VR Logo

The Un-Diwali Investment Strategy

It's never a good idea to make investing decisions based on custom or habit or ceremony

The Un-Diwali Investment Strategy

The best way to invest this Diwali (or indeed, any Diwali) is to pretend that it's not Diwali. In other words, to have an un-Diwali investment strategy. I realise that this may sound sort of sacrilegious--perhaps it is--but investments are serious business and it's never a good idea to make investing decisions based on custom or habit or ceremony.

Diwali, like all other festivals, is a great time to celebrate, to be with friends and family and to conduct whatever rituals and traditions that are customary for your community. However, unlike many other festivals, Diwali is intertwined with wealth and investments and prosperity which gives it an additional aspect of being an auspicious time to invest.

However, any rational analysis as an investor would lead one to the conclusion that there is no reason to treat a date--any date--as special. Whether the date is a calendar new year like January 1, or a traditional new year like Diwali, or the start of a new decade, it has no more significance to how you invest then your own birthday.

Therefore, just like one does for these other 'round number dates', I'd say that the investment strategy to be followed should depend entirely on what your needs are, and not on what the calendar shows. However, that immediately brings up the question of dealing with what your needs are and how to map them on to the investments you make.

The trick here is to divide your investments into specific financial goals, a goal being defined as the combination of a target amount and a target date. For example, you'll need money for your daughter's higher education after three years. You'd like to buy a house at least ten years before retirement. You'd like to go on a vacation to Europe after two years. You'd like Rs 2 lakh to always be available for emergencies.

Each of these goals is very precise. The risk you can take with it, as well as the amount of money needed can be quantified quite precisely. Therefore, it is relatively easy to decide what kind investments should be made for each of them. Each individual must have many portfolios, one for each financial goal. And then you can tune each portfolio's level of conservativeness or aggressiveness to the right level by choosing the right kind of assets.

This column first appeared in November 2013.