Diversifying a portfolio means, deciding on how to divide the money available for investment between various investment options like shares, bonds, fixed deposits, Mutual funds, fixed property, gold and cash to be retained in hand.

In your personal investment plan try to ensure that there is adequate diversity. A clever investor will never put all his money in one type of investment. Let’s see why we should diversify our portfolio.

Main reason for a well diversified reason is mitigation of risk.

You can even add insurance to this list. But it’s slightly a different investment option in the sense its benefits are not available to you but to your dependants.

Once you have arrived at the money available for investment, it’s important to decide the ratio to be invested in different investment options. Before investing it’s important to know the amount of risk and return associated with each investment option.

Time is Money:

If you think of making money in a very short span it’s not possible with any type of investment option. Every investment needs certain time to generate returns. Before deciding on an investment option we need to be clear about how long we can hold that investment and what would be the approximate return. You must be clear as to go for capital appreciation or a short term return or a combination of both.

For example, if we remain invested for long term in stocks and fixed assets like a house, there are very few chances of incurring losses. Long term means you should keep the investment for at least 5 to 10 years.

History tells that those who have invested in stock market for 10 years have maximum lost 1.5 % of their investment.

So longer the duration lesser the chances of losses. There is also scope for making tons of money. Those who have invested money in stocks and real estate or gold between 2003 and 2007 have made tons of money.

Every investment has a cycle and it repeats. It’s very important to identify the right type of investment that has started churning money.

We can see that in the last 6 months, stocks are out and bonds are the preferred choice of investment.

• If your goal is long term, invest in stocks and real estate, this is the right time to buy as the valuations are very attractive. Though we can’t exactly say the % of appreciation, it will definitely yield good returns for long term investors.
• If your goal is short term, invest in fixed deposits or government bonds.
• It’s also very important to decide on the timing of the investment. Early birds will always make maximum money. When everyone is making money, realize that some will soon start loosing. Don’t buy when the market is at the peak. It’s very important to time the market.
• Finally ensure that you always have some cash in hand to attend to any emergency or to put in any attractive investment option that presents itself before you.

Finally remember that risk and return coexist in any kind of investment option and it’s always possible to lose money in any form of investment. Now the question you should ask yourself is “How much loss will I be able to bear?”

If you are not in a position to take more risk, put more of your money in FDs and Bonds and minimum in stocks. If you are capable of taking more risk, put more of your money in Equities and Real estate and very little in FD or Bonds. Those who have household responsibilities or those who are paying quite a bit of their money as interest towards loans should always be careful about the kind of investments they make.

Here is a small principle for dividing your funds amongst various investment options.

Reduce your age from 100 and what ever is the number you arrive at, you can put that much of money in high risk – high return investments.

For example, if your age is 30, you can put 70% of your money in high risk/high return assets and 30% in low risk – low return assets. As your hair starts turning grey, reduce your exposure towards equity, and increase it towards debt securities.

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I often wonder when I read about the bailout packages dished out by Governments all around the world to aid banks and other financial institutions that are on the verge of bankruptcy especially the amount of money spent in bailouts in last couple of months is staggering. I am even surprised that there was not a single protest from anywhere and these financial criminals go unpunished. It is the common man who is going to bear the burden of additional tax and increased debt.

Why should tax payer’s money be used for bailing out greedy banks and corporations that have done business only with profit as motive and no concern for morals or ethics and absolutely no concern for the consequences for their acts. Putting public money in corporate coffers is just not acceptable. Financial crisis that has happened is a man made crisis done through substandard policies, deregulation and greed. I can understand putting in public money for natural disasters like earthquakes or folds. Governments all over the world have spent trillions of dollars on bailouts already

This kind of bailout is ABSURD!

We must collectively protest this .This is real money, my money, your money, our money which is hard earned paid in the form of tax.

Why should banks and financial institutions which never cared about the creditworthiness of people who lined up for loans or the soundness of derivatives business be rewarded. We should not allow government to write checks on tax payers’ account. This measure will increase the budget deficit by a significant amount, with no guarantee of recovering the amount and not holding anyone accountable for the misdeeds they have done.

What is the signal you are sending to the corporate world and investors through these bail outs? Do your businesses as you like and we will reward you for the blind errors you might commit. Is this the right way?

As far as I am concerned, there should be a thorough probe into the events that have led to this disaster and every CEO, Executive or Government who were part of this financial carnage should be jailed, their assets sold and put in a bailout fund.

It is time to wake up and realize that greed is the basis for all the financial disasters and find a way, may be strict disclosure norms, increasing the transparency in strategic decision making, making one responsible for his actions and

Few weeks back Finance Ministers of several Asian, Europe and Americas countries met and decided to act rapidly on the financial crisis

And now stock markets are being artificially manipulated by bailouts by governments.

When corporations see that the demand is coming down , it is natural for the stock to take a beating. But every other day we see CRR, SLR rate cuts which means our money is loaned back to us and the market stages a rally of any significance. FIIs and Badla traders slowly and routinely remove their money from our markets to invest elsewhere leaving the retail investor in a fix.

It is certainly not a good thing for a responsible, saving, taxpaying citizen, with no defaulted loans or credit card debt to compensate for the that Wall Street gamblers will go bust on their stupid and greedy bets, over-leveraged and poorly managed businesses with huge losses.

Let me tell you some interesting fact. Lehman has set aside $2.5 billion as bonus for their employees even as they went bankrupt for the great performance they showed in pushing the bank to bankruptcy.

What do you call this?

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