Savings and investment products that are targeted at wealthier individuals ('HNIs', as they are called nowadays) are often made deliberately complex. This is generally done just to make them appear special and to enable the providers of this products make more money. Investors shouldn't fall for such tricks:

The Problem of Wealth

“Wealth is not without its advantages, and the case to the contrary, although it has often been made, has never proved widely persuasive. But, beyond doubt, wealth is the relentless enemy of understanding. The poor man has always a precise view of his problem and its remedy, he hasn’t enough and he needs more. 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 book takes a different direction after this beginning, but Galbraith’s comments in these first lines on the ‘variety of ills’ of the rich can explain a great many problems of the world. In my observation, this ‘relentless enemy of understanding’ plays a big role in the way people invest their savings, and in the kind of savings products that do well.

There are many ways of classifying savings and investment products but I’d like to suggest a completely new one: those designed to suit the vanity of the wealthy and those that are actually useful. Actually, that’s probably a good way of classifying almost everything from clothes to cars to food, but I’ll just stick to investments right now.

The basic idea behind investments designed for the wealthy is that they feed the idea that they must go beyond simple things that gives returns and safety. Investments that simply provide a certain level of returns and a correspondingly high or low level of safety are for the unwashed masses. The wealthy must have something special which others don’t have. Their must be someone who will cater to their unique personal situation and then formulate a strategy tailor-made for each individual’s unique needs and then manage that strategy.

Actually, in the context of investments, the only thing different about the wealthy is that they have more wealth and so other people have more of an incentive to try and take some of it for themselves (the wealth, I mean). Obviously, this is best done by creating 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 th e 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 too.

Dhirendra Kumar