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A down-to-earth formula for wealth management

business Updated: Dec 06, 2009 23:15 IST
Dhirendra Kumar
Dhirendra Kumar
Hindustan Times
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New Delhi: “The rich man can assume or imagine a much greater variety of ills and he will be correspondingly less certain of their remedy. Also, until he learns to live with his wealth, he will have a well-observed tendency to put it to wrong purposes or otherwise to make himself look foolish.”

That’s the first paragraph of John Kenneth Galbraith’s great book ‘The Affluent Society,’ written half a century ago. The celebrated economist and former US ambassador to India describes wealth as a “relentless enemy of understanding” that plays a big role in the way people invest their savings.

There are many ways of classifying savings and investment products but I would like to suggest a completely new one: those designed to suit the vanity of the wealthy and those that are actually useful. That need not apply to investments alone, but also for cars, clothes and food.

Investments designed for the wealthy often feed the idea that they must go beyond simple things that give returns and safety. In this view, investments that simply provide a certain level of return with a correspondingly high or low level of safety are for the unwashed masses. So, there builds a case for someone who caters to a unique personal situation with a tailor-made strategy.

Actually, in the context of investments, the only thing different about the wealthy is that they have more wealth — and there are people who want to take a piece of that with products and services that are supposed to do something extra. Unfortunately, way too many wealthy people either never discover this, or discover this too late.

Here’s how to deal with it. Pretend to be unwealthy (I guess that may be hard, but give it a try). Remove a few zeros from your net worth and then see what you would have been advised.

So, if you are worth Rs 10 crore and need to invest 50 lakh, pretend to whoever is advising you that you are worth Rs 10 lakh and that you need to invest Rs 50,000. And then, go ahead and do with the 50 lakh whatever you are being told to do with the 50,000.

Go ahead and give it a shot. You’ll have a better chance of getting sane and sensible advice and of making the better choice.

And who knows, maybe it’ll work for cars and clothes as well.