Wake up to the reality
That no one can give you FINANCIAL MOKSHA
We often think that our decisions regarding financial matters are based on rationale and driven by our risk-reward outlook. This is true to a large extent, but it is not entirely correct.
The role played by those we admire, our peers and influencers play a significant role, if not a very evident role.
In fact, the role of influence in investing has become so rampant that one often sees stand-up comedians, actors, self-styled financial experts and sportspersons dispensing advice on financial matters.
While investing starts with the intent of returns and eventually building wealth over the long term, emotions often overpower the maths behind it.
Investing is a solo activity; shun herd mentality
Emotional biases of human beings sometimes take over what could be more rational, logical thoughts. One of these is herd mentality. Trying to do the same things as the crowd for what is now known as FOMO - fear of missing out.
Finance Minister Nirmala Sitharaman recently expressed concern about the number of financial influencers on social media, urging individuals to check and verify the advice before blindly following it.
She cautioned against the flock mentality, insisting on research and cross-checking before deciding what to do with the money.
What has also caught the government's attention is that several mobile apps now offer schemes and advice about what to do with their money. Unsuspecting investors are falling prey to this without checking whether it suits them.
Retail investors also get drawn to influencers who validate their pre-existing beliefs or ideas about investing.
This tendency to seek information that confirms one's existing views can lead investors to rely on influencers who reinforce their biases rather than critically evaluating different perspectives.
Do not outsource thinking
The author and psychologist Robert Cialdini, known for his work on influence and persuasion, wrote, "There is no expedient to which a man will not resort to avoid the real labor of thinking," in his book Influence: The Psychology of Persuasion.
The quote highlights people's tendency to seek shortcuts and avoid the hard work of thinking, which can help explain why influencers, or finfluencers as they are called these days, play a key role in shaping the investment decisions of retail investors.
Influencers exert significant influence over their audience's financial choices by providing slick content, sometimes in a self-deprecating manner, to build trust.
This builds relatability in the investor's mind, who then acts on the advice.
To make well-informed investment decisions, retail investors should be aware of these factors and strive to conduct their own research and analysis, in addition to
It means that while one should listen to what everyone has to say, individuals must act on what they think is the best for them.
Successful investors are those who have clarity about their goals and are willing to do some homework or research before deciding.
Regulatory Push
The Securities and Exchange Board of India – the regulator for capital markets in India, is reportedly working on guidelines to make financial influencers accountable.
SEBI's proposal comes against the backdrop of many social media influencers providing advice about stock investments without a licence.
While the regulator will work to safeguard the interest of investors, we, as individuals, must understand that the primary responsibility and onus of our investment decisions lie with us.
It is because money, particularly personal finance, cannot have a 'one shoe fits all' approach. Each individual's circumstances will determine how they need to plan their finances
Also, remember that the phrase Caveat Emptor is also applicable to the purchase of financial products.
Seek the advice of a SEBI-certified professional or a certified financial planner and pay for impartial advice.
Anyone who dispenses advice free is getting compensated by someone else, often at your expense.
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