Financial Discipline for all.

Principle 24. Gold – A must in your portfolio

Gold is the base of monetary systems around the world. It’s an asset that’s highly liquid, accepted everywhere and considered equivalent to cash.  It’s also one of the lesser volatile commodities traded internationally.

Gold is very effective in bringing solidity into your portfolio and reduces investment risk. In terms of returns, it’s not a very effective tool to bring short term profits. Gold gains in value over a period of time and hence, you will have to wait for some time (say 5-10 years or sometimes more than that) to see the real effect of gains.


Principle 23. Valuation is the key to right investments.


Every asset has a ‘true’ value which would be different from its market price. That’s common knowledge. The market price of any asset purely depends on the changes in demand and supply equation and hence, it could be more or less than the true value of the asset. So, when should you enter the market and buy the asset (let it be any asset)? That’s what we will explain in our 23rd principle.

The simple rule is that an asset should be bought when it is available at a bargain so that in future, when the asset gains in value, the profits you make is high. The question is what’s the basic process to know an asset’s true value? The answer lies in a process called valuation.


Principle 22. Diversify your investments.


Diversification is one of the central concepts in investments. The theory says that your money should not be locked in any one asset. It should be split to buy different types of assets like land, shares/mutual funds, gold, FD’s etc. The reason is quite simple – no asset class can keep delivering profits year after year consistently. That’s because, every asset moves in a cyclical trend. There will be exceptional growth in some years and then it will be followed by sluggishness. This phenomenon is true in almost every assets class. So, if your investment is in a single asset, you make money only if that asset increases in value and at the same time, you also miss the chance to participate in any other asset boom. Hence, the risk you take is high. For example – what would happen if you’ve put all your money into stocks and the stock market tumbles?


Principle 21. Think of retirement when you’re young!


Retirement is a stage in your life where you stop doing a regular job. From that day onwards, your money flow is limited.

For businessmen and self employed professionals, retirement is by choice. For employees, there is an age fixed by the organization, for sports men when their body doesn’t listen to their minds and for actors, when they are no longer accepted. However, it’s not necessary that all of us would work till retirement age as said above. For some of us, a compulsory retirement may be required due to health issues or any other unforeseen circumstances. Irrespective of whatever job/profession you’re in , retirement reduces (or stops) your monthly income. However, since expenses will only keep increasing, your post retirement life is not secure unless you’ve financially planned ahead for it. Hence, the most prudent retirement is when you have made enough money to retire. This thought brings us to two basic realities about retirement -