diversify to success

Diversification is the key to success.
     There are certain benefits for each unique investment methods. We have to find out the suitable ones after comparing the benefits of each methods.

    But the basic lesson of investment is like the saying goes... 'never keep all eggs in one basket'. What does it mean is, never invest the total amount of our asset into a particular sector only. Instead, we have to find out different profitable deposit schemes or investment methods before taking the decision and have to divide the capital proprtionally. Then only we can make sure the high profitability and security along with the liquidity. Next question is, what proportion is to be maintained in each diversified investment methods. It can be decided after considering some factors like age, aim, market condition...etc.

Age
     Age is the most important factor that should be considered before selecting any investment method. A middle aged man has high responsibilities and that's why he cannot take much risk. An old man might have finished many of his responsibilities though, as his earning is possibly limited, he also cannot take any risk in the remaining life.
But up to the age 30, as the chance of responsibility is very less, he is able to take risk upto any extend. He has many years in future in order to recover although he makes some losses in the beginning time. Experts suggest a formula for choosing suitable investment method, considering one's age.  This is the formula...

(100-Ones age = The percentage of risky invesyment)

Suppose your age is 25,
100-25=75
ie.. You can have 75% of your total investment in risky methods like equity share, mutual fund etc. Only 25% of your total capital is recommended to invest in secured investment methods like fixed deposit in banks and bonds. In the mean time, a 60 year old man must invest 60% of his total capital in secured schemes.
Only 40% is recommended to allow for the risk.


     While investing in this way also, one can choose the diversification method for more security. For example, when a 25 year old man invests in risky sectors, he is able to divide his capital amount into share, equity funds etc in order to make sure the diversification within that segment as well.  In the same way, for a senior citizen, diversification is possible towards PPF, gold, FD in banks etc.


Aim
     The next considerable factor is aim. That means, what the gains you are expecting from this particular investment. If it is for making sure the money for the marriage of your daughter after 20 years, high gain and security can be assured if the investment is diversified into FD, equity funds, share etc. But if it is for the surgery of wife within two years, it is not able take much risk.  In that case, you can invest the amount safely in any bank. That means, if an assured profit is expected within a certain period, the investment method must be less risky and highly secured. FD in banks, PPF, post office deposit, life policies etc can be considered. The schemes with high liquidity to be selected in order to make sure the certain amount within the certain period. Investors of all category are recommended to set aside certain share of fund into gold and land properties as they are said to be most secured investment methods. But the speculation trade in real estate is to be strictly avoided. At least 5% of total asset can be kept in SB account as a liquid cash. It will reduce the stress when a certain amout is required in emergency. Like SB accounts, liquid funds offering higher returns also can be considered for keeping this aforesaid liquid money.

Circumstance
     Another factor that should be considered in selection of investment method is the circumstance of investing. Methods like sharemarket, gold, real estate could fetch higher returns if one utilises the favourable circumstances. A majority of share traders are pumping their cash into the sharemarket when the stock indices are at the highest position. This is the wrong method and that's why at the very next correction, the total of their capital will possibly washed away.

     In accordance with the fluctuation of the indices, the size of amount in various methods is also to be rearranged. Only 25% of total investing amount is advised to deposit in share and equity funds when the indices are in the top position. 60% can be in FDs and bonds. Balance 15% have to be kept in SB account as a liquid money for emergency needs. This proportion can be maintained when the indices are not seriously crashed and even when normal situations.  But when the indices are at the bottom level and a recovery is expected soon, 50% of the capital is adviced into the share market, 45% in FD and bonds and the remaining 5% into SB. In the same way, while investing in FD and RD, we can make sure that the higher interest rates are available at that time.