This story is about the three kids—Ramesh, Suresh, and Mahesh—who wanted to become doctors when they grew up. They were five years old when they saw their paternal grandfather being saved by a medical procedure. The dream was born, and all of them became fans of the doctor who did the procedure.
Ramesh cried out loudly, “When I grow up, I want to be a doctor.” Suresh and Mahesh, who were standing beside him, also said, “I too want to become a doctor”.
Ramesh was the most inspired among the three. At just five years old, he told his parents to buy him medical books. He also asked them to get him a tutor to explain the medical concepts. When other kids were learning the ABCs, Ramesh was busy learning medical jargon. He was very motivated to learn everything he could, but in three years, he quit. The problem was that he was doing things too far ahead of his years, which made him fall ill.
Suresh had other plans; he thought he would start working on the dream when he was 8 years old. Exactly at 8 years of age, he started preparing to become a doctor. Subscribed to medical journals and started taking medical tutorials. He really tried to pass all the examinations and tests that came his way, but he simply could not pull it off. At 15, he lacked the motivation to continue and quit.
Mahesh was the laziest among the three. He said he would start preparations at age 15 and not bother until then. He majored in biology in school and hung around with other botany-zoology students. He put his best effort into pursuing medicine, but still could not pull it off. In fact, he lost his way and really forgot why he wanted to become a doctor in the first place.
None of them was able to become doctors as they had once dreamed of at five years old. The root cause was “Goal Setting.”
Investing also works the same way. To create wealth 15 to 20 years from now, you need three types of goals.
a. Short Term — 1 to 3 years.
b. Medium Term — 3 to 10 years.
c. Long Term — 10+ years.
These three goals are not mutually exclusive; you need all three to succeed. I see investors every other day; a few of them are only bothered about the next 3 years.
Others are only bothered by the 3 to 10 years, and nothing beyond. And the third category is only concerned with 10 years or more, and nothing before then. That’s why the example of Ramesh, Suresh, and Mahesh would shed some light on you.
Investment Planning is a continual process. It is the sum of short-, medium-, and long-term goals. You need to get all three correct to get an optimal final outcome. Let us analyse it in detail.
Short-term goals
The financial goals that have a shorter time period, such as:
a. Emergency fund
b. Buying gadgets
c. Buying a bike or a car
d. Housing rentals
These activities do not require huge amounts, but you still need to plan them well.
For example, to get your emergency fund going, you might need to save only 10 per cent of your salary every month. Your house rentals may be 10 to 15 per cent of your salary, too. Three to four months of your salary can help you buy a gadget, among other things.
Medium-term goals
You cannot master medium-term goals without mastery of short-term goals. That’s why Suresh was finding it hard to learn: he skipped the first three years. Medium-term goals range from 3 to 10 years and have higher financial targets than short-term goals.
The goals are:
a. Buying a small house
b. Getting married
c. Planning a vacation
d. Planning your kids' school fees
e. Starting a business
f. Your higher education
These require a higher level of financial discipline on your end. You might have to save/invest 25 to 30 per cent of your income to achieve these goals. So, if you were not able to save 10 per cent during the initial three years, it's practically impossible to save 30 per cent after that.
Long-term goals
Goals that are ten years or above are long-term goals. The outgo is very huge as the goals could be very expensive, such as
a. Buying a big house
b. Child’s college education
c. Child’s marriage
d. Financial independence
e. Retirement planning
f. Estate planning
These heavy goals require you to stay disciplined and committed for a very long period. If you miss the short- and medium-term goals tenure, it is impossible to excel at long-term goal setting. You wouldn’t have the motivation or discipline to stay invested for a very long time if you did not get the fruits of your labour in the initial years.
Goals are set to be achieved. The happiness it brings when you cross off one item from your bucket list will propel you forward. If you do not experience the joy of hitting your small- and medium-term goals, chances are less that you would have the firepower to continue. This is also why Mahesh had to quit: he forgot his intent.
Being a good doctor would have taken them 10 to 15 years of academics, plus another 10 to 15 years of practice. But they were able to break down the 20- to 30-year journey into short-, medium-, and long-term goals, and they achieved all three.
Just like that, becoming a master investor would take you 20 to 30 years, but you should learn how to break it down to small-, medium- and long-term goals so that you stay motivated throughout the journey.
The writer is a SEBI Registered Investment Adviser (INA000021757), SEBI Registered Research Analyst (INH000025045), and author of ‘How to join the top 1% options traders club’.
DISCLAIMER: Investments in the securities market are subject to market risks, including the potential loss of principal. Past performance does not guarantee future results. Information provided is for educational purposes only and should not be considered financial advice. Investors should read all related documents carefully and consult a certified advisor before investing. Registration granted by SEBI and Enlistment with RAASB/BSE and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors. The investor is requested to take into consideration all the risk factors before actually trading in stocks or derivatives.
The opinions expressed in this article are those of the author and do not purport to reflect the opinions or views of THE WEEK.
