{"id":1464,"date":"2020-07-09T18:36:20","date_gmt":"2020-07-09T13:06:20","guid":{"rendered":"https:\/\/blog.tickertape.in\/?p=1464"},"modified":"2021-04-06T11:33:53","modified_gmt":"2021-04-06T06:03:53","slug":"why-do-investment-decisions-sound-like-rocket-science","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/why-do-investment-decisions-sound-like-rocket-science\/","title":{"rendered":"Why do investment decisions sound like rocket science"},"content":{"rendered":"\n<p>Investment decisions leave you flustered, overwhelmed? You are not the only one. Welcome to the club. <\/p>\n\n\n\n<p>Let&#8217;s dissect the reasons for the same, and try to make them an intrinsic part of life.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/why-do-investment-decisions-sound-like-rocket-science\/#The-Paradox-of-Choice\" title=\"The Paradox of Choice\">The Paradox of Choice<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/why-do-investment-decisions-sound-like-rocket-science\/#Investment-choices\" title=\"Investment choices\">Investment choices<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/why-do-investment-decisions-sound-like-rocket-science\/#Key-reasons-why-we-get-overwhelmed-with-investment-decisions\" title=\"Key reasons why we get overwhelmed with investment decisions \">Key reasons why we get overwhelmed with investment decisions <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/why-do-investment-decisions-sound-like-rocket-science\/#How-to-declutter-investment-decisions\" title=\"How to declutter investment decisions\">How to declutter investment decisions<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-Paradox-of-Choice\"><\/span><strong>The Paradox of Choice<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There is a fascinating behavioural economics experiment on the concept of choice. It outlines how more choices might not necessarily leave us better off \u2013 in terms of returns as well as satisfaction. You might be thinking about how having more options can be detrimental. Here&#8217;s a simple example \u2013 let&#8217;s say you have to choose one chocolate from Dairy Milk and KitKat. You might give this a second of thought and then go with one of your likings.<\/p>\n\n\n\n<p>Now, let&#8217;s say you have 20 different types of chocolates to choose from. You will take more time to decide and might end up getting confused (by the time you make a choice, chocolates like Lindt, Godiva might have already melted).<\/p>\n\n\n\n<p>This paradox of choice is what underlies our investment decisions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Investment-choices\"><\/span>Investment choices<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Over time, we have seen an increase in the various asset classes in which we can <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> \u2013 Stocks, <a href=\"https:\/\/www.tickertape.in\/blog\/mutual-funds\/\">Mutual Funds<\/a>, <a href=\"https:\/\/www.tickertape.in\/blog\/investing-in-metals\/\">Precious Metals<\/a>, Deposits, Real Estate, Corporate Bonds, Section 80C Investments, Insurance policies, etc. <\/p>\n\n\n\n<ol><li>Stocks (<a href=\"https:\/\/www.tickertape.in\/blog\/ipo-investment\/\">IPO<\/a>, Secondary market) &#8211; Large cap, Mid cap, <a href=\"https:\/\/www.tickertape.in\/blog\/best-small-cap-stocks-in-india\/\">Small cap stocks<\/a><\/li><li>Mutual Funds (<a href=\"https:\/\/www.tickertape.in\/blog\/what-is-sip\/\">SIP<\/a>, Lumpsum) \u2013 <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/\">Equity<\/a>, Debt, Balanced funds<\/li><li>Bonds \u2013 Corporate Bonds, Government Bonds<\/li><li>Section 80C Investments \u2013 Equity Linked Savings Scheme, Public Provident Fund, etc.<\/li><li>Insurance Policies \u2013 Endowment, Whole Life, Health cover<\/li><li>Deposits \u2013 Savings account, Fixed Deposits<\/li><\/ol>\n\n\n\n<p>This gets complicated further when you account for the time horizon to invest for, tax advantage, <a href=\"https:\/\/www.tickertape.in\/blog\/volatility\/\">volatility<\/a> in returns, etc.<\/p>\n\n\n\n<p>This is why with time investment decisions\/personal finance management have started appearing a tad challenging to grasp (the *terms and conditions in each <a href=\"https:\/\/www.tickertape.in\/blog\/can-we-have-an-sip-for-stocks\/\">personal finance<\/a> advertisement rub salt in the wound)<\/p>\n\n\n\n<p>But, is it as complicated as it appears? <\/p>\n\n\n\n<p>Let&#8217;s scratch the surface to know more.