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!
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