4 Golden Rules of Equity Investing

IF you want to invest in equities, there are only four things you need to remember.

1. Choose the right company
Look for superior and profitable growth. The company should earn at least 20% return on its shareholders’ capital.

Ideally a long-term investment perspective (more than five years) allows you to participate in the company’s growth. At the short end (3-6 months), share performance is driven more by market sentiment and less by company fundamentals. In the long run, the relevance of the right price diminishes.

Must read:

• How a nimbu paani owner conquered the markets


• What stock brokers don't tell you

2. Be disciplined
Stock investing is a long, learning experience. You will make mistakes, but also learn from them. Here is what you can do to ensure a smooth ride.

--Diversify your investments. Do not put more than 10 per cent of your corpus in one stock, even if it’s a gem. On the other hand, don’t have too many – they become difficult to monitor. For a passive long long-term investor, 15-20 is a healthy number. Use this asset allocation tool to find out if you need to invest beyond equities
--Research and analyse your company's performance through quarterly results, annual reports and news articles.
--Get a good broker and understand settlement systems
--Ignore hot tips. If hot tips really worked, we'd all be millionaires.
--Resist the temptation to buy more. Each purchase is a new investment decision. Buy only as many shares of one company, as fits your overall allocation plan.

3. Monitor and review
Regularly monitor and review your investments. Keep in touch with quarterly results announcements and update the prices on your portfolio worksheet at least once a week. This is more important during volatile times when there can be great opportunities for value picking! Find out how you can buy 1 rupee coins at 50 paise !

Also, review the reasons you earlier identified for buying a stock and check whether they are still valid or there have been significant changes in your earlier assumptions and expectations. And use an annual review process to review your exposure to equity shares within your overall asset allocation and rebalance, if necessary. Ideally, revisit the RiskAnalyser at every such review because your risk capacity and risk profile could have undergone a change over a 12-month period.

Also read: Stock markets are like supermarkets

4. Learn from your mistakes
When reviewing, do identify and learn from your mistakes. Nothing beats first-hand experience. Let these experiences register as `pearls of wisdom' and help you emerge a smarter equity investor.

Also read: Why the stock market isn't a casino

Beautiful Perception of Ageing.

The first day of school …………………… when a gentle hand touched my shoulder.

I turned around to find a wrinkled, little old lady beaming up at me with a smile that lit up her entire being.

She said, "Hi handsome. My name is Rose. I'm eighty-seven years old. Can I give you a hug?"

I laughed and enthusiastically responded, "Of course you may!" and she gave me a giant squeeze.

"Why are you in college at such a young, innocent age?" for courtesy sake, I asked.

She jokingly replied, "I'm here to meet a rich husband, get married, and have a couple of kids...” No seriously," I asked. I was curious what may have motivated her to be taking on this challenge at her age. "I always dreamed of having a college education and now I'm getting one!" she told me. After class we walked to the student union building and shared a chocolate milkshake.

We became instant friends. Every day for the next three months, we would leave class together and talk nonstop. I was always mesmerized listening to this "time machine" as she shared her wisdom and experience with me. Over the course of the year, Rose became a campus icon and she easily made friends wherever she went. She loved to dress up and she reveled in the attention bestowed upon her from the other students. She was living it up.

At the end of the semester we invited Rose to speak at our football banquet. I'll never forget what she taught us. She was introduced and stepped up to the podium. As she began to deliver her prepared speech, she dropped her three by five cards on the floor.

Frustrated and a little embarrassed she leaned into the microphone and simply said, "I'm sorry I'm so jittery [extreme nervousness].

As we laughed, she cleared her throat and began, “We do not stop playing because we are old; we grow old because we stop playing”. There are only four secrets to staying young:

1. BEING HAPPY
2. ACHIEVING SUCCESS
3. LAUGH & FIND HULOUR EVERYDAY
4. Last but not least – GOT TO HAVE DREAM

There is a huge difference between growing older and growing up. If you are nineteen years old and lie in bed for one full year and don't do one productive thing, you will turn twenty years old. If I am eighty-seven years old and stay in bed for a year and never do anything I will turn eighty-eight.

