Why your investments fail to grow to your expectations?
It’s a
common problem; we invest with certain expectations, but, at maturity, we fail
to achieve it. We wonder why does this happen and ask few questions to our-self
–
Have I
over expected it?
The
option I selected was not correct?
Did I fail
to understand the risk involved with that investment? etc.
We recognize that the actual growth of our investment has
deviated from what we have expected. It's a common phenomenon if the
expectations are not realistic. But when maturities are targeted to accomplish
a liability, it becomes a concern.
Let us discuss this in detail, why this happens –
Our investments grow as a result of financial changes which are
influenced by many factors. Predicting the implication of such factors on our
investment growth is challenging. A better understanding can only help reduce
the gap between expectation & the actual outcome. The gap goes wider on
investing in high-risk options but you have higher growth potential for your
investments. So the growth & risk are inseparable.
Therefore, when expecting higher growth, be ready to accept the risk associated with it. Accepting; only one side of the coin does not erase the other side. Every investment has a greener side but also the other side bearing its limitations. Investment decisions taken based on both sides have a higher probability of growing them to your expectations. There is no investment having zero risk but a rational view on merits & demerits before deciding the investment option reaches us closer to realistic expectations.
All of them including, so-called, safe investments have an element of risk involved. For example –
Provident
Fund has a risk of changes in government policies,
PPF has
a risk of equity market & interest variation,
Bank/
post office deposits have a risk of interest rate variation,
Equity
shares have a risk of market volatility,
Mutual
funds have a risk of market volatility/ interest variation etc.
So the risk is a part & parcel of any investment. It is our understanding of the investment that helps to select the appropriate one. That also helps to bring rationality to our expectations.
An understanding of some of the aspects can help to bring rationality to the expectations –
On the contrary, the debt-related product, the longer the holding period, the more is the risk of interest variation. Therefore, returns expectations based on current interest rates may not be realistic.
Conclusion –
Understanding
investment options can help predict realistic growth with a possibility of
variation from the expected values. The acceptance of such variation brings
clarity and makes the expectations flexible enough to accept. That is equally
true across the investments. Fund growth and risks associated with them have
very close relations, and you don’t have a choice to exclude either.
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