A young woman who'd been investing for about two months sent me a list of questions. Expense ratios, whether she should switch to a direct plan, what she thought about a particular category, and whether her scheme's benchmark was the right one. Every question was sensible. Not one of them mattered yet.
That's a common situation and nobody says the obvious thing about it, which is that a beginner is being handed the curriculum of a much later stage. So here's what I'd actually skip for the first couple of years.
Ignore: the daily value
Top of the list and not close.
Checking a fifteen-year holding every day produces no information and a great deal of feeling. In the early years the number moves mostly because you added money, not because anything grew, which our post on the first year of a SIP explains.
What checking does is build a habit of having opinions about the number, and opinions lead to actions. The people who do best are usually the ones who look least.
Ignore: which scheme did best last year
The single most available piece of information and one of the least useful.
A one-year figure describes a period, not a scheme. Shift the window by six months and the order changes. Chasing whatever is at the top of a list is how people reliably buy after a strong run and sell after a weak one.
Our page on how returns are calculated covers why a chosen window flatters so easily, and it's worth reading precisely once and then not acting on any list again.
Ignore: the direct plan question, for now
I'll say this as the person it costs money.
Direct plans are cheaper and we've written honestly about that on direct versus regular plans. But for somebody two months in, the cost difference is small in absolute terms, and the energy spent on it would do more good elsewhere.
Revisit it once the amount is meaningful and you've been through a market fall without doing anything silly. At that point it's a real decision. In month two it's a distraction dressed as diligence.
Ignore: the tax question, until March
This one is slightly different because it does matter, just not continuously.
New investors read about tax treatment and start worrying about holding periods and categories before they have held anything for a year. In the first two years, with modest amounts and nothing being sold, there is very little happening that tax applies to.
What is worth doing is knowing that selling creates an event and that switching counts as selling, which our page on switching between schemes covers. That is enough. The detail becomes relevant when you actually redeem something, and it belongs with a tax adviser at that point.
Ignore: market news
Nothing in the daily commentary applies to money you won't touch for a decade.
Whether an index is at a record, whether somebody expects a correction, what happened overnight somewhere else. All of it is written for people trading this week, and consuming it while investing monthly is like reading match commentary for a game you're not playing.
Our post on markets at an all-time high is our attempt to answer that whole genre once.
Ignore: adding more schemes
The instinct after a few months is that one or two holdings look thin, so another gets added. Then another.
Three years later there are seven, most of them holding the same companies, and nobody can say what any individual one is for. Our page on portfolio overlap covers what that collection usually looks like underneath.
Two or three holdings is plenty for a long time. Adding is easy and subtracting costs exit load and tax, so the asymmetry argues for restraint.
Ignore: what your friends are doing
The most persistent one, and the hardest to switch off.
Somebody at work mentions a number. It sounds better than yours. What you are not told is when they started, how much they put in, which window they are quoting or what they lost on something else last year, and our post on why somebody else's fund did better covers how little those comparisons contain.
The thing that makes this worth ignoring rather than investigating is that the comparison is unanswerable. You cannot verify any of it, and acting on it means changing your arrangement because of a sentence at a lunch table.
What not to ignore
Four things, and all of them are administrative rather than intellectual.
Whether every instalment went through. Check the transactions, not the value. A failed debit that nobody noticed is a real problem in a way that a red number is not.
Whether your details are current. Mobile number, email, bank account. Our page on how a folio works lists them, and these are what stall requests years later.
Whether there's a nominee. Thirty seconds, and our page on nomination explains what it saves your family.
Whether the amount is still right. Raise it when your income rises, which does more than every ignored item on this page combined.
Why the beginner curriculum is upside down
It is worth asking why a new investor gets handed the advanced material first.
Partly because it is what exists. Content about scheme comparison and expense ratios is easy to produce and endlessly renewable, while the useful advice for a beginner is short and does not change.
And partly because the administrative part is not interesting to anybody. Nobody builds an audience explaining that you should check your registered mobile number.
So the material tilts towards selection, and a beginner reasonably concludes that selection is the important part. Our post on the regrets clients actually have is the strongest evidence I have that it is not.
The one thing worth actually learning
If I could get a beginner to understand one concept properly, it wouldn't be any of the above.
It would be the relationship between when you need money and where it can sit. Money needed in two years does not belong in equity. Money for fifteen years away can tolerate a great deal. Almost every serious mistake I see is a violation of that single rule, and our page on asset allocation is the whole method.
Everything else on the beginner reading list is refinement. That one is the structure.
What changes in year three
The list above has an expiry date, which is worth saying so it does not read as permanent advice.
Once the amount is meaningful, you have been through at least one uncomfortable stretch, and the holding has been running long enough to judge, the questions she asked become the right ones. Cost starts to matter in absolute terms. Whether a scheme has done what its mandate says becomes checkable over a useful period.
The order is what I am arguing for, not the exclusion. Learn the administration first because it protects everything, then learn the analysis once there is something worth analysing.
What I told her
That her questions were good ones for year four, and that in the meantime she should check her mandate was running, add a nominee, and put a reminder to raise the amount when her appraisal came.
She seemed slightly let down, which I understand. Learning feels productive and administration does not. But I've watched a lot of people become well-informed about schemes while their instalment sat unchanged for six years, and I'd rather that didn't happen to her.
Myfolios is an AMFI-registered mutual fund distributor (ARN-145870) working from Indore since 2014, and if you're early in this, the boring checklist is the useful part.
