Investing... 1/3rd Style...

Somehow this topic has come up a few times in the last week, so obviously it makes sense to share it.
I was casually speaking to a few friends and we started discussing about what to invest where.
Should I invest or Should I not?
Equities or Debts?
Derivatives? Futures or options?
Stock markets or Mutual funds?
ULIPs or SIPs?
Bank Deposits or Government Bonds?
Gold or Gold ETF?
or just Cash in the Mattress?

I have heard of this method a few times from my teacher and other seniors and its called the "Rule of 1/3rd" and its a deceptively simple method.
I'm not exactly an expert on personal finance and I don't hold any fancy degrees... but following this simple thumbrule has been the foundation of every financial decision I have taken so far... and I'm sure I've not done that bad either...
Following this method has done a lot of good to me in the past and I suggest it to people at every possible opportunity. So here we go:

1. Out of your total income, set aside 1/3rd for investment. One third of your monthly income should be invested every month without fail.
2. This 1/3rd which you invest should again be divided into 3 parts.
3. 1st 1/3rd should be invested into zero risk investments - Government Bonds, Bank deposits, Postal Savings, Provident Funds etc.
4. 2nd 1/3rd should be invested in low risk investments - Mutual funds, Corporate Bonds, ULIPs, SIPs, etc.
5. The remaining 1/3rd should be invested in high risk investments which yield higher returns.

The reason I like this approach is because it is balancing out every aspect of one's investments.
By investing 1/3rd in zero risk investments, you have safeguarded your interests. Even if everything goes wrong, this 1/3rd will ensure that you don't go broke.
The second 1/3rd which goes in low risk investments will put you in second gear where you can give some additional speed to your portfolio. It allows you to go faster and higher.
The final 1/3rd which you are investing in high risks is what puts you in top gear, allows you to go fastest. But we all know when we go too fast... we risk losing control... As Uncle Ben once said - "With great returns comes great risk" (or something similar)
Just because you are investing 1/3rd in high risk portfolio doesn't mean you invest mindlessly. Even investments in high risk securities should be done after all the possible research and evaluation.

Most of the problems happen when people fail to follow this thumbrule. Some don't make any investments at all. Another bunch goes and invests everything in high risk investments and probably end up losing a lot.

Lets take what we can from this sharing and move towards being better and more informed investors.

Your pot of oil...

Long long ago in a kingdom far far away, there lived a guy named Dondu. Dondu was a not so handsome guy, twice the weight of a normal person, not too tall, didn't have a very nice face, girls definitely wouldn't line up to meet him. All his life he had been teased for his looks and body.
One day Dondu decided that he had had enough. He headed for the King's palace and asked for an appointment. When his turn came, Dondu presented his complain to the King, he gave a whole list of all the people who had ever teased him or given him any trouble.
After Dondu had completed his representation, the King turned to the minister, winked at him and asked him for a solution. The minister had a magical solution which would turn Dondu into the most handsome guy in the kingdom, but for this Dondu would have to perform a ritual and there was a catch too.
Here's the ritual - There was a saint living at the border of the kingdom. Dondu was to go to the saint's cottage and collect a pot of magical oil from him and bring it back to the King's palace. This magical oil would make Dondu handsome. The only condition was that Dondu was not allowed to spill even a single drop of the oil.
There was a catch though, if Dondu spills even a single drop of oil, it would mean disrespect to the magical oil and therefore disrespect to the King's answer. Punishment - Dondu loses his head.
Ok, just go meet the saint, get the pot of oil, bring it back without spilling a drop. How difficult could it be?

Excited, Dondu set out for the saint's cottage with a lot of excitement. All his problems were going to be over today. Dondu met the saint and that's when he knew what he was in for. The pot was filled to the brim with oil. Infact, the oil was already almost spilling. There's no way Dondu could carry the pot past the cottage door. But he had already taken up task and backing out would have meant one head less for Dondu.

Taking a big gulp and a deep breath, Dondu, gingerly carried the pot and held it close to his body with both his hands to avoid any sudden jerks.

By now, the whole kingdom know about Dondu's little adventure and people were lined on the roads to see Dondu carry the pot of oil.

Throughout his walk from the saint's cottage to the King's palace, the only thing on Dondu's mind was that he can't spill a drop of that oil.
There were people cheering him on, there were some taunting him, some were speaking among themselves saying he would do it, some saying he won't. Amidst all this, Dondu was not even hearing anything, all he had on mind was his next step, the remaining road ahead and the King's palace. All his problems were going to end.

And then it happened, Dondu reached the King's palace, there was a centre stand for the pot, he kept the pot there and breathed, he was probably holding his breath from the time he had left the saint's cottage.

Before starting the magical ritual, there was one more test for Dondu. The King asked Dondu a few questions:
King - How far was the saint's cottage?
Dondu - I didn't really check but I think it was about 5 kilometres from the palace.
King - Wrong. It was actually 10 kilometers.

