Parents, be wary of allowing your children to invest in your retirement funds

A recent trend that I have been noticing is of Gen Z and millennials taking over investments of their parents in the lure of better returns. Parents too play along as they are tired of low yielding fixed deposits. Encouraged by returns on investments over the last one year, youngsters feel they have totally nailed money management and older generations just cannot grow money, the way they can.

Take the case of Nitin, 26, an IT company employee, who has utilised the time saved in travelling to work by trading stocks and cryptocurrency over the last one year. He got into it, driven by friends gloating about profits, they were making in stocks. His main source of information, like so many other Gen Z is internet platforms like Reddit, fin influencers and youtube videos. Nitin has also invested in international stocks.

When he heard his father lamenting about falling fixed deposit rates, he goaded his father to move away from low yielding fixed deposits and invested in a gold backed instrument giving a 10% fixed return and recently in a non-convertible debenture by an NBFC. The former was recommended by a work colleague and the latter by a social media influencer.

He is also doing stock trading with a smaller portion of his father’s retirement kitty. Nitin is not agreeable with my view that these investments are too high-risk for retirement funds to be invested in them. I asked him to deliberate on how the returns are almost 50% higher than a PSU bank fixed deposit and what could be the risks involved. But he was adamant about his choice of investments for his father’s retirement kitty.

You may believe your children are more aware and with the times but keep in mind a few things before you entrust your hard-earned retirement money to your children. One year investing experience in rising markets is not enough for anybody to handle your funds. Nitin has only seen market moving upwards and with bull markets, the tendency is to trade overhyped stocks. Investors get enthralled by stocks/themes held by big investors or those which others are speaking about.

One may get lucky with 1-2 such stocks but the unprofitable trades pull down overall returns. Investors believe they are doing well going by the performing stocks but do not calculate total return including underperforming stocks, thus not getting the right picture.

There is no strategy to investing other than chasing trends or getting swayed by what online platforms are promoting. The gold-backed debenture was being sold on a well-known online platform. It is a debenture backed by a portfolio of gold loans from a low rated NBFC. An unknown A rated NBFC can easily siphon off funds for other purposes as we have seen with many such cases in the past.

Due to bull markets, investors' willingness to take risk rises as they get overconfident and are not willing to see reason. The ease with which one can invest and trade in different markets and the fact that these new products like forex trading can be invested online, is getting people to take such investment decisions, without understanding risks involved. Investors do not assess the product beyond looking at returns. There are firms promising 40-50% return every month on forex trading. If this was possible, wouldn’t everybody be offering this product.

Remember, youngsters starting their investing journey are looking at quick returns in the shortest time, as it makes them look cool and happening. The high confidence and claimed knowledge unfortunately comes from social media or influencers who are sharing their views. What may work for them may not work for you. And in any case they are not financial advisors.

Even if you want to try out some new instruments, do it with surplus money which is over and above what is required for regular expenses and be ready to face volatility with these investments. Do not expect a consistent fixed return from such investments

(The writer is the founder-director of Finsafe)