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Why does chasing returns never work in finance?

Akanksha Gautam

“The richest of the rich is one who is not a prisoner to greed.” ~Imam Ali

Greediness can be devastating and if one is just behind earning high returns without actually analysing the pros and cons of the investments that he/she makes then there are high chances that he/she can lose the returns that he/she is expecting along with the principal amount invested by him/her.

One should always invest after making a complete financial plan which considers financial goals and their risk appetite as important aspects in determining the investment opportunities one has. And based on the goal, risk appetite and financial plan a person’s personalised portfolio is constructed.

Hence chasing returns will never work in finance as the secret of a successful financial status is when one gives his goals the main priority in deciding where to invest. Only after that one should analyse the risk and return associated with it and start investing….

Examples to make you understand better :

If a young married couple starts planning for their daughter’s marriage right after she is born, they can choose to invest in riskier investments like equities because the goal is due by about 20 years and the investment period can be long and liquidity or regular income from the investment isn’t expected here.

Similarly If a person wants to go for a world tour or wants to buy a car in 2 years, then investing in short term debt funds or liquid funds would be beneficial rather than investing in equities as equities are highly volatile in short term.

Hope it helps :)

Originally answered on Quora

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About the Author
Akanksha Gautam
Akanksha Gautam is approachable, enthusiastic and ready to inspire you with confidence when it comes to your money, your priorities, aspirations and concerns to develop an achievable plan for your future, in short she is here to give you the diligent and relevant advice you need, so you can make the best decisions for you and those you love.

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