Anybody can grow older. That doesn't require any talent or ability. The idea is to grow up by always finding opportunity in change. Have no regrets. The elderly usually don't have regrets for what we did, but rather for things we did not do. The only people who fear death are those with regrets.

She challenged each of us to study the lyrics and live them out in our daily lives. At the year's end Rose finished the college degree she had begun all those years ago.
One week after graduation Rose died peacefully in her sleep.

Over two thousand college students attended her funeral in tribute to the wonderful woman who taught by example that it's never too late to be all you can possibly be.

If you have really enjoy it! Pass on to YOUR LOVING ONEs by clicking MAIL to [ ] at the end.

REMEMBER, GROWING OLDER IS MANDATORY. GROWING UP IS OPTIONAL … AND … DEPENDS ON HOW YOU THINK ABOUT YOURSELF.

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WISH YOU ENOUGH
I wish you enough sun to keep your attitude bright.
I wish you enough rain to appreciate the sun more.
I wish you enough happiness to keep your spirit alive.
I wish you enough pain so that the smallest joys in life appear much bigger.
I wish you enough gain to satisfy your wanting.
I wish you enough loss to appreciate all that you possess.
I wish you enough "Hello's" to get you through the final "Goodbye."

Verinder 098180 03763

Manju 098180 03793

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COURTESY : Brijesh Varma [ brij_geeta@hotmail.com ]

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Camels in the Desert

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This is a picture taken directly above these camels in the desert at sunset. It is considered one of the best pictures of the year. Look closely, the camels are the little white lines in the picture. The black you see are just the shadows!!
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Courtesy: Mr. Brijesh Verma.
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Karuna’s Kutumbam

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His story takes you back to Thirukkuvalai, one among hundreds of obscure villages in the then Madras Presidency, to June 3, 1924. The Muthuvel-Anjugam family was a humble rural household. In fact, the birth of the boy who went on to become five-time Chief Minister and ten-time president of the Dravida Munnetra Kazhagam, Muthuvel Karunanidhi, was no longer the biggest event by the following morning: a thief who broke into their house stole his thunder .........................................
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UK & China's "NO" to Blacklist Masood Azhar

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Delhi Stunned: UK & China Stall Move to Blacklist Masood Azhar

Barely seven months after the Mumbai attacks, Indian efforts in the United Nations to place sanctions on Jaish-e-Mohammad founder Maulana Masood Azhar have received a major setback. In a surprise move, the United Kingdom has joined hands with China to block the Indian request to proscribe both Azhar and Azam Cheema, the Lashkar-e-Toiba operative accused in the Mumbai train blasts, under the UN’s “Al Qaeda and Taliban Sanctions” resolution (1267).

India had wanted these two along with Abdul Rehman Makki, another LeT ideologue, to be included in the list just like the Jamaat-ud-Dawa and its head Hafiz Mohammed Saeed were added along with other LeT operatives after the Mumbai attacks. The banning under UN resolution 1267 means freezing of assets, travel ban and embargo on arms.

What has stunned India is the UK’s position because the Jaish as an outfit is already banned by the UN and so it is only logical for Azhar to be put on that list. It’s learnt that London has asked for “fresh evidence” and “more details” while placing the request on a procedural hold. China has taken a similar position.
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"NO JOB" - Register with Employment Exchange

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What is an Employment Exchange and
Who Needs to Register with an Employment Exchange?

An Employment Exchange is an organisation that provides employment assistance on the basis of qualification and experience. The Departments of Employment in various States of India allow unemployed educated youth residing in the respective States to pre-register for impending job vacancies occurring in different sectors of that State. The registered job seekers, in many States, can also check their status on the job waiting-list online. They also allow job seekers to search for suitable jobs and to update their resume. Employers can post their vacancies with these exchanges and choose from among the registered candidates as per their requirements.

