January 17, 2014   by

HOW TO HELP MEMBERS STAY COMMITTED TO LONG TERM CHAMA GOALSAs a Chama, when you first commit to the goal to save millions, buy property, or buy treasury bonds, you are very excited. You can’t wait to get started on making your dreams a reality.
If your goals is to save 10 million in several years.  At the beginning members may save religiously, but after a few weeks, or even days, your initial enthusiasm wears off and you start thinking about whether this is really worth it.  So after your short burst of enthusiasm, what does it take to ensure that you stay motivated?

What has helped many Chamas is creating a goal support system, a sort of “goal prop” if you will. We can use these prop to help us stay focused and committed, before following the path to our goal has become a habit.  A goal prop can be anything that helps us stay focused on our goal. It helps us remember why we started when our discipline is waning and we are not sure if it’s worth it anymore.

Here are some suggestions for creating a prop that will help your Chama stay focused toward your long-term goals:

The researchers have plenty of evidence on their side. Academic studies
consistently show that investors achieve poorer returns on average than
the funds they invest in. This shortfall, which is called the
behavioural gap, primarily results from too much trading and a tendency
to buy what’s done well in the recent past.

Clearly, it’s hard being a committed, consistent long-term investor, but
it can be done. During my time on the buy side, I’ve met thousands of
investors who have let the power of compounding work for them and done
well as a result.

First, you need to recognize that investing is like no other product
decision you make. It’s perverse. Your best moves will feel terrible
when you’re making them. Your well-thought-out plan will appear to not
be working for long stretches of time. And, like golf, there will always
be someone telling you they’ve figured out a better way (usually someone
who posts higher scores and lower returns than you).

Second, you should stop doing the obvious things that are causing the
behavioural gap. Contribute less to the profitability of the financial
services industry by trading less and avoiding high fees. And don’t
screen potential investments based solely on how they’ve done in the
last three years. Look forward, not back.

The third key: You need to work from a Strategic Asset Mix (SAM). This is a
plan, a place you go when you’re confused, disappointed, frightened or
over confident. Your SAM should be the basis from which all decisions
are made. “How does this new product fit into my portfolio? Should I be
buying or selling these lousy foreign stocks?” Your SAM won’t vary much
from year to year and should never be changed drastically at extreme
times. When markets are going wild, it’s time to lean on your plan, not
change it.

Fourth, you need to eliminate the word “if” from your vocabulary and
substitute “when.” You’re more likely to be surprised by ifs, as opposed
to being prepared for whens. For example, when the stock market goes
down 20 per cent, you’ll gradually add to your equity funds. When your
foreign stocks smoke the rest of your portfolio, you’ll re-balance back
to Canada. And when it seems you’re going against what everyone else is
doing, you’ll smile and pour yourself a nice glass of wine.

Create a statement
This is probably the easiest thing to start out with and one of the most powerful motivators. It’s simple and unsophisticated. If your goal is to save millions, you can use the mantra “the millionaire chama” or “the millionaire bridge.” The mantra itself isn’t as important as the emotional connection it gives all of you to your goal.

Create a ritual
If your goal is to buy property such as land, it’s not easy to wait patiently until you are able to buy. What is much easier is creating a ritual to reinforce your aquisition. This might every time when you have your Chama meetings, or before you make your monthly contributions, you review your plan and how nice it is to own a land and how  important to you and how you can’t wait to have the land

Make plans
This is one of the most powerful actions for Chamas, but it’s not something you do all the time. Make plans and dream about what you’re going to do when you achieve your goal. When you finally buy your land, what are you going to do?  When you save 10 million, what are you
going to do differently? Whatever it is, getting members to regularly thinking about your chama plans after you’ve achieved your goals is a powerful way to stay motivated. It allows you to renew that initial excitement you had when you first set out to achieve your goals.

But how long is that ‘long term’? How many years?

You will get a different answer depending on whom you ask. For the
purpose of capital gains tax, long-term is 1 year. But for most
investors long-term means anything between 3 and 10 years. Most
investment advisors choose not to define this term because they can hide
behind the ambiguity when the investor’s portfolio fails to perform.

We decided to find the answer. In our usual way, we went about the task
by analysing data and our conclusion is; hold your breath, 7 years!

How did we get to this magic number? We looked at the BSE Sensex data
for the last 33 years and calculated the probability of an investor
achieving a target return irrespective of the time when the investment
was made. The targets we defined were 8%(average rate of inflation),
10%, 12%, 15% and 16.2% – the last being the 33 year average market return.

For investment duration of 7 years, you have a high probability (67%) of
achieving a return greater than 15% and even higher probability (75%) of
achieving a return greater than 12%. At the same time, there is a low
(but real) probability (21%) of getting a return less than 8%.

The accompanying chart also serves as a useful guide to understanding
the risks associated with equity investing. The probability of poor
returns never completely goes away but increasing your holding period
improves the probability of superior returns.


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