King - How long did it take you to bring that pot here?
Dondu - I'm not sure, maybe 3 hours or so?
King - (sarcastically) - You left in the morning and its time to light up the lamps, you have taken well above 8 hours in case you didn't notice.

King - So many people came to cheer you, how many people did you speak to on the way here?
Dondu - (By now he knew that he's not getting what he came for) - Sorry your majesty, I didn't speak to anybody, I was too occupied with the pot of oil

The King just looked at his minister and smiled. Dondu was now totally confused.

Seeing Dondu's blank face, the minister explained: "You carried the pot of oil today. You lost the sense of time, sense of distance and the sense of your surroundings. Why? Because your life depended on that pot of oil. Today, for those few hours, the most important thing for you, more important than anybody's comments, more important than what the world thought of you, more important than anything else was your pot of oil.
Whatever you complained about didn't exist for you today... How?"

By now, Dondu understood the purpose of the task, there was no magic oil, there was no magic ritual, Dondu was not going to get any handsome on the outside. But something inside Dondu was changing and he could feel it.

The minister continued -
"The magic was not in the oil, the magic is in you.

You have completed the task you were given. You are leaving this pot here, but I want you carry another pot. A pot of your choice. A pot which will help you to turn off every other distraction in the world."

My question to you is - Have you found your pot of oil?

Hole in the Sock

There's this hindi movie called "HUM" in which one actor would say "If you want to know the truth about someone, look at his shoes."
I've never really understood how it works but ever since I saw that movie, I did become a bit more observant and somehow I always had a better experience with people who take care of their footwear.
Today, I realise that its not just about the shoes, but they have always been a pretty good starting point for me.
Neat polished shoes, ironed clothes, presentable looks are all important and speak a lot about a person, but recently I realised something more important.
I was on the way home from office when I suddenly had to go to a friend's place. When I reached his home, I was about to remove my shoes when I remembered that I had a hole in one sock. Praying that nobody notices, I quickly removed the shoes and the socks, went inside and spent time with my friend. While leaving his home, my friend and his mom came to the door to see me off. Only I know how I was able to wear the socks and shoes without them seeing the hole.
That day, I realised something. We are so much worried about the outside - our shirts, pants, dresses, shoes, hair, face, looks... everything on the outside.
How much do we care about the insides?
Right now, I can bet that either your sock, your inshirt or the other important inner thing has atleast one hole in it. There's a huge chance that atleast one piece of clothing you are wearing right now has a damage on it, a small hole, an open stitch, a tiny stain, a loose thread... something...
I'm not over exaggerating anything, but these small details talk a lot about our attitude.

The conditioning we have done for ourselves is that we'll make sure the outsides look great but its ok if something is wrong inside... something which the world can't see...

The day I realised this, I decided that I will change this attitude. I understand that even in the smallest details, I should not compromise for myself. That day, I disposed off about 15 pieces of clothing which had a damage. Nobody in the world would have ever noticed any of those clothes, but I think I have reached a stage in life when I can throw away a few old clothes before they are reduced to tatters.
3 pairs of socks have gone to the bin and another couple got the toe stitched.

What's important is that I have made an attitudinal change. I'm giving myself a message that besides being the best on the outside, I will also make sure that the insides are well taken care off. Whether it is my clothing, my attitude, my thoughts, my work, or my prayer... the insides will always be aligned with the outsides...

By making this small change, I will be able to extend this understanding to everything I do.
A rotten egg, no matter how well decorated, will still remain a rotten egg.
A tasteless dish will remain tasteless, no matter how well it is presented.
Everyone is able to make something beautiful when the whole world is watching... Can you create beauty even when nobody is watching?

Your true status...

You are sitting in the new Mahindra XUV 500 and you think that tells the world about your status. While sitting in that expensive car, what do you do with the chocolate wrapper... will you chuck it out the window or keep it with you till you reach your destination? That talks a lot about your status...

You are driving a BMW 6 series at 2 am in the night. You are standing on a signal and there's no traffic cops... Whether you stop or jump the signal will be the true indicative of your status...

Unknowingly you jumped a signal and got pulled over... Whether you accept your fault and pay the fine or try to buy your way out of the situation, will speak a lot about your true status...

That Cashier in the supermarket just gave you an extra 20 bucks in change... by mistake of course... Whether you give the excess change back to him or not... will speak about your true status...

You have an appointment at 9.00 am, whether you reach at 9.00 or at 9.02 will speak a lot about your status... Even louder is that statement when you reach at 8.55 am.

Eventhough you might have the biggest bungalow on the street, how you dispose your garbage bags will talk about your true status...

Material objects are an indicator of status only to those who see with a materialistic view. Materialistic status symbols are important but I think I should also be spending time on raising myself higher as a person. Raising my status for myself.

This is strange...

