The Eggs-And-Baskets Rule
Don’t put all your eggs in one basket. Don’t put all your money in one thing.
Build a portfolio: invest in many things.
This will reduce the risk. And provide opportunities for better returns.
Harry Markowitz won the Noble Prize for this idea. (See Modern Portfolio Theory)
The At-Your-Service Rule
Your money should be available when you need it.
Investments that “lock-up” your money rarely offer compensation for inaccessibility.
Lower returns are often far better than a lack of flexibility in your investments.
The No-Elephants Rule
Don’t put elephants in your portfolio. Your portfolio must not have too much of any one thing.
Let us agree that “Too-much” equals 15%.
Don’t put more than 15% of your money in one stock, one bank fixed deposit, gold, your nephew’s business, et cetera
The No-Fleas Rule
Don’t put a tiny bit in any one thing.
If it does very well, it won’t have any significant impact on your overall return.
It will probably be a nuisance to keep track of.
Either have the courage of your convictions. Or sit tight.
Let us agree that “Too-little” equals 5%.
No Sofa-cum-Bed Rule
A sofa-cum-bed is an uncomfortable bed and an ugly sofa.
Invest in financial products that do just one thing and that one thing well.
For example hybrid mutual funds. They neither provide the upside of equity funds nor the stability of debt funds.
No Broken-Clocks Rule
Redlights with countdown-timers are less stressful than those without.
We dislike uncertainty.
And we like confident people who can tell us what the economy or the market is going to do.
But the future is unknowable. No one knows what will happen.
Don’t listen to those who claim to know what will happen. Don’t go by how they were right in the past. Even a broken clock is right twice a day.
The Dead-Men-Tell-No-Tales rule
Everyone has a story of someone who made huge returns on a “hot” investment: shares, gold, venture capital, Bitcoin, et cetera
But history is written by the winners.
And no one tells stories of the money they lost.
Don’t invest based on stories of survivors. Because dead investments tell no tales.
If you have a money rule, we’d love to hear about it.
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