Wealth creation is simple but not easy, requires discipline

Clients often fall back into old habits and require motivation to stay on track. Financial planning professionals also provide support during in inevitable setbacks

Scott Adams, the creator of the Dilbert comic strip, penned an 84-word essay on financial planning. It included a simple mantra for long-term wealth creation: “Invest 70 per cent in an equity index fund and 30 per cent in a bond index fund and don’t touch it till retirement.”

We use variations of this “simple” advice in our investment advisory practice. It prompted Murthy, a client, to quip: “If wealth creation is so easy, why do I need you?” I replied that “simple” shouldn’t be confused with “easy”.

Consider the health and wellness industry. The simple mantra of sleep well, eat healthily, and exercise regularly is widely known, yet individuals face numerous complexities when trying to implement it. Sleeping well depends on hereditary factors, lifestyle, environment, stress levels, diet, and exercise routines. Diet and exercise are similarly interconnected with each other and with sleep and the other factors enumerated above. Most people know about the individual parameters but not their interconnectedness.

Most people, when they resolve to lead healthier lifestyles, approach it from a single factor – exercise or diet, and sometimes both. They read up and try out various exercise routines or diet regimens on their own. Most such attempts fail due to a lack of proper information, lack of hand-holding, and demotivation stemming from setbacks. Some fixate on unrealistic goals, focus on too narrow a goal, or take shortcuts that cause long-term harm.

The smarter clients seek a trainer’s assistance. The trainer assesses their objectives, recommends tailored exercise regimens, and offers motivation and diet tips. Such assistance enhances the chances of success.

A fitness expert, who is at the next higher level, evaluates fitness goals and suggests tailored objectives, like running 5 kilometres without reaching the maximum heart rate. He advises on diet, sleep, and lifestyle changes, monitors progress, and 

provides motivation to achieve milestones and maintain the routine.

A wellness coach, in addition, tackles the behavioural issues related to sleep, exercise, and diet, and provides suitable nudges to overcome them.

At the highest end of the scale is the life coach who looks at all factors affecting the client’s life, including his economic and family circumstances, and helps optimise his overall life goals, not just health.

In the financial wellness space, clients often target high returns as their sole objective. They read stuff on the internet and try various strategies, sometimes achieving short-term success. However, most lose money and abandon their financial goals. Some use instruments like cryptocurrencies and futures and options that cause more harm than good.

Some seek lower-level advisors, who recommend suitable products and assist in execution.

Astute clients consult financial planners who evaluate their income, expenses, resources, and risk tolerance. They help clients identify and prioritise goals, create and implement financial plans, and provide guidance to keep clients on track.

At the next level are life planners who understand the client’s emotions and money habits and take them into account in any financial planning exercise.

At the highest end of the spectrum is the life coach who takes a comprehensive look at the client’s life goals.

In response to Murthy’s question about why he needs professionals like us, I offered four reasons:

First, simple rules often have hidden complexities and nuances. Many individuals mistakenly convert these “simple” rules into an “easy” activity, believing that activity to be the magic bullet that will solve their problem. Professionals like us decode complexities and guide clients on to the right path. Second, clients frequently revert to old patterns of inertia and require ongoing nudges and motivation to stay on track.

Third, we provide the necessary support when clients face setbacks that are inevitable during any long journey.

And finally, we assist clients in understanding and finalising their financial goals in the context of their broader life objectives.

Truth be told, since Murthy remains a client, it appears he appreciates our role in implementing the “simple” plan to help him achieve his objectives.

The writer heads Fee-Only Investment Advisors LLP, 

a Sebi-registered investment advisor

Twitter: @harshroongta