Dondu got his first car. An entry level hatch back (a small budget car). Excitedly, he took the delivery and left the showroom in his shiny new car with a ribbon across its bonnet and a big “L” pasted on its windshield. (“L” in India indicates that the person driving has learnt driving just recently, so that people can maintain a safe distance)

As he was waiting on the signal, a Mercedes S class stopped right beside him. Dondu admired the Merc standing next to him. The Mercedes was 1.5 times longer than Dondu’s car and costs atleast 12 times the cost of Dondu’s car. Dondu couldn’t help staring at its beauty.

The owner of the Merc saw Dondu in his new car and said “Nice car… Good choice… Congrats…”. The signal went green and the Merc shot off from the signal. Feeling good about himself, Dondu reached home.

When he parked the vehicle, his neighbor uncle saw the car and hobbled up to Dondu. (This neighbor uncle hardly ever spoke to Dondu).

He congratulated Dondu with a beaming smile kept his hand on Dondu’s head and said “God bless you my boy, take your parents out on a drive and make them happy. Let this be the first of the many cars you will buy”

Dondu was pleasantly shocked to see the Uncle was capable of speaking more than one sentence. He had hardly ever even smiled to Dondu.

Later that day, Dondu posted a pic of his car on Facebook. All his school friends who had not met him for ages, distant friends of friends liked his pic and posted nice comments.

One day, this elderly relative of Dondu came home and Dondu showed off his new car, the relative started off with “Why did you take this model, you could have gone in for a better car, what a waste of money. The music system is looks shabby, you don’t even have power windows, what will you do without ABS… blah blah blah blah blaaaaah”

Dondu was feeling so miserable, he felt like he had made a mistake.

A few more “close relatives and friends” came and did similar damage to Dondu’s joy by finding faults with his choice.

Then, one evening, the neighbor uncle again visited Dondu. Dondu was not that excited any more, seeing Dondu down, he asked him what happened and Dondu told him the whole story and how he thought that buying this car was a mistake.

The Uncle, took Dondu’s hand, took him to the parking lot, asked Dondu to sit in the driver’s seat and sat next to him.

Sitting there in the car, in the parking lot, the Uncle told him – “I was a teacher all my life, for 35 years I taught and I retired from the school owning only a Scooter. You have already achieved more than me at this age, and this is only the beginning. For every success of yours, there will be a few people who will be very happy and excited and will stand with you. And, there will be a few people who will try to put you down by downplaying your success. Strangely, it is always the strangers and those far away from us who are more excited about our growth, and somehow, our close relatives don’t seem that happy.

If you have some relatives who actually feel happy about your success, hold on to them, they are a rare species and you won’t find many.

End of the day, it is only YOU who knows the true value of your success. Nobody should be able to put you down in your moments of success and joy. This is only your first car, I want you to, stay hungry for more.”

With this, the Uncle got out of the car and hobbled away for his evening walk...

Meaning of Life Meaning of Hammer...

Dondu: (Sipping a cup of coffee and getting philosophical) What is the meaning of life?
Pandu: (in half a second) What is the meaning of hammer?
Dondu: What?
Pandu: What is the meaning of hammer?
Dondu: I heard it the first time, I mean, what is the relationship between life and hammer?
Pandu: Full meaning hai boss... If you can explain to me the meaning of hammer, I promise I'll give you the meaning of life.
Dondu: (Ordering an expresso grande) Lets do this one... I've got all evening...
Pandu: Alright then... tell me the meaning of Hammer
Dondu: A hammer is a tool for making items of furniture.
Pandu: That's it?
Dondu: Yep
Pandu: Does the hammer do work by itself?
Dondu: No, someone has to use it.
Pandu: Can a 3 year old use the hammer to make furniture?
Dondu: No way... a 3 year old will probably drop it at the first opportunity and maybe end up with a broken foot. Someone grown up has to use the hammer
Pandu: Ok. 14 years is grown enough... Can a mischievous 14 year old use a hammer to make furniture?
Dondu: Obviously not, he'll probably use it to break things and do more bad than good.
Pandu: So?
Dondu: Alright, I get it... Only a person who knows how to use a hammer properly can use it to create something. Anyone else will only use it for destruction...
Pandu: This sounds better... So lets see if we can define a hammer in a better way?

A hammer can't do anything by itself. All of us get one hammer. What a hammer can do depends entirely on the person holding it. One person uses his hammer to create beauty, to create value, to create something that someone can have and use even after the person is gone. Another person could use it to destroy anothers' creation. How you use your hammer will define you and the way you use it could be an inspiration for another few people.

With the right knowledge, anybody can learn to use the hammer well. We can either learn to use the hammer ourselves... or find a teacher who could train us to use a hammer...

Either ways, our objective is to make the best use of the hammer we have... Are we constantly improving the way we use our hammer?

Still want to know the meaning of life?