If you are a young professional and single, then the following discussion is relevant for you. In this article, we discuss why you should take your own investment decisions with appropriate guidance from your parents.

Generation gap?

Your parents care about your financial health. But the investments that worked for them may not necessarily be optimal for you. Your parents may have accumulated their wealth through real estate investments, especially land. Should you?

For one, your work may require you to relocate from one city to another or to a different country. Investing in financial assets may be easier to manage than buying physical assets such as gold and real estate. For another, real estate prices have increased exponentially over the years. It is moot if you can earn similar returns as your parents did.

Importantly, your goals may be different from that of your parents. Your parents would have saved to buy a house, fund your college education, and provide for their post-retirement lifestyle. You may want to take a short break from professional life and travel around the world, a trend that is more common now than in the past. Such lifestyle changes may need different investment products and processes.

Then, the risk associated with earnings is greater today than in the past. This leads to two important requirements. One, you need more liquidity than your parents did during their early career. This is to enable you to sustain your lifestyle in the event of temporary loss of income.

This is relevant because a healthy business can face difficulty because of disruptive technologies, exposing your income to greater risk. And two, the risk associated with your investment capital must balance your income risk. That means your investment capital must have stable-income products that can be liquidated without much loss of nominal value.

The above discussion is not to suggest that your parents should not manage your investments. Rather, it is to nudge you into taking an active part in creating your investment portfolio. From a behavioural perspective, it would be optimal if you make the investment choices and let your parents control your investments.

That is, your parents should manage the login and password to your investments and the bank accounts linked to your systematic investment plans (SIPs). That way, you will not be tempted to stop an SIP or withdraw a fixed deposit to fund short-term impulsive purchases.

(The writer offers training programmes for individuals to manage their personal investments)

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