Do more

There's a lot of bad financial advice out there, especially for the novice investor. The most visibly bad advice is about making money from buying crypto or trading derivatives. However, this kind of advice doesn't do any damage to sensible investors because it is self-evidently wrong.

Far worse, in my view, is bad advice about mutual fund investing. Since the underlying asset class is an inherently sensible one, investors can't figure it out easily. And the worst of such bad advice is the type centred around setting wildly unrealistic expectations. Get on to social media, YouTube, etc., and you will see lots of content that is basically of the 'turn Rs 20,000 a month for 10 years into Rs 5 crore' type. Can this be done? Clearly not - the implied rate of return is 58 per cent per year, sustained for a decade. Can this be promised and believed by at least some people? Definitely, and the reason is not hard to find.

However, when one digs deeper into this propensity for believing outlandish claims, what one finds is a typical human failing: wishful thinking. Savers invest a certain amount and want it to grow significantly. That's fine, who doesn't. Value Research's mission is to help savers get more out of their savings. However, there's a line between maximising returns and wishing for returns that are unlikely to materialise.

So, what's the solution to making more money from your investments? There are many answers to this question, but only two sure-shot ones. One, invest more, and two, give it more time. Preferably, do both. To those who wish for magical returns, this must sound like a joke or, worse, a mocking answer. But it's true. These are my personal solutions, the ones that will always work.

The core issue is that saving for retirement is not merely an abstract intellectual exercise. A concrete real-world objective must be fulfilled by one's savings when retirement arrives. However, if the savings projections people rely on are overly optimistic, it could give them a false sense of security and lead them to save less than what is genuinely needed.

The truth is that the future is highly uncertain and unpredictable. All retirement savings calculations, whether done by individual investors, analysts like myself or other experts, are ultimately just guesses rooted in assumptions and historical patterns. However, personal finance is a practical matter with tangible goals to be met.

The right approach is not to seek out investments promising even higher returns in an effort to make our retirement savings projections more precise. We need to accept the fundamental unpredictability of the future and the impossibility of accurate forecasts.

So what can we do? The key is understanding that the unexpected is guaranteed to happen when planning over long-term horizons. And history shows negative surprises are far more prevalent than positive ones during turbulent economic times. Rather than chasing the illusion of accuracy with overly optimistic predictions, we must build robustness into our retirement plans that can withstand poor market returns.

A prudent savings cushion and reasonable return estimates can help hedge against the near certainty of negative surprises down the road. The goal should be retirement savings that are resilient enough to finance our needs even if the future takes an unfortunate turn relative to our forecasts.

And if you save too much, what's the worst that could happen? You will leave a larger estate for your children and your grandchildren. That doesn't sound like bad news.

As you will see in our 'Mutual Fund Insight' January 2024 issue's cover story, you can easily actualise a strategy for targeting the right amount of savings provided expectations are realistic and an adequate margin of safety is built-in.