Hi I am Arjun Parthasarathy speaking and this podcast is on “Go Minimal in Investments as Well”
Minimalism is catching on. The less you own, the better is the mantra of minimalists. Minimalism gives you more freedom to do what you want as it takes time away from daily maintenance activities.
Investments too require maintenance and the more investments you make, the more time you spend on maintenance. Investments in physical assets require much more maintenance than investments in financial assets. The more diversified the financial assets, the more maintenance is involved. The time you spend on maintenance of your investments is better off spent on choosing the right investments that will ensure your future financial security.
Maintenance of investments involve time and cost. If you own properties you need to pay taxes, maintenance charges, security charges etc., if you own gold or other commodities you need to pay storage charges. If you own too many financial assets, you incur transaction costs, advisory fees direct or indirect and other maintenance fees.
All successful investors will tell you that they made the best returns from a few assets rather than many assets. This is especially true for equities. You will find the most successful entrepreneurs will have only one major investment, which is their own firm that they have built. Top investors will have built their reputation and wealth on a few chosen stocks that have created tremendous shareholder value.
Similarly if you own a portfolio consisting of a number of stocks, you will find that only a few are actually performing while the others just exist in the portfolio. It is the same with a portfolio of many mutual fund schemes.
Diversification is said to lower your risk in investments but it can work the other way round and actually endanger your future financial security. If you look at the top firms in terms of market capitalization globally, you will find that all these firms have one core business, which is consistently creating shareholder value.
It is not difficult to minimise your investments. Make it similar to the clothes you choose for daily wear. You will always find that of the many clothes you have, you will always go towards one or two of your favourites.
Investments too will see favoured investments that do consistently well. Diversification for the sake of just adding a few more investments without any serious thought to the contribution of your overall portfolio will largely be a wasted effort.
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