The traditional wisdom of investing says that investment goals differ from person to person and age to age. To understand it lets explore it with Investing adventures of Viraa and Anubhav-
Anubhav which means experience over time is a man who is in his 60s and looking for investment options. On the other hand, there is Viraa who is a young enthusiast in her late 20s looking for the same. It may look like that they both are standing in the same boat but they aren’t. Anubhav who accumulated wealth and experience over time is risk-averse as he does not want his hard-earned money to vanish in the stock market. Viraa on the other hand can afford to lose some to win more as she has time on her hand. She can experiment investing to her heart’s content and learn from it, but the same does not hold with Anubhav. Their investing strategies, time horizon, financial goals and asset allocation will differ substantially. Viraa can afford to have a risky asset allocation with equity. She can invest in small-cap stocks, value stocks as she can wait for them to outperform and create wealth. She may invest in upcoming businesses like fintech, 5g, IoT etc so that she is on the right side of emerging market trends and make money. Those stocks may or may not outperform and she can afford that. Whereas Anubhav will choose a steady monthly income to cover his retirement expenses and go for bonds. He doesn’t have time on his hands or the energy to work and create wealth again.
That is why traditional wisdom asks investors to choose investment options according to their goals, time and risk appetite. Mimicking others can only land us in trouble as seen above every investor has different needs.