Event-based investing – Is it the right way to go?

Last week was Akshaya Tritiya -- an auspicious day for Hindus and Jains. Over time the significance of the day has got lost in the cacophony of gold marketing companies. Newspapers, magazines and television channels are full of advertisements mentioning the importance of buying gold on this day. 

Throughout the year, days like Akshaya Tritiya are hyped in the media to lure the unsuspecting investor. Another such day is Dhanteras (just before Diwali). Not that there is anything wrong in investing on these days. But investing has to be methodical, and not driven by festivals and marketing strategies. They should be the exception and not the rule.

Most investors invest erratically – such as on their children’s birthdays and during ‘JFM’ (January, February, March) to ensure some income tax deduction. The idea behind such haphazard investments maybe good. But then such investments start and end on that very day. There are no further investments till another auspicious day, or a birthday or the JFM period arrives.

There are several pitfalls of engaging in event-based investing are:

Firstly, what this results in is an ad hoc, unfocussed investing pattern which really does not get you anywhere. The amount of investment purely depends on availability of funds on that particular day. There is no fixed amount being invested. Such haphazard investment will not lead you to your goal.

Secondly, though there could be a goal mapped to a particular investment, generally such investments are not backed by any mathematical calculation. Investors don’t address questions  such as – how much do I need at the end of the term?; have I accounted for inflation while computing the goal?  It’s a simple exercise of stashing away funds.

Thirdly, in cases where the saving is forced (such as in tax-saving investments), there is obviously no goal. In most cases, there is focus on the product too. It’s a simple rush-job to meet the deadline. Most people are not even aware where they have dumped the money, let alone looking at returns.

Fourthly, there is quite obviously no analysis or research done on whether the product is suitable for you or not. Such investors neither do a risk analysis nor have look at their asset allocation. Their decisions are based on hearsay and tradition. This generally leads to a situation where they put all the eggs in one basket.

Fifthly, because of the demand pressure, the price (typically of gold) tends to move up. With a ‘single-day’ lump sum investment being made on these days, you tend to buy at the highest point with no chance of getting the benefit of ‘rupee cost averaging’. In the long run (of say 15-20 years), this generally does not give you the best possible returns.

 

People who engage in ‘event-based’ investing believe that they are ‘planning’. But in reality, they are only planning to fail. With little or no mind put to various critical issues, the end result can only be a disaster. So I would suggest that put away additional amounts on such events, but plan your investments across the year through proper financial planning. Achieve your goals in a planned and focussed manner, leading your family to financial wellness.