How Investing is much like Driving
Posted on: May 20, 2016, by : Team ServeTM

In 1995, I had a choice between buying a Maruti 800 and a Premier Padmini. Buying the Ambassador was ruled out. And to get a Maruti 800, I had to wait for 6 months.

The ever snappy boss cryptically called up and asked, “More interested in car or the career?” So Premier Padmini it was..

In 1995, it cost around Rs 2 lakh on road. The present value assuming a 9-10% inflation would cost that Rs 10-15 lakhs today. Today Rs 2 lakh would get you a Nano Car while Rs 10-15 lakh would get you a decent SUV like the Safari.

Now the question to you is this: Given a choice, would you buy a Nano or the Safari?

Even though that sounds to be a crazy question, when it comes to investments, a large number of people don’t even know the difference between a Nano and the Safari.

The proof of my statement is that a large number of people are buying sub optimal products that don’t suit their requirements or needs.

Often they are sold a bullock cart in the name of Safari! The ponzi schemes and the frauds that we read about in the newspapers is an example of that.

The bigger point of this post is that while the world has moved on from Premier Padmini to Safari, our investments remain a Premier Padmini choice. An example of that in investing is that while more efficient products like mutual funds have been designed, large number of people are buying endowment insurance as an investment product.

Affordability

Now there are some people who may ask that since they can’t afford buying the Safari, they’ll settle for the Nano. Yes, ofcourse, you must buy what you can afford and not do anything illegal to buy that Safari.

But the beauty of investments is that affordability is not really an issue here. You can buy into a mutual fund scheme with a SIP of just Rs 500. There are micro SIPs available at Rs 100 per month too.

The bigger issue is understanding how good the car is and how to drive the car!

How to evaluate?

Just like you evaluate a car depending on it’s fuel efficiency, price, power steering, air conditioning and other issues that are important to you, you must be able to evaluate different investment options too.

Believe me, it’s not rocket science. You don’t need to be an Automobile Engineer to evaluate a car. Just some common sense.

Learning the simple concepts of Pay Yourself First, Power of compounding, Rupee Cost Averaging, Risk Analysis,Asset Allocation and Financial Planning should be good enough to start with.

How to drive the car?

You don’t learn driving by looking at presentations or listening to experts. You have to get into a car and learn the controls. The important controls that you must learn to use are: 1. Steering, 2. Brakes, 3. Accelerator and 4. Gears.

Similarly, if you learn the difference between debt and equity, understand the emotions behind investing, learn to play with numbers and how to setup your investments, you can drive your investments well.

Or you can keep a driver! But don’t hire a driver who works more for his own interest than yours.

Do share your thoughts on driving your investments.

2 thoughts on “How Investing is much like Driving

  1. Amazing comparison and have to say that this is an unique piece I read here. Completely agree that one can’t drive a car just by following the instructions. rather he/she has to drive own to learn gradually and same theory is applied for investment also.

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