The worst investment ideas of 2023

You see, there’s so much money being made these days all we need is another dose of optimism to push ahead. Invest some more. Perhaps even ask the all-important question–why should I spend time running my business when returns from stocks are far better? Well, if you do find yourself in such a situation, or perhaps asking yourself this question, you should know we are in a pent-up bull market.

In fact, it’s at this very moment, just when everything about stocks starts to look perfect, you should start to get anxious about stocks. If you are a seasoned long-term investor, you should be asking yourself–do I have enough cash on hand to jump in if and when the correction comes? On the other hand, if you are a trader or punter the question to ask is–what if things are not perfect after all? How much could I lose?

I know this is wishful thinking. At the end of the day, the market cycle will play out. Few will learn their lesson. But nevertheless, we are not the ones to give up.

So I am going ahead and sharing with you some of the worst ideas I came across in 2023.

First, is this whole idea about FIRE. Apparently, it stands for–Financial Independence, Retire Early. The whole foundation for FIRE, to my mind, is this–you invested a whole lot of money in stocks expecting solid returns over the long term. Luck was on your side and the markets delivered a once-in-a lifetime return, and in double-quick time. So now, you, who was planning to retire in 20-30 years, can retire right away. What do you do?

Well, you FIRE, go on to social media, and start giving all kinds of gyaan. Not that you had any plans for all of this. It just happened. It was a fluke. And I don’t grudge you that. But if you are FIRE labharthi, and then you go about telling people how to replicate your plan, the foundation of which is a lucky stock market break, well, it’s just bad advice. And to those who latch onto this advice, well, what can one say.

Second, is this infatuation with midcaps, small caps and SME stocks. The belief is that if you want to make big returns, you need to be in this segment of the market. The large caps are done for. This self-perpetuating story is playing out in the market, which after all is driven by money flows in the near term. Hard data on the other hand clearly suggests that this belief is a fallacy to a very large extent. But then who’s listening! The smaller the company, the more exciting the opportunity seems to be. Unfortunately, when the tide turns, let alone taking a hit, given the amount of money that has gone into these markets, it may be difficult to even get an exit!

Third, is this hate for anything that is not related to the stock markets. This is reserved mainly for gold and real estate. I have shown in my earlier editions of Contramoney how important the role of gold is in asset allocation. It’s a hedge against something going wrong in the world, or then at our country level. You see, it’s good to be bullish. I am bullish! But one must have some insurance, and that’s gold.

Also, when it comes to real estate, I have shown, if done well, the returns could be very lucrative. People often quote recent returns from real estate as a reason not to invest. But the point is that the real estate cycle was trending downward for the last many years. Perhaps this was, or is, exactly the right time to buy. But you need to approach this very carefully because these investments tend to be large.

Finally, and perhaps the WORST idea of 2023, is mindlessly infatuation with SIPs without understanding a thing about them. You see, SIPs are a fantastic instrument to save money. But when you invest the money via an SIP (yes, SIP is only a means), you need to be sure you are invested in the right funds, and that they fit into your asset allocation plan. Given all the data that is available, it appears the bulk of this money is going into–you guessed it–small caps, midcaps, and thematic funds. This is terrible. Anyone who is pushing SIPs without guiding investors rightly about them is just giving out terrible advice.

One thing to keep in mind in 2024 and beyond is that you need to optimise asset allocation to your needs. The aim is not to maximise returns at any cost, even if it does not fit with your needs and risk profile. You need to measure yourself against your own goals. If you get this, you will find yourself in a place of calmness with regards to your investment plans and asset allocation. I believe you deserve that. Afterall, your savings and investments are meant to add to your security, not your insecurities!

Wish you a very healthy, happy, and prosperous 2024.

Rahul Goel is the former CEO of Equitymaster. You can tweet him @rahulgoel477.

You should always consult your personal investment advisor/wealth manager before making any decisions.