The Most Authentic Guide on Personal Finance and Investments

(Funny) Words of Wisdom : "My wallet is like an onion, opening it makes me cry." ~ Anonymous

There Is Financial Prosperity In Diversity

Indians are fanatic about cricket. So let me use cricket as an analogy to discuss a very crucial investment strategy — Asset Allocation.

You are the selector of the team that will play your financial matches. Your objective is to build a team [buy assets] that,
(a) will win matches [fulfill your needs and desires], 
(b) consistently [achieve most of your financial goals]
(c) across different pitches [different situations].

Logically, you will achieve this provided you have 
-  a well-diversified
-  and balanced team
-  of quality players.

Extrapolating the analogy, your team [assets] should comprise of the following:

(A) Batsmen to Score Runs [Assets to Generate Returns]
1. Blue-chip Companies / Large-cap Funds 
2. Mid-cap Companies / Mid-cap Funds
3. Balanced Funds
4. Property 
5. Gold / Gold ETFs
6. Bank FDs / Debt Funds / Post Office Schemes

(B) Wicketkeeper who Saves Runs and also Bats [Assets that Save Tax and also Generate Returns]
7. PPF

Select a 'balanced' team to play and win your financial matches.

(C) All-rounder(s) who Bowl to Protect your Score and also Bat [Assets that Protect your Corpus and also Generate Returns]
9. ULIP (Unit Linked Insurance Plans)
10. Moneyback / Endowment Insurance Plans

(D) Bowlers to Protect your Score [Assets that Protect your Corpus]
11. Term Insurance 
12. Medical Insurance 
13. Assets insurance
14. Emergency Corpus

For example, the weather is bright and sunny. The pitch looks flat and brown with little bounce. In short, ideal batting conditions! In short, ideal time to choose big-hitters!

You are young, unmarried and with no significant liabilities or near-term requirements. You can afford aggressive bets with your money. In short, ideal time to take risk with high-growth assets such as mid-cap companies and mid-cap funds!  

Or the weather could be totally different...humid and cloudy; coupled with a grassy and bouncy track. Clearly, this is the time to play safe players. 

You are nearing retirement. Any setback to your portfolio at this stage will jeopardize your future. Clearly, this is the time to invest in safe products.  

The reality of many portfolios is, unfortunately, like the Indian Team… too much focus on a handful of players. Often, there is too much of property and fixed deposits. Often, there is too little to equity / equity mutual funds. Hence, depending on the pitch and conditions, sometimes they win big and sometimes they lose big. 

Bottomline: Depending on the quality of the pitch [your circumstances] you have to choose the most appropriate playing eleven [investments] from time to time.

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