Unemployed persons as well as currently employed persons looking for more suitable jobs can register with the Employment Exchanges operating in their States to avail of job opportunities.


What You Need to Do to Register with an Employment Exchange

Fill up the required application form, which is either available online or with the Employment Exchange in your area of residence. You need to submit attested photocopies of all your educational and experience-related certificates along with your resume, Caste Certificate (optional) and photographs, and produce identity documents such as Voter's Identity Card or Ration Card or Passport or Birth Certificate or Domicile Certificate, at the Employment Exchange operating in your region. After registration, you will be issued a registration number.

Links that Might Interest You:
Ministry of Labour and Employment
List of Employment Exchanges

Ujjawala Scheme

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Ujjawala Scheme - An Initiative by Gorernment Of INDIA

The trafficking of people, mostly of women and children is a burgeoning criminal activity that generates unbelievably large profits every year, third only to illegal drugs and weapons trade. Every year, thousands of women and children are reported missing from their homes in different parts of the globe. Such victims of trafficking are usually lifted from deprived regions and villages and exported to mainly urban areas within or across borders.

The 'Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children', defines trafficking in persons to mean the use of threats, force, abduction, fraud, deception, abuse of power or other forms of coercion for the recruitment, transportation, transfer, harbouring or receipt of persons for the purpose of exploitation. Exploitation includes prostitution, other forms of sexual exploitation, forced labour, slavery, servitude or the removal of organs.

Trafficking of women and children is a major issue in India, with people being illegally transported across States as well as being brought in over borders from neighbouring countries such as Nepal and Bangladesh. The main reason for trafficking people is commercial sexual exploitation, though people may also be trafficked for forced labour, marriage, begging, adoption and organ trade.

The Constitution of India - External website that opens in a new window, the fundamental law of the land, specifically forbids "traffic in human beings and other similar forms of forced labour" in Article 23. The welfare of women and children is of vital importance to the Indian Government, with the administration regularly formulating provisions and schemes for their benefit. One of the most promising schemes brought about is the 'Ujjawala Scheme - External website that opens in a new window' designed to liberate victims of commercial sexual exploitation.

Combating Trafficking

'Ujjawala - External website that opens in a new window' is a comprehensive scheme for the prevention of trafficking, rescue and rehabilitation of women and child victims of trafficking for commercial sexual exploitation in India. It was launched in 2007 by the Ministry of Women and Child Development. It consists of certain mechanisms for the reintegration and repatriation of victims including cross border victims.

The Target Group or main beneficiaries of this scheme are women and child victims who have been trafficked for commercial sexual exploitation as well as those women and children who are vulnerable to becoming victims of this crime. These vulnerable sections include slum dwellers, children of sex workers, refugees, homeless victims of natural disasters and so on.

This scheme is being implemented by various Non Governmental Organizations to provide direct aid and benefit to victims of trafficking. Immediate relief to victims includes the provision of food, shelter, trauma care and counselling to the rescued victims. Later on, victims are provided skill training, capacity building, job placement and guidance in income generating activities to empower them and help them live independently.

