Tuesday, August 19, 2008

How Much Money Do I Put In Stocks?

The other day I was speaking to a senior academician at the over 150 year old Mumbai University. He had read Invest The Happionaire Way and like several other people had decided to start learning more about the various investment opportunities available and to then start investing in stocks.

As we were speaking he asked me a very simple question. He asked me how much percentage of his money should he invest in stocks? And as we all know sometimes, the simplest questions are the most difficult ones to answer.

I'm sure many of you might have such thoughts too. I know that because I keep getting so many e-mails from new investors. I am unable to reply to all of them, however as I have mentioned earlier I like replying to queries through my writings. I love reading your e-mails, as I get to know what you want and where I am making mistakes. Only when we know our mistakes, will we be able to correct them and improve.

Now the question of how much percentage of our money should go into stocks is extremely personal and it varies from person to person. There is no simple answer where I can say XYZ% should be invested in stocks. If somebody is just starting out, I feel the money invested in stocks should not be more than the amount he or she needs for daily consumption. I started with Rs. 750. I started with less because I knew I can lose it all. The first few years of investing in stocks will go in learning more through experience. The knowledge gained however will be priceless.

Over the long run I feel most people who are conservative in nature can have around 25%-30% of their capital in stocks. Again age is a criteria - if you are in your 30s you can probably have much more in stocks as compared to if you are in your 70s. Because when you are in your 30s you have time on your side and you can wait patiently for longer periods as compared to when you are in your 70s. Mostly you would also have a regular cash flow when you are in your 30s.

Never make the mistake of investing in stocks from the point of view of cash flow. It isn't a good idea as stocks aren't predictable and not the safest option for a regular cash flow.

If you have invested time and money into learning more about investing in stocks, you can invest a larger percentage of your money into stocks. However no matter how much experience and skill you have, never ever think about putting 100% of your money into stocks. It isn't a good idea. At most I feel 70% of your capital should be allotted towards stocks - while the remaining can be in some form of debt/bonds which guarantee a fixed rate of return. Again please remember I used the word 'allotted' towards stocks and not 'invested'.

This means even after you allot an amounts towards stocks, you should keep a part of your funds in cash (I suggest keeping them in liquid debt funds as you will get a higher rate of interest than a savings bank account.) Cash will help you benefit the most from phases when the market is down. All those who would have read ITHW and also studied how the best investors and business people in the world work, by now very well know that phases of economic slowdown and economic crisis are times when the most amounts of money can be made by those people who are patient.

Read about the greatest investors in history and you will find out that almost all of them created wealth by doing things when others weren’t doing them. In spite of this I still don’t understand why rational investors fear phases when stock markets are going down. Provided we are sitting on cash, we should welcome such phases. We should be happy that so many assets are being sold much cheaper than what they are actually worth. And we know nothing is permanent and nothing lasts for ever. Neither bull markets - neither bear markets.

I have once again started reading one of my favourite books The Intelligent Investor – Benjamin Graham. Every time I read it, it makes more and more sense to me and I learn something new. I like keeping a few good books, to which I can go back over and over again.

I feel that the best moments of life are the ones where we learn and experience something new. I hope each one of you keep learning and experiencing something new every single day.

I'm also curious to know about what you think and how much percentage of your money do you put in stocks? Share your views in our comments section.

Keep smiling and keep spreading The Happionaire Way!

Yogesh Chabria

Happionaire

Does India Need A New Independence? Read What Fellow Happionaires Had To Say.

10 comments:

sonam said...

Hi Yogesh,

Just read Invest The Happionaire Way and from there got a link to happionaire.com and was pleasantly surprised to see such a vibrant blog here.

Well I had invested around 10% of my money when the markets were higher and now that amount is down almost 60% but now I have decided to read, learn and study more. I'm glad that I read your book now as I'm not yet in my 70s and have time to learn. I'm hoping to read the other books in the happionaire series as this is the first book for people just starting.

Thx

arush said...

There is no fixed amount I put, but I feel for me - someone in my 30s around 75% can be in stocks.

I am of the nature to take higher risks - but only put money which I don't need for the next 4-5 years into stocks so market downturns don't affect me.

This is a subject which has not be spoken about a lot but quite important.

Sriram said...

Hi Yogesh,

Your articles are extremely informative and good.While every body panics while the markets are down,you seem to keep people prepared for any down falls and make people stay focussed on being positive.This enables many to be patient to make money.

Our congratualtions to you for advising us to do the right thing again and again.

with warm regards.

v.sriram.
Chennai.

LALKUMAR said...

Hi Yogesh,

The way you are guiding a layman who ever felt scared to venture into the complex stock market is praise worthy. I am sure people will get benefited by your unselfish crusade in bring awareness.

Adv Lal

Nobody said...

Very interesting blog from you Sir,
What I feel that people try hard to earn money, but when it comes to investing they just listen to any fool for 5 minutes to invest their hard earned money and loose it.

Like one has to do Graduation to get a decent job, BE for engineer, MBBS for Doctor, one has to put in atleast 2 years of daily reading of financial news paper and understand what is financial market for investing.

While studying the market, at the most he can invest his monthly saving in diversified equity or ELSS fund on SIP basis.

Also read books like One up on the Wall Street by great fund manager Peter Lynch(written in layman language) or the book suggested by you like Intelligent Investor by Benjamin Graham (requires some degree of financial knowledge to understand). Attend few seminar if available in the area of stay.

This will make a layman ready to be a learned investor, so that he will be able to avoid all wrong decision in the bud.

Hypocrite said...

what comes to my mind is when i read your blog is what i learnt time after time and never really implemented it. I have been investing/trading in stocks for about one year now. but the result is i havent made any money till now! I have learnt a lot...a lot more can be learnt - for eg: like you said we should stay cash for times like this where we will get stocks like DLF for 375 where i went and invested when it was 700-1000.

I have already started allotting funds towards stocks - not investing like you said for another oppurtunity! one thing important lesson i have learnt is that be patient you will get the oppurtunity...time after time...

like warren buffet said be greedy when others are scared... :)

The Happionaire™ Blog said...

Hypocrite - As far as I remember you have still not shared the secret behind your interesting id with others here. But I did read the first post of your blog and feel that today several young Indians feel like you and now know the story behind your 'Name'. You surely seem to be extremely passionate about investing and writing!

Nobody (Very interesting name)- You put it very beautifully and I think many more people realize what you are saying today. You have a lovely blog too and you should continue writing. Another great writer try reading is Phil Fisher.

Adv Lal- I love what I do and the support of you and millions others like you means a lot. Please spread the knowledge and smiles. It would be great if we can spread more practical financial education while making people smile together.

Thanks Sri. I'm sure I'll get to learn a lot from you too. Keep sharing your ideas.

Keep smiling fellow Happionaires!
Yogesh

NPV said...

The amount of money to be allocated to stocks shall be the amount which one is comfortable to keep invested for at least next 5 years.

Since investing does not generate regular cahflow, it is important that the funds which are allocated to stocks are not required for current expenses.

Anonymous said...

Hi NPV, I disagree that investing in stocks will not generate cash flow. It will, one will have to find out the right stocks which have good fundamentals at right price and gives money back to investors as dividends. Finding the gems is difficult not the cash flows!

Jasmine said...

hi Yogesh,

The way you are guiding all of us about investments is highly impressive.Your desire to spread your great knowledge with all is remarkable.Not only this, but your writings enlighten and motivate me; and have taught me always to believe in myself.A hearful 'Thank you' and a standing ovation to such an esteemed and philanthropic writer.Eagerly waiting for your other truly remarkable books.