You would be surprised to know that this age-old sport consists of rules and features which can be used as analogies to learn parallel lessons in the world of personal finance. Here are some of these with the impact they would have on your financial planning plus some pro tips for you.
1. Don’t step out into the field without protective gear
Impact: Not taking adequate precautions can make players vulnerable to injuries on the field. Similarly, if your financial planning does not have an element of protection, it exposes you to several risks.
Tip: Before you start investing for wealth creation, secure yourself against the risks to finances, life and health. An emergency corpus, a health cover and life insurance are a must to safeguard your and your family’s financial interests.
2. Stay put for the long haul
Impact: Giving in to the adrenaline rush or giving up under pressure has often been the undoing of several batsmen. This is akin to investors who, in their bid to make a quick buck, or due to panic, exit during a market downturn and suffer losses.
Tip: Legendary knocks require grit and patience to tide over turbulent phases. Equity investors should invest for the long-term and not be perturbed by short-term volatility.
3. Don’t bank on a single player
Impact: A star player might hog the limelight with some match-winning performances, but relying on a single player won’t work in the long-term. Investors too should refrain from placing huge bets on a ‘promising’ sector.
Tip: Experts advise against focusing on a single sector as it leads to concentration risk. Focusing on sectoral funds can both lift as well as sink your portfolio. To mitigate the risk quotient, you should spread your bets.
4. Communicate well
Impact: Lack of communication and poor calls from batting partners can lead to run outs. Not keeping one’s family in the loop on investments, liabilities and insurance can have similar unpleasant consequences.
Tip: Keep your family members, especially your partner, informed about investments and insurance. This will help them take charge of financial matters if you are in any way incapacitated.
5. Keep the asking run rate in check
Impact: Waiting for the slog overs to do the major scoring is a bad strategy. It’s best to start early when it comes to making runs and also when it comes to investing.
Tip: Late start means investing a lot more to build the same corpus. Early start can help achieve long-term goals such as retirement or children’s higher education relatively easily.
6. Follow the rules of the game
Impact: Misbehaviour and other violations often attract suspensions and fines that affect team performances. Slip ups on routine financial matters can cause monetary damage.
Tip: Pay your credit card bills and EMIs regularly to avoid poor credit scores. File tax returns on time to avoid late filing penalties.
7. Read the googlies carefully
Impact: Batsmen end up losing their wickets when they fail to read googlies. Similarly, returns projection from agents can be misleading and lead to making poor investment choices.
Tip: A clever salesperson can sweet talk you into making bad investment choices. Asking for the internal rate of return (IRR) of a financial product is a smart way of avoiding sub-optimal investments.
8. Build your innings steadily
Impact: Sneaking ones and twos regularly with an occasional boundary can help build a decent score, especially on a tricky, batsman unfriendly pitch. Likewise, systematically investing small sums can help navigate choppy markets and build wealth.
Tip: Don’t put off investing till you have a ‘large’ surplus. You can start small and increase your investment when the situation allows. SIPs in mutual funds are a smart way of achieving financial goals through small-ticket, regular investing.
9. Being overly defensive doesn’t pay
Impact: Not taking chances at all and relying on singles alone won’t help build a good score. Similarly, investing just in debt products is unlikely to help meet your financial goals.
Tip: Investing in equity is the best way to earn decent, inflation-adjusted returns. Don’t shy away from equity, especially if you want to meet long-term goals such as children’s education, retirement, etc.
10. Imbalanced team can lead to losses
Impact: Just like a bad team composition can hurt the team’s performance, poor asset allocation can pull down your portfolio’s return.
Tip: Going overboard on equity in the hope of high returns, or playing ‘safe’ and investing in just debt can lead to sub-optimal returns. You should consider your age, risk appetite and the goal horizon to decide the asset allocation that suits you best.