The Ujjawala Scheme has five components -

Prevention - This part consists of the formation of community vigilance groups and adolescent groups called Balika and Balala Sanghs. It also includes the carrying out of sensitization workshops, seminars and awareness generation campaigns through street plays, puppetry, posters and leaflets. The main aim is to make functionaries such as the police and community sensitive towards the needs of victims of trafficking.
Rescue - This component includes creation of a network of contacts that include police, NGO's, women's groups, youth groups, panchayats, hotels, tour operators and so on. These contacts will be used to collect information on traffickers, suspicious people and vulnerable families. It also includes the cost of transportation, food, shelter, toiletries, clothing, trauma care/counselling and medical aid given to a rescued victim and the payment of incentives to decoy customers and informants.
Rehabilitation - This step offers refuge to victims in safe shelter homes with the provision of basic necessities such as food, clothing and medical care. It also includes specialized counselling, legal aid, formal or open school education for children and vocational training for an alternative livelihood.
Reintegration - This component involves restoring the victim to their family and community, if they desire. It includes the setting up of Half Way Homes, where gainfully employed groups of victims who wish to be reintegrated with the community, work and live semi independently. It also includes the cost of travel for the victim and an escort to her hometown.
Repatriation - This is applicable to cross border victims of commercial sexual exploitation. It includes the setting up of transit points at border checkpoints to provide food and other incidentals to the victim. It also includes documentation and cost of travel of the victim and an escort to her country of origin or border.
This scheme can be availed by contacting -

# Social Welfare/Women and Child Welfare Departments of State Governments
# Women's Development Corporations
# Women's Development Centres
# Urban Local Bodies
# Reputed Public/Private Trusts
# Voluntary Organizations.
The government has also recently launched a Web Based Counselling and Information Portal for Women and Children. This website provides guidance from a noted panel of experts on issues such as missing children, child trafficking, sexual abuse, beggar children and a lot more.

The Ujjawala Scheme is a valuable step in the direction of protecting two vulnerable sections of society - women and children, from exploitation. The scheme aims to empower such victims of trafficking and help them become financially independent, thus improving their standard of living, health and social status. As a holistic, multi dimensional approach is needed to address the complex nature of this issue, it is imperative that civil society, non government organizations and pressure groups also play a proactive role.


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Related Links:
Initiative to Combat Trafficking
Trafficking - A Journey To Darkness (80 KB)
Child Trafficking in India - A Concern (144 KB)
Manual for Medical Officers - Dealing With Victims (660 KB)
Manual for Social Workers - Dealing With Child Victims (2.31 MB)

IIT-JEE Result 100 Percent

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Two Coaching Institutes in Bihar Achieve 100 Percent IIT-JEE Results

PATNA - Two coaching institutes giving tuitions to the aspirants of Indian Institute of Technology (IIT) in Bihar have delivered a power pack punch as all their students have cleared the prestigious competitive exam.


‘Rehmani Super’, is a Patna based coaching institute, and is promoting education amongst the Muslim community. The institute had ten students and all have cleared the exam.

The institute is headed by the Additional Director General (ADG) of Police of Bihar, Abhayanand Singh.

The students of the ‘Rehmani Super’ credit their success to Abhayanand Singh, who is the chief administrator at the institute and Mohammad Wali Rehmani, the founder of the Rehmani foundation.

“We worked hard because of Abhayanand sir. Abhayanand sir has helped us like a father and our teacher, Mohammad Wali Rehmani. Their prayers and blessing were heard by the almighty and that’s why we have been successful,” said Naudesh Alam, a student.

Abhayanand Singh is thrilled with the thumping result which his institute has managed to achieve. Singh remarked that the success had been achieved after a lot of hard work and meticulous planning.

“This year, we started super 30 (group of IIT aspirants) in many places under various names. The results have been very encouraging.” said Abhayanand Singh.

In the meantime, all the 30 students of ‘Super 30′, another coaching institute in Patna cleared the IIT exam.

The elated students mentioned that hard work, dedication and unconditional support of Anand and other teaching staff at the institute had helped them crack the entrance exam.

The students of ‘Super 30′ say that there mentor Anand always encouraged them even if they didn’t do well in the internal tests conducted by the institute.

“The preparation was intense. For this, we should put in honest hard work.

We should obey the teacher who is teaching us because whatever the teacher tells us is out of the teacher’s experience,” said Namrata, student of ‘Super 30′.

