This friend has gone through a lot in her life. She is an accomplished professional who married the man she had fallen in love with at college. For 20 years, she trusted him with everything including her earnings. Nothing could go wrong, she thought, until she caught him cheating on her. A bitter divorce ensued and she walked out with the custody of her young daughter and nothing else, except her provident fund.
Sometimes we have to build from scratch, all over again. A failed business left another friend with nothing to fall back on. The house they lived in was also mortgaged. They had to move cities, sell off the jewellery and begin small again. An unexpected illness threw another friend’s retirement plan into disarray. Money was depleted treating his wife and suffering the emotional trauma of her painful death. And then he was left with nothing and no ability to earn. He had to reverse mortgage his house to survive.
Drastic financial situations call for treating our assets in a manner we would never think possible. Selling off the house means my divorced friend will make some serious money. She plans to move into a smaller house, which she will fund with a home loan. She has a secure job to pay it off over the next 10-15 years. The sizable money she will make selling off the house she inherited will offer a good financial buffer. The money can be invested and also used to fund higher education. Many of us do not consider the equity that remains locked in some of our assets. Especially in properties or jewellery that were inherited. It seems like sacrilege to even consider selling off those assets. They can never be bought back, warn the naysayers. But of what use is an asset if its value cannot be realised for better uses?
If those little pieces of land, or those tiny flats in distant suburbs cannot be sold off to meet a larger more important financial goal like higher education or entrepreneurial ventures, what might be the purpose of buying them with the excuse that they will be an useful asset? Why is it that most parents prefer backending their bequests to a time when their child would be well past the age when they actually need money?
We are so driven by this hoarding attitude. Many of us believe that something that is set aside and not used is valuable. Add to that the social virtue that is made of sacrifice, frugality and denial of material comfort. We emerge as people that would hold on to assets, but never see them as things we should use for our own comfort. Consider some of these points even as you list your own unutilised assets, stashed out of sight:
First, are you able to see that what you have is a dynamic pool of assets that must earn a decent level of return? Is your asset pool subject to objective norms of performance? Do you actually consider how their value has behaved over time? A friend bought a flat at Lavasa when the sales pitch was the best. Now she refuses to admit it might be a dead investment. She believes real estate will earn returns sometime. Your assets must work for you. Don’t give them concessions because you made an emotional decision.
Second, do you respect the market value of your asset and act if the asset can be liquidated at that price? Many of us have in our portfolio equity shares that were bought without much thought. Or we bought them lured by the possibility of great appreciation in price. These may be much hyped IPOs, momentum stocks, new ideas or just names that floated around. The prices went up and then steeply down and we still hold them. Long run holding will not make a dud a star. We can liquidate, release the money, and make it work in another quality stock we can buy with better due diligence.
Third, do you consider the costs and hassles of a transaction and give up the effort as you think it might not be worth it? My aunt routinely took her vintage jewellery to the jeweller and after a much detailed process of evaluation, brought them back home. He is discounting them too much, she would say. Or he is calculating a steep damage she would rue. But the value of the jewels that she never wore or used, was surely higher than those elements of cost. She was just missing the woods for the trees.
Fourth, do you feel confident that you can build your assets back? Some of our friends who returned under trying circumstances from the Middle East only had jewellery they had accumulated and palatial mansions they had built in their native towns. But they refused to realise the value in these assets as they lacked confidence about future earnings. But these assets generated no income either. Income is the flow to generate, nurture and protect. With income, assets can be built again.
Fifth, do you think your social worth is decided by the assets you own? Many cannot make decisions about large assets for the fear of social ridicule. Moving from a large house to a smaller one is a climb down in status. It may result in loss of friends and contacts in the earlier circle. Many think that the shame of being exposed as someone who had to desperately sell assets would be unbearable. It is indeed a sorry state of affairs if you are known only by the wealth you kept. There are innumerable valuable qualities that generate social equity and it would be a pity if one earned none of it. You have to do what it takes to bring your finances in order—social circles will appear as you lead your new life.
Asset liquidation is not an easy decision to make. Especially since it triggers regret rather than a sense of achievement. But it might still be your best bet to renew, rework, and rebuild. Don’t let your assets lie idle while you bleed. Put them to use
(The writer is Chairperson, Centre for Investment Education and Learning)
