Some lessons you learn early on from your life, Asset Allocation is one such lesson which I learned from my mother during my teenage. She used to tell me that in the preparation of a Khichdi proportion is very important. If you mix ingredients in correct proportions then it tastes great, if you go off by few percentages then it is eatable but does not test great, and if you mess up your proportions then you end you making something which does not taste great and not eatable as well.
Financial Decisions are supposed to be taken keeping one’s risk tolerance and future need of money in mind, no wonder that’s the reason probably it is called Personal Finance.
Over last weekend one of my close relative called me and asked to give him the list of mutual funds I am investing in so that he could also mirror my investments. In certain cases, it may work, but for that to work our risk tolerance and future need should be close enough. In our case, we are poles apart. I have risk tolerance of above average, wherein he was more curious to compare it with 8% of fixed deposit. I have all the investments based on goals and their future need of money. Except one, all of my goals are long term goals, 15-20 years in future. Wherein my relative just started earning, he needs to plan for his marriage and buying home for the future family. Marriage could be considered short term goal as it might happen in 3-5 years or earlier than that, but buying a home is certainly long term goal for him, it might happen in 5-7 years or even later than that.
In our daily life, we make so many simple transactions routinely which are very easy to understand, just think about it. We go to grocery store and buy grocery to consume, people who live Frugal Life they mostly know why they bought what they bought. We go to office canteen to have some food. We go to the fuel station to refill our vehicle fuel tank. Are these transactions not simple to make and simple to understand? I am sure they are.
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” – Warren Buffett