The jubilant students shared sweets with Anand, the director of ‘Super 30′ soon after the results were announced.
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IIT Coaching 100% Achievement

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Two Coaching Institutes in Bihar Achieve 100 Percent Results

PATNA - Two coaching institutes giving tuitions to the aspirants of Indian Institute of Technology (IIT) in Bihar have delivered a power pack punch as all their students have cleared the prestigious competitive exam.


‘Rehmani Super’, is a Patna based coaching institute, and is promoting education amongst the Muslim community. The institute had ten students and all have cleared the exam.

The institute is headed by the Additional Director General (ADG) of Police of Bihar, Abhayanand Singh.

The students of the ‘Rehmani Super’ credit their success to Abhayanand Singh, who is the chief administrator at the institute and Mohammad Wali Rehmani, the founder of the Rehmani foundation.

“We worked hard because of Abhayanand sir. Abhayanand sir has helped us like a father and our teacher, Mohammad Wali Rehmani. Their prayers and blessing were heard by the almighty and that’s why we have been successful,” said Naudesh Alam, a student.

Abhayanand Singh is thrilled with the thumping result which his institute has managed to achieve. Singh remarked that the success had been achieved after a lot of hard work and meticulous planning.

“This year, we started super 30 (group of IIT aspirants) in many places under various names. The results have been very encouraging.” said Abhayanand Singh.

In the meantime, all the 30 students of ‘Super 30′, another coaching institute in Patna cleared the IIT exam.

The elated students mentioned that hard work, dedication and unconditional support of Anand and other teaching staff at the institute had helped them crack the entrance exam.

The students of ‘Super 30′ say that there mentor Anand always encouraged them even if they didn’t do well in the internal tests conducted by the institute.

“The preparation was intense. For this, we should put in honest hard work.

We should obey the teacher who is teaching us because whatever the teacher tells us is out of the teacher’s experience,” said Namrata, student of ‘Super 30′.

The jubilant students shared sweets with Anand, the director of ‘Super 30′ soon after the results were announced.
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Investment IQ & Risk vs Returns

Investment IQ Test

http://www.moneycontrol.com/planning_desk/investmentiq.php

Use this tool to evaluate whether you should manage your investments yourself or whether you should approach/ use a professional manager. This evaluation will consider your temperament, aptitude and technical knowledge. It should take you between 5 and 8 minutes to answer the 20 questions below.

