Diversify Your Life Not Just Investments

Diversification is a very common method in making risk-adjusted investments. But what we as an investor forget to do is diversify according to our lifestyle.

Let’s understand this with an example of Mr.Damodar who is a software engineer in an IT Company in Bangalore.

Mr. Damodar is withdrawing a salary of Rs.2 Lakhs per month and he invests Rs.75,000 every month in Mutual Funds & Stocks. Since he is working in an IT sector he understands more about IT companies and prefers to invest more in IT Sector funds & Stocks.

He also prefers investing in stocks of companies that are peer to the company he is working for, this is his style of diversification.

Here, he is trying to protect himself in both cases. He does not prefer to allocate his investments more into other sectors because he doesn’t understand them as much as he does the IT Sector.

Also, he wants to secure himself by being an investor in another company and an employee in one company.

This whole process of his diversification may look cool to go ahead, but there could be a major concern here.

What if the IT sector as a whole goes through some sort of stress due to any XYZ reasons in the future?

Possibility for Mr. Damodar would be that he may lose his job, also if the sector is going through stress, his allocation in IT Sector funds & stocks will fall too. In both cases what he is doing?

To protect himself isn’t he taking too much risk by being around IT everywhere in his life as well as investments?

This is the case of Mr. Damodar, but there are many people like Mr. Damodar in every sector, having this sort of thought process for diversification.

Remember, you have to diversify your life not just your investments.

Prefer to invest in assets that can help you even if something worst happens in your life or in your profession, job, business, etc.

Diversification Between Profession & Asset Class

This type of diversification you must consider in your life & investments.

High-Risk Professions

If you are working in a sector where your income is not regular and you may face income loss for few months in a year or you’re employed in a sector where job loss can happen anytime or anything that concerns your monthly income.

In that case, you should not invest more into assets like equities in fact you should prefer investing more in Short Term Debt Mutual Funds, Bonds, Bank FDs, Post Office Schemes, Non-Participating & Non-Linked Guaranteed Insurance Policies, etc.

Low-Risk Professions

And if you are working in a sector that offers you relief for not worrying about your income like Public Sector jobs or a settled business or profession, then you should prefer investing more into Equity Mutual Funds, Stocks, etc. instead of high allocation in Debt Instruments.

Equity as an asset class has the potential to beat inflation post-tax in long run and create significant wealth for you, only if you stay invested as a loyal equity investor.

Diversification while investing in asset classes as per your lifestyle is what you should do in your investment journey.

If you want to discuss more regarding your investments and where you should allocate your funds then Click here to schedule your 1-on-1 meeting with me!

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