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You are not Safe for your own Money!

For starters, this is a pretty much controversial statement to make. Many will disagree with this but it can be proved true if we look over some situations where you have to choose by yourselves what will happen to your money.

So why it is that you can't be trusted with your own money? The answer to this question can be summed up in one word and it is EMOTION. Your Emotional Attachment with your money is the reason that ends you up in losses or in a situation where there is no way out other than waiting for the fund to grow to its normal value.

Let me put you in a situation where you can understand the relation that endangers you. Suppose you are invested in a company that has been performing well and offering good returns for the past few years. Looking at the past returns you were tempted to invest in that same company and thus did it. Now the market has been going up and down for the past few months where you can't predict the final trend at which the market will be stable at and start growing. So, the company you have invested in has also suffered losses due to this trend and so have you. Now here again you are TEMPTED by your money to cut the losses and take out whatever that is remaining. So, you sell your Investment and book your loss.

Remember a loss is not a loss unless it is booked. In simple terms, the loss was unrealised loss and not an actual loss of yours so if you had kept the money for some more time that same loss would have been converted to gains, and then if you had sold it you had booked profits.

This happens the other way round also. Suppose you are invested in a low-risk investment and now due to some x or y factors that Investment is not performing well and is likely to continue that way in the near future. This can be referred with a crisis of Debt Mutual Funds a few months back which resulted in years of losses been washed in a day. Now to offset your loss of low-risk investment, you are tempted to set off that loss by purchasing a high-risk high-return investment and thus you spend more to cover your loss.

This emotional attachment leads you to make decisions that are based on emotions rather than planned decisions. This attachment of yours with your money has many examples where you are emotionally blinded by your money and can only see the current disadvantages and not potential returns. We will look at other situations where you are influenced by your own money to make bad decisions in future posts. Till then, Stay Safe and Stay Educated.


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