can never understand them or solve any problems.

For most of us, personal finance services are a hard thing to form a mental model of, certainly harder than cars. If we understand exactly how a service works, who the provider is, who the seller is, how they make money and how they will try to make more money from us, and especially where you fit into their scheme of things, only then can we make better decisions. It's unfortunate, but the person or organisation on the other side should be treated as an adversary.

If you need to be free to act in your own interest and free from being manipulated into acting in someone else's interest, then this has to be done. It's the price of freedom.

Suggested read: Stay boring, make money