Thu, 23 Jan, 2020

Fear setting

Today’s article reflects on how to anticipate and prepare for one’s worst fears related to finance

08th September 2019, 02:26 Hrs

Marilyn Luis  

In my last article I talked about setting goals and how by defining them, they can help you get where you want to go. In this article, I’ll be talking about setting fears so that by actually defining them you can move from being stuck to being in a position of power and control, to propel yourself forward.

Inspired by Tim Ferris’ (author, investor and podcaster) talk on “Fear-setting”, I write about adapting this technique to investing habits so that we are free to navigate all worlds of investment as appropriately needed for attaining our objectives.  

Step 1: Define your fears  

“Named must your fear be, before banish it you can.”  

— Yoda  

Primarily, identify the issue that is giving you sleepless nights, say, you are about to retire and you will soon have to manage an entire corpus for the next 10-30 years. How do you make it last? Will you have to go to work? Where do you invest it? So, now you know what is bothering you. You next need to define ‘what-ifs’. This part of the exercise requires you to specify what would be the worst things that could happen, if you took a step in any direction.  

For instance, What if I invested my retirement corpus in equity schemes, would I lose all my money? Then where would I be? - homeless, dependent on my children, full of shame and embarrassment?What if I chose the wrong scheme? What if I trusted the wrong person? What if after investing in equity my corpus is still unable to sustain me for the rest of my retirement? Would it take care of my healthcare needs? What would the tax implications be?  

Step 2: Prevent the worst  

“We suffer more in our imagination than reality.” - Seneca  

The next step is to list ways that could prevent your worst fears from coming true. For instance, your fear of losing all your money may be well-founded. However, it may also be completely exaggerated. The best way to invest is to stagger your investments into the equity market systematically. This prevents you from suffering a sharp downturn in your investments, with a sudden market dip. The major fear of ‘whom to trust’ can be alleviated by choosing certified, ‘fee-only’ financial planners that are squarely on the side of their clients’ interests and not their own. Their advice would be fair and unbiased. A good advisor always asks the right questions, and a lot of them, to ensure the financial plan is truly reflective of your goals and suited to your risk-level.  

Step 3: Repair the damage  

“Many a false step was made by standing still.”- Tim Ferris  

If your worst nightmare materializes, what can you do to fix it? Enumerating specific steps to repair any damage done, should the worst happen, would make you feel more empowered about taking the important and tough steps needed in your life.  

In the example above, assuming you do lose all your money, you could, for one, investigate all the systems in place to compensate you for losing all your money due to inefficiency or negligence. You could create a supportive network of friends and relatives till you get back on your feet. You could consider this as a valuable lesson for the future when making further investments.  

You need to consider the cost of inaction on your part, opportunities lost, should you not take the steps you are afraid of taking. Would you be able to live an easy retired life doing the things you enjoy doing? Or would you be sick with worry that a single sickness could wipe out your entire corpus?  

“Easy Choices, Hard Life. Hard Choices, Easy Life.” – Jerzy Gregorek (Olympic weight-lifter)  

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