Investing and Happiness...

Silence speaks much more than words.  The best way to win an argument is not by arguing, but by action.

 

I see people wasting time arguing about how the stock they are investing is much better than another stock.  This will not make you wealthy and happy.

We invest not to prove someone right or wrong or for the sake of theories, but to create wealth.

Investing should be silent, with actions.

 

Over the years, things have become easier for people who believe in – long term value based investments.

Thanks to the wide reach technology, internet forums, blogs and business news channels…more and more people are being deprived of thinking long term.

As we have seen in recent times, this can lead to sharp falls in stock prices of as much as 25% on a single day, that too, just on the basis of some negative news or court cases… which might be of a temporary nature.

Internet trading enables people to take decisions within seconds – and act on temptations.

 

I believe, because of all this we can take advantages of such situations. J

 

When markets are climbing high, most people feel tempted with a sense of desperation to rush in and put money. They feel left out, and can’t resist temptation to buy. You can suddenly see many providing stock recommendations (free or paid) in a bull market.

 

Money doesn’t come to people who are constantly scared and afraid.

Just be open, happy, large hearted and confident – you will automatically start attracting wealth.

 

The best investors do the least amount of activity.

 

Sitting in front of a screen with numbers and watching CNBC, is not really what a fulfilling life is all about.  This, again, will not make you wealthy and happy.

And this definitely cannot be a great and recommended way to create wealth.

 

Every investor today needs to avoid an army of advisors and watching hundreds of news channels. He just needs to have the power of wisdom and knowledge with him.

Cut out the noise around you … and listen to the silence.

 

Invest silently.. Consistently. Avoid temptations. Don’t waste energy arguing.

 

Soon, when the world panics again, it will be time for a select few to create extraordinary wealth.

Simplest Portfolio Idea...

For most of us (including myself) ... investing is scary. Simply because the world of finance is an ultimate confusopoly.

There are so many options from which to choose that many people are willing to pay perhaps 1-2-3% of their portfolios per year for experts to manage their money. (PMS services. Distributors, etc etc).

And those experts might invest your money in managed mutual funds (managed by yet other experts) that charge you another 1-2% to pick stocks for you.

 

And all this is despite the fact that on an average, experts can't beat a monkey with a dartboard when it comes to picking stocks…

In theory, no-one can beat markets while being strategic…as far as I know.

 

Worse yet, actively managed investments will generate more tax liability for investors than necessary…because managers need to churn stocks to maintain the appearance of usefulness.

 

It’s never that experts would agree, roughly, in how a typical portfolio should be allocated.

If you are young, you should own mostly stocks. If you are nearing retirement, you should have mostly bonds. But lately, even this assumption is being questioned. Some experts now say you need a healthy percentage of stocks even if you're nearing retirement, because you might live another 30 years or so.

 

Suppose if we could come up with the world's simplest portfolio that is better than what the average money managing expert might suggest. (by better, I mean, it convinces you that it would work).

 

Let’s try out some ideas here, which can be improved upon later, keeping within some simple guidelines.

 

1.        let's assume the hypothetical money is invested entirely for retirement, so we don't need to worry about keeping any of it liquid for college or buying a house. This assumption is just to keep things simple. Also because retirement planning is one of the most difficult financial planning I would ever do for myself.

2.       I will only think about investments that can be made up to 10 years prior to the planned retirement. This is because, when you near retirement, you would typically and gradually want to convert as much of your equity portfolio into bonds as necessary to get the monthly income you need. That's a more complicated scenario, I prefer not to discuss here. It’s easier said than done.

 

As a starting point, a perfectly adequate simple portfolio for young people might involve putting 70% of your money in an index-equity fund. (say NIFTY), which captures the entire market trend. In other words, you can buy one financial instrument and own a little bit of just about every public company in the market.(though technically might not be correct, as NIFTY is just a representation of some 50 odd companies, but that still is well diversified). That's all the diversification you can get within one country. And because these fund managers don't do much buying and selling within the portfolio, it doesn't generate much overhead costs to pass along to investors.

 

I picked 70% to allocate to this investment because I contend that no expert has a good reason for picking a different figure. Some experts might tell you 60% is the right allocation, and some might say 80%.

I contend that most allocation recommendations of that sort are no more defensible than horoscopes.

 

For the remaining 30% of your investments, we can invest in commodities like Gold exchange traded funds. This gives you a play on the commodity side with a hedge against equity, while maintaining growth in the long run.

That too at low cost, with no fund-manager-decisions involved and low taxes.

 

And remember that this suggested portfolio was supposed to be simple enough for the average person to understand and obtain without expert advice and without excess risk.

 

Does it sound good?

 

PS1: This is just a mental exercise I am doing for fun. Not an advice by any means. And if,  you were about to believe all this, you should understand that any roadside financial planner would be able to take you for a ride easily. Be cautious!

PS2: If you are serious about retirement planning, read this: http://wealth.moneycontrol.com/authorarticle.php?id=7061