Risk Ki Paribhasha

Recently Mohanlal visited our office with his son Jayesh, a regular investor with us. Jayesh has been investing with us and was aware of the fruits of asset allocation.

Mohanlal is retired from a private job and thus has no pension income and all he has is the quantum of fixed deposits in banks …whose interest rates are dripping down and down. His banker has advised Mohanlal to invest in Balanced funds offered 1 % tax free dividends monthly and he has already seen his friends and neighbours enjoying the benefits since last few months, and he was getting worried about his situation. Someone had advised him to invest his entire capital in these type of funds as India is on a fascinating growth path….I by no way disagree that India is and will remain on the growth path for next decade or two, but the golden rule of investing is buy low and sell high….

I asked Mohanlal, what do you think when do most of the fatal accidents happen? According to my experience most fatal accidents happen when the lanes are free of vehicles , road looks smooth and we get greedy to reach early, thus we enhance our speed and throw caution out of the window….and thus we loose control bit by bit…

There is nothing wrong with the vehicle or the path, but a small distraction, when you are not in total control , is all it takes for a fatal accident to happen.

Over the years history has shown that the maximum flows to any asset has come at the peak of its performance be it Gold, Real Estate or Equity and this is applicable not only in India but globally.

The problem with history is people really do not learn from history.

Currently what should Mohanlal do? His fixed deposit earnings are going down and equity funds have performed fantastically since last 3-4 years, Gold he does not need , nor he can afford real estate….

The best solution for Mohanlal is he should asses his needs, how much monthly expenses he has and create sustainable cashflow….and then do the right asset allocation based on this needs rather then choosing a product , purely because it is looking attractive now.

This week’s Fisdom:

Avoid fatal financial accidents with an overdose of attractive looking asset & please follow a disciplined asset allocation for a Happy investing journey.

This is an small effort from Team Arthashastra for investor education and we strongly believe, Together We Can, & We Will make a Difference.

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