process
See Your Whole Balance Sheet
The rule
Set your stock-to-safe-money split against your whole net worth, not just the money in your demat account.
Where it flips
Counting a shaky income or an unsellable ancestral house as a safe 'bond' can push you into far too many stocks. The fix is to count only assets that are truly steady and reachable, and to trim income that could vanish in a downturn.
Your real wealth is bigger than your investment portfolio. Your future salary, your EPF and PPF, a rented-out flat, even a pension you will draw later - all of these are money that behaves in different ways. A steady government salary acts a