Last week I had to accompany my mother to her public sector bank because she wanted to update her signature, which in recent times was deteriorating with age. The lady across the counter was very courteous to start with and I was getting apprehensive about what was in store. As expected, towards the end of the formalities she chided my mother to put a chunk of her balance into an FD, which was giving a very good return of 7.25 per cent. Under normal circumstances, my mother would have said no. But this time around she looked at me for an answer.
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The lady tried selling the idea to me overzealously. I had no choice but to tell her my mother’s investments earned a lot more than what she was suggesting as FD. She was first baffled, and then went into disbelief. As she had the account details in front of her, she realised that the balance had gone up because of redemptions from some funds as part of an annual exercise, even as we were working towards where to put her money next. At 70, my mother has evolved from an astute saver to a fairly aggressive investor over the past decade.
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Behaviour change
I think it was the 2004-7 boom years where she first realised the upsides of markets, when within a few years a small sum she had loaned me to invest shot up in value. I don’t know if she started trusting me more or the markets, but she changed from being conservative with investments to someone who was a willing risk taker. She enlightened a few others in the family and I think many assumed she had lost her marbles. But, what I want you to know is that it is unfair to generalise investors based on their age to be aggressive or conservative and so on.
I know several senior citizens who are extremely well-informed, who pore over business newspapers and are intense users of the Internet. They are also more into investing in stocks over mutual funds. I feel the reason they are able to take risks with their money is because of the knowledge that they develop, which makes them better informed than many others – definitely youngsters. The ability to take risks, therefore, may not depend on age alone. There is another commonality with these folks – many of them have sizeable assets and they are debt free.
Coming back to the lady at the bank, she was suddenly full of remorse that she did not realise the advantage of equities or the fact that my mother could be into equities at her age. Suddenly, she got chatty about wanting to invest as long as it was guaranteeing returns. This time, before I could open my mouth, my mother rattled out that there was no guarantees in equities, but it guaranteed wealth creation if you gave time to your investments.
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Preservation of capital is important, but not at the expense of it losing in real value terms. The money in the bank earning 7.25 per cent when adjusted to inflation and taxes will leave you poorer. Yes, it is important to understand risks associated with investing in equities, but that should not stop one from setting aside small sums that they can afford to take risks with into equities.
Willingness to take risk is one thing; unwillingness to put money into instruments that do not guarantee returns is another. I think my mother became a willing investor and was not coerced into it by me. I am assuming she is happy, for we rarely talk about money beyond the basic needs that it should serve.
