Do we really need a New Year to plan our finances?

My New Year resolutions

Well, this is probably the most favorite topic for column writers along with predicting what will happen in the coming year.

Does it make sense in certain matters like what to do in future? Does New Year bring in so many changes to warrant coming up with new resolutions every year? If it is the right thing to do, should one wait for the turn of the year?

All these questions were cluttering my mind. I thought of writing down the following rules of investing - they do not change irrespective of the year or month or week or day. In fact, these rules have stood the test of time and may not change even after a century.

So, here it goes:

1. I will always keep an eye on my objectives while taking investment related decisions. This means, I will have defined objectives to start with.

2. I will not invest my money however big the promise, if I do not understand how the promise can be fulfilled. I would try to understand what could go wrong with the investment in the attempt to fulfill the promise. I would sign the cheque only after being comfortable with the risk involved.

3. I will check before investing if I have understood the recourse I have in the event, if something goes wrong.

4. I will ask questions till I get a proper understanding of how an investment option operates. Even if it means losing an opportunity, I will be fine; as losing an opportunity is better than losing my capital.

5. I will always keep enough liquidity in my portfolio. This "enough" will be based on the assessment of my situation.

6. I will keep my portfolio diversified across securities, across industries, across asset classes.

7. I will not go after chasing the upside, but rather try to manage the downside. As the old proverb goes, "fish sees the bait, not the hook."

8. I will not run away from risk, as I understand the same is not possible. I will understand and manage the risks.

9. I will not waste time or money.

10. I will not try to be "penny wise and pound foolish."

The temptation is to add more to the list. But, it is important to have a list than one can stick to rather than have a long list and then to wonder where to start.

Wish you all a very Happy 2012

- Amit Trivedi

The author runs Karmayog Knowledge Academy. Views expressed here are his personal views. He can be reached at amit@karmayog-knowledge.com.