Why do so many financial advisors tell their clients to invest in index funds when they themselves don’t invest in them?

Did you know this, Nifty Index can never go to zero. Even if reliance or TCS goes to zero, nifty won’t go to zero….

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Did you know this, Nifty Index can never go to zero.

Even if reliance or TCS goes to zero, nifty won’t go to zero. Reliance industries is worth 18 lakh crore today August 2022 & TCS is worth 12 lakh crore, HDFC bank is 8.4 lakh crore.


They are India’s top 3 stocks. Like them, India’s top 50 stocks put into a single basket forms nifty index.
But nifty always pushes out the low performing lagging company and replaces it with those who are going up. Thus if reliance or TCs starts to fall, soon enough, they will be out of nifty. Replaced by other large companies. Thus nifty will never go to zero.


On the contrary,
People usually book “profits” in stocks that gave them good returns by going up. Cash from the exited stock gets transferred to companies which are “under performing”.


Like people who exited HDFC BANK to buy YESBANK when it was falling. These people do exactly opposite to what nifty index does. Nifty gives more money to growing stock and kills bad ones.


Also ironically, in real world, same human will give bonus to his best performing employee (won’t book profits by firing him). Duh! In share market people fire the good companies and buy the bad ones. They cook up good reasons like value buy/ profit booking etc.


Then eventually they underperform nifty index. Right? Nifty had satyam, rcom, yes bank, DHFL type companies at top once. As they lost their ground in business, nifty kicked it out of the list. This is why we as sebi registered investment advisors recommend you to buy nifty index.

Reason number 2

As an investment advisor, We want to protect our imagine, in case we are wrong. Did you know this, ๐—ก๐—ถ๐—ณ๐˜๐˜† ๐—บ๐—ฎ๐—ธ๐—ฒ๐˜€ ๐—ฎ ๐—ป๐—ฒ๐˜„ ๐—ต๐—ถ๐—ด๐—ต ๐—ฒ๐˜ƒ๐—ฒ๐—ฟ๐˜† ๐Ÿฏ ๐˜†๐—ฒ๐—ฎ๐—ฟ๐˜€.


Which means, even if we are wrong today, you will thank me for advising nifty in next 3 years. ๐Ÿ˜‰

The above image can be verified from simple google search. Nifty makes a new high every 3 years.

Why nifty must make a new high?

Imagine, You are working in a company. You will get hike only if you meet quarterly targets, set by the company you work for. Yes?

If quarterly targets are met by employee (you), company will show profit in balance sheet. If company shows profit, share prices will reflect it with a rally. If share prices rally, nifty index goes up. At grass root level, we all are working for nifty index to go up. If your company is not amongst NIFTY 50, still its client could be listed in NIFTY 50.

How to utilize this opportunity?

Keep adding Nifty index ETF Or associated stocks with high beta correlation with nifty. Think of those who kept adding Nifty at 9000 till 8000 levels in march 2020 (2 years back during covid crash). At that time, we were shouting even in linkedin to buy with target of 12200 (peak of year 2020). That was a cool 50% return.

The below image(black) is from 2 years back. When we were posting to buy nifty for target 12000. Logic was, nifty makes a new high every 3 years.

Nifty makes a new high every 3 years.

It was our luck that within 6 months nifty made a new high and continued to go up till 18600 in October 2021.

Since oct 2021, at the time of writing this answer is June 2022. NIFTY level is 15200. So by now you know why we always recommend a newbie person to buy nifty when, he/she cannot commit time to full time research nor, has the willingness to hire experts like us at their service. Now coming to the second part of the question. We SEBI registered investment advisor/Financial planners do not buy Nifty ourselves. That is true. Sounds ironical right? Let me explain, The reason we do no buy nifty because, we want to double of money in 5 years. We donโ€™t want to just see all time high for our money in 3 years.

We have time, resources, skills to beat nifty. This is our full time work. If you can commit full time to market study, reading and research, then you too will sharpen your investment for faster wealth growth. Yes?

Did you know,

  • HDFCBANK doubles every 4 years since 22 years
  • Nestle doubles every 5 years since 25 years
  • Dabur doubles every 5 years since year 2003
  • Asian Paints doubles every 3 years since year 2007
  • Nifty just makes a new high every 3 year. It takes 7 years to double on average.

So, HDFC bank doubles every 4 years. Worldcup occurs every 4 years. We buy this stocks like crazy and never ever exit this. You can verify this from google charts too.

The challenge is not in buying this HDFC bank stock. Anyone with commonsense will buy this stock for 5 lakh rupees. But can we buy HDFC bank for 30 lakhs ? You will loose sleep over it. You do not know the ceo name, its balance sheet or future growth prospects. We are professionals who commit time to read everything on it. We do not fear investing large sums in such stocks.

As an advisor i am not in the business of stock recommendation. The names are very popular. Everyone knows these stocks. I am in the business of, “managing your fear.

I have confidence to buy 50 lakh in HDFC bank stock. You will stop at 5 lakh. That lack of conviction and confidence cannot be transferred.

Let’s check other stocks that follow similar pattern?

And what about nifty?

Conclusion

So, when we are asked for an advise for freeโ€ฆ.We recommend nifty. It is safe. It is a basket of best 50 stocks. You will not abuse me for recommending nifty.

  • All others are stocks. They have individual risks.
  • What if HDFC BANK falls like YES Bank?
  • What if Berger Paints over takes Asian Paints?
  • What if Nestle maggi lead issue pops up again or something similar happens?

Just few bad factors could make these stocks loose their growth and turn a looser in our portfolio.
But since we are full time in market. My ears are on the ground. We will get the hint before hand, we will exit that stock before it is too late.
A newbie cannot make such moves on time. I hope you got the answer.
This is Why do so many financial advisors tell their clients to invest in index funds when they themselves don’t invest in them?

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Sujith Salunkhe

Btech in Information Technology followed by an PG in Financial engineering & Risk Management from National Institute of Securities Markets. Certified Investment Advisor XB, FRM (USGARP) .

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