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key-reasons-why-we-get-overwhelmed-with-investment-decisions\"><\/span><strong>Key reasons why we get overwhelmed with investment decisions <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>We end up (falling flat on the face, more often than not) taking the easy route:<\/p>\n\n\n\n<ol><li><strong>Don&#8217;t know where to park money so let&#8217;s spend it all<\/strong>: If you are doing this: then STOP. Take baby steps, but start saving first, and then investing. Rome was not built in a day<\/li><li><strong>Friend\/colleague\/relative invested in XYZ stock and made 2x return in a year, so let&#8217;s park the finances at the same place<\/strong>: This can be hazardous. Your time of entry into the stock might be very different from that of your peer and hence the associated returns can differ significantly<\/li><li><strong>All in one <a href=\"https:\/\/www.tickertape.in\/blog\/can-i-buy-multiple-stocks-in-one-trade\/\">basket<\/a> (particularly risky asset classes)<\/strong>: There&#8217;s a lot of chatter surrounding a particular stock, so let&#8217;s put all our savings into the same. The <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-shares\/\">stock market<\/a> crashes (God forbid), and you are too deep into the water.<\/li><li><strong>Hasty decisions in making assets liquid<\/strong>: Selling investments in asset classes that have a preferable lock-in period might not give the best returns.<\/li><\/ol>\n\n\n\n<p>Maybe we are doing this wrong. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How-to-declutter-investment-decisions\"><\/span>How to declutter investment decisions<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>We can make the most of the vast array of choices available to us by not relying on our intuition but taking help when required. For example, get on to a personal finance\/wealth management app, seek services of a financial advisor, etc.<\/p>\n\n\n\n<p>However, investment decisions aren&#8217;t as tricky as they appear to be. Though spoilt for choice, it is like Occam&#8217;s Razor \u2013 the simplest solution to the problem is often the correct one. It would help if you outline a few key things before finding alternatives:<\/p>\n\n\n\n<ol><li><strong>Horizon<\/strong>: Few asset classes tend to pay well if investments stay put for 3-5 years; identify your requirements and park money accordingly<\/li><li><strong>Discipline<\/strong>: Inculcating financial discipline is the first step in this journey. Finalise goals one by one and start building your corpus<\/li><li><strong>Risk appetite<\/strong>: Identify your risk-taking capability and park funds accordingly<\/li><li><strong>Balanced portfolio<\/strong>: Create a balanced portfolio that has a mixed bag. For the uninitiated, this might be the first step towards engaging the services of financial advisors, Personal Financial Management apps, etc.<\/li><\/ol>\n\n\n\n<p>Investment decisions aren&#8217;t rocket science, but that said, they aren&#8217;t that easy either. It requires spending some time, getting a grip over what works for you, etc. No laundry list can be followed, but curating your personalised portfolio over time isn&#8217;t difficult either. <\/p>\n\n\n\n<p>Start slow, but start and get your bases covered.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Investment decisions leave you flustered, overwhelmed? Read this article to understand why this happens and how to over come the paradox of choice. <\/p>\n","protected":false},"author":35,"featured_media":1497,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[8,1738],"tags":[16,29],"acf":[],"modified_by":"Manonmayi","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2020\/07\/Rocket-Science-Investment.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1464"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/35"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=1464"}],"version-history":[{"count":5,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1464\/revisions"}],"predecessor-version":[{"id":1500,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1464\/revisions\/1500"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/1497"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=1464"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=1464"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=1464"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}