	How do you.... Review implies tallying your bank statements against your transactions. Have you ever... Answer yes only if you have prepared a budget as well as implemented it. Have you made... If your assets are always in joint names, this would qualify under "assigned nominees to all your assets".
	1. How often do you review your bank account statements? Atleast once a month. Definitely every quarter. Less frequently than once a quarter. 2. According to the Rule of 72 The money you need to retire is approximately 72 times your annual income. If you save only 5 percent of your income a year, the earliest you can retire is at age 72. The time it will take for your money to double is 72 divided by a given interest rate. The mortality age that Indians should plan their retirement fund for is 72. Don't know. 3. EVA is commonly understood as Estimated Value of Annuity. Economic Value Added. Enterprise Value Addition. Efficient Value Arbitrageur. Don't know. 4. Net present value refers to The sum total of all future cash flows. The current value of future cash flows adjusted by a discount rate. The valuation of a business after including intellectual capital. The value of a business after adjusting for the interests of the minority shareholders. Don't know. 5. Mutual Funds are attractive to investors who want Guaranteed returns. The ability to diversify their portfolio and are seeking professional money managers. A downside protection. To benefit from the contribution of other investors who will buy later. Don't know. 6. Have you ever prepared a budget and implemented it? Yes. No. 7. A payout ratio is The cost of debt for a company. The percentage of a firm's profits that is paid to shareholders in the form of dividends. The annual fees charged by the asset management company for managing a mutual fund. Don't know. 8. The commonly understood meaning of Asset Allocation refers to The distribution of assets of a deceased person amongst his/her heirs. The process of differentiating assets dependent on whether they are liable to income-tax or wealth tax. Planning the holdings of an HUF to minimise the tax liability. The apportioning of investment funds among asset classes such as equity shares, debt, real estate, etc. Don't know. 9. Which of the following statements best describes your approach to insurance? I invest in insurance mainly to save taxes. I have invested in insurance policies after carefully studying my family's financial needs in the event of my death. I believe insurance is expensive. I have a net worth well in excess of my family's financial needs and hence, do not need insurance. I do not have any dependants and hence, do not invest in insurance. 10. In life insurance, premium payable for a fixed-term policy is cheaper than that payable for whole life policy as Fixed-term policies have been available longer than whole life policies. Fixed-term policies offer risk cover only for a limited period and hence, does not build a cash value. Fixed-term does not pay you the entire sum assured in the event of death. Fewer individuals opt for whole life policies in comparison to fixed-term policies. Don't know. 11. Have you made a will or assigned nominees to all your assets? Yes. No. 12. Short selling refers to The sale of stocks that are expected to announce results that fall short of market expectations. The sale of short term investments. The sale of investments that have fallen short of your expected returns. The sale of a security by a person who does not own the security. Don't know. 13. Accounting on an accrual basis refers to Reporting income and expenses in the financial year in which they are incurred. Reporting income and expenses in the year they are received and paid. Accumulating expenses and deducting them after the corresponding income is received. Adding all free cash flows in a financial year to the previous year's capital to arrive at the current year's capital. Don't know. 14. You save Rs10,000/year from age 25-33 and your twin sister saves the same from 33-60 - at 10% p.a. who will be richer at 60? You. Your Sister. Don't know. 15. On investing Rs 20,000/year, which would give a better return after 20 years, if you are in the highest tax slab? National Savings Certificate wherein the interest is re-invested. Public Provident Fund. A monthly income plan from a mutual fund that offers a guaranteed return of 10.75%. An insurance policy that offers high returns. Don't know. 16. Which of the following statements best describes you? It is really difficult for me to find time for anything other than my work. I barely manage to find time to meet my family and social commitments. I have enough time to pursue my hobbies and special interests. I never have a problem finding time. Don't know. 17. For a company, Return on Net Worth refers to The net profit divided by the net worth. The amount of dividend paid per share divided by the market price of the share. The amount of dividend paid as a proportion of the net worth. The revenues divided by the net worth. Don't know. 18. Which of the following is taxable? Income from capital gains. Insurance receipts. Gifts. Income from exports. Don't know. 19. Opportunity cost is best described as Using every opportunity to sell your bad investments at cost. The cost of identifying investment opportunities for investment. The value of what you give up to avail of an alternate option. The strike price of a stock option. Don't know. 20. Academically speaking, which of the following investment portfolios have the lowest risk to loss of capital Equity shares of multinational companies. Company debentures with the highest credit rating. Government securities. Debt mutual funds. Don't know.

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Risk vs Returns

http://www.moneycontrol.com/planning_desk/riskreturns.php

Every investment has an attached risk

Just buy this blue-chip stock, there�s no risk at all.� For most people who invest in shares there is a good chance that you�ve heard someone say this before. For most people who just put their money away in bonds or deposits, one of your main reasons for this probably is -�I don�t want to take any risk at all, I just want my money safe.� Are these statements true? Is investing in bonds or deposits completely risk-free? Or investing in blue-chip stocks necessarily very low risk? NO. Whenever more than one outcome is possible from an investment, there is always some amount of risk. Only the level of risk is different.

