In the first five blogs we outlined a simple investment paradigm. Putting it all together, one can setup a simple yet effective strategy that should not take more than 2 hrs of your time every month. Here it is in few easy steps
- Invest every month. Waiting costs money, not investing costs even more money.
- Invest for the long term. Do not invest money that you may need in the next two years.
- Every month calculate your surplus income as excess cash (savings, FD’s etc) over and above your annual expenses. Invest your surplus income.
- Of your investment corpus buy (110 – Age)% in equity mutual fund and remainder in bond mutual fund. For example if you are 30 years old, buy 80% in equity mutual funds and 20% in bond mutual funds. Choose index funds with the lowest annual fees.
- Rebalance your portfolio every two years to be (110-Age)% in equity mutual funds and remainder in bond mutual funds.
- Buy a residential house once you have sufficient wealth for at least a 20% down payment.
And most importantly, stay true to your investment plan. Ignore financial media and the calls of both boom and doom. Discipline is your biggest strength.
There it is – a simple D.I.Y investment strategy. Of course it has quite a few drawbacks; most importantly it does not take medium and long term goals or an individual’s risk appetite into consideration.
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