the title to this post is from The Economist – one of the fine magazines that I make an attempt to read. I normally read it online but a smart lady next to me piles a few copies on her desk, so occasionally I do flick a few issues for a relaxed read.
Diversification in a portfolio is usually a nightmare for a financial adviser to achieve esp if the client is a businessman / MD of a company and his wealth comes from his ESOPs.
The most important thing in diversification is to be able to ask the investor to remove money from a rising asset class and put it in a not so raising asset class. In times of market horror shows asking a person to invest in equities, by selling a rising asset class a.k.a Gold.
Or asking a person to sell OFF his esop shares to buy a real nice big house! Now the situation is kinda funny. For too many people, net worth of Rs. 25 lakhs is actually a house with a bloated price of Rs. 100 lakhs, a housing loan of Rs. 75 lakhs and therefore a net worth of Rs. 25L. A slight fall in the ‘value’ of the house – and his networth could turn NEGATIVE. However, he is not worried because ‘he is not planning to sell the house’ right?
Here, read on
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