Don't let greed cloud your financial decisions

Greed is a factor which makes the financial decisions for most people. Given an option, majority of us would prefer to retire rich fast or lead a better lifestyle among other things. Greed, in the last three to four years, led many individuals into a major debt trap. Like a whirlpool, once you get caught, it’s difficult to get out.

Why this happened and who is responsible for this is very important to understand so that none of us repeat the mistake.

Let’s go back to the years 2004-05. The property market was going up by 25-30% annually and the borrowing rate for loans was as low as 8-9%. Similarly, the stock markets were going up. At times in a day small investors were making Rs 10,000-15 ,000. Personal loans were given in the range of 15-16% to invest in stocks. If an investor held shares, then one could also get money against those at better borrowing rates. What does this indicate? Opportunity to make money as the differential between the borrowing rate and property appreciation was as high as 16-17% and in the stock market it could be as high as 30-40%.

This is the situation greed had created. The story does not end here. Even if you are not keen on getting into this, banks were so aggressive on lending money that everyday you would get marketing calls for loans at cheap rates. This would induce even a sane person to think why not make some money from this boom.

To worsen things, every third person became an advisor on stock and property market and would laugh if you kept money in a fixed deposit. At parties and social gatherings one will hear stories about people making big money from either property or stocks. People, who in the normal course of life would have bought one house, went ahead and bought their second and third house for investment purpose. For this, they started borrowing money from banks and every source to invest in stocks and real estate for making some quick profits.

But reality dawned in year 2008. The cost of borrowing for all loans has gone up by 2-3 % annually. The property market is declining with a correction happening in some areas in the range of 20-25%. The Bombay Stock Exchange’s Sensex, which was at a high of 20,000 plus, fell to 14,500 and no one wants to take a bet on when it will recover.