Use risk to analyse expected returns

While investing, risk is measured to evaluate the kind of returns you should expect from the investment. Or your return expectations should be based on the level of risk you can bear. In principle, the higher the risk, the higher the returns that should be required. Empirically returns across various asset classes show that investment in equity shares give the highest level of returns in the long-term, followed by corporate bonds and deposits and lastly bank deposits and government debt. Not surprisingly, the level of risk is also in the same order. You might be saying - how can debt be risky? It is. Companies that run into financial trouble could delay your interest payments or even default on paying back your money. Even government debt has some amount of risk. How? Simply put, governments like companies also face the risk of financial problems. However, lack of funds for a company could result in the company defaulting on a loan repayment. But a government can always print more currency and repay its borrowings. So you will get your money back. BUT, there is a hidden cost (risk). Printing more currency is likely to lead to higher inflation and hence lower real returns on your investment (see our article Running to Stand Still to understand about real returns). Agreed that the chances of governments or well-managed companies getting into serious financial troubles are low. But that is only difference in the level of risk. There is a risk attached, and that cannot be questioned.

Understanding risk vs return essential for good financial planning

You might ask - why is it so important to understand the risk versus return relationship? Because if you don�t, it is quite likely that your investment returns will not match your risk profile and consequently you are not managing your hard-earned money well. A wasted opportunity, as even a small difference in your investment returns (at the same level of risk) can make a BIG difference to your financial wealth (due to the astounding Power of Compounding). To understand the importance of managing your money well read Guide To Financial Planning. This article highlights why financial planning is not as difficult as it sounds and how you can easily make your hard-earned money work for you. Also you can use our Risk Analyser to understand your risk profile (both your risk-taking capacity and your risk tolerance level) and read The Need To Diversify to understand how you can increase your expected returns while not increasing your level of risk.

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The Need to Diversify

http://www.moneycontrol.com/planning_desk/needdiv.php

Reduce risk without compromising returns.

In our article Risk versus Return we highlight how every investment has a risk attached. And how the higher the risk, the higher should be the expected return from any investment. This probably then imply that if you want to reduce the risk in your portfolio, the only choice for you is to move your investments into low yielding investments. Right? Wrong.

Diversification across investments is another way to reduce the risk of your portfolio.

To understand how, look at this simple example (it involves some basic statistical concepts but don�t get turned off, its simple to understand and you can get into the calculations only if you want) - Say, there are two assets A and B. Both assets have a potential return of 10% and a standard deviation (a statistical measure which measures the variability (i.e. risk) of the potential returns) of 20%. Also, the returns of both these assets are uncorrelated i.e. the performance of Asset A is not dependent at all on the performance of Asset B. Now assume you invest equally in both these assets. Your weighted potential return (0.5 * 10% + 0.5 * 10%) will equal 10% - this is the same return as that for the individual assets. However, due to the fact that you have now spread your risk over two uncorrelated assets, the standard deviation (i.e. risk) of your portfolio will be 14.1% (lower than the 20% for each individual asset). Refer to the supporting Statistical Analysis if you want to understand how. It is important to understand what this means. You would have been able to reduce the risk profile of you�re the returns on your portfolio to 14.1% (from 20% for an individual asset) without having to compromise on your returns, merely by diversifying. So, by choosing two assets whose returns are not correlated (this is important) like say Stock A which is a pharmaceutical company and Stock B which is a software company, you can reduce your risk while not necessarily having to reduce your returns. In summary, there are two things that are important to keep in mind while planning your investments -

1. Every asset has a risk attached to it.

And, the higher the risk, the higher should be its expected returns.

2. Don�t put all your eggs in one basket.

By diversifying across assets, you can reduce your risk without necessarily having to reduce your returns. You don�t have to get into calculating standard deviation of the return of your assets, you need to just be aware that if you diversify your portfolio, your overall portfolio risk will be lower. To get the maximum benefit of reducing your risk through diversification spread your portfolio across different assets whose returns are not 100% correlated. Different assets should ideally span across different asset classes such as fixed income, equity, real estate, gold as well as different investment options within these asset classes e.g within equity shares, your exposure should be to companies in different sectors; or within fixed income investments, partly government risk and partly corporate risk.

As a thumb rule, diversify your investments across 15-20 different individual assets.