I have developed a few thumb rules to investing, which work for me. These have come through trial and error over a lifetime of investing.
There is no empirical evidence for it and some of these rules may not work for others (so there is no point debating them)
- No leverage rule : 0 leverage for investing. Have never used a single paisa of debt over 25 years of investing
- No F&O : Never invested in F&O and no plans to do so
- Concentration versus diversification : 5-7% position size , sector concentration at 15% maximum
- Asset allocation : 60-70% in equity, balance in debt, real estate, gold, cash etc. Annual rebalancing to maintain allocation within the bands
- Avoid specialized investment options : No private equity, angel investing, crypto and so on. Avoid areas with low liquidity, which need specialized skills (which I donāt have)
- No lending to family and friends: Give away money if needed, but no lending. There is no upside, only downside in such transactions
As I have grown older, I have come to appreciate the importance of simplifying my investing life as much as possible so that I can sleep well and enjoy the journey. A lot of complex investments are high on promise, but the amount of stress per unit of return is too high
Why complicate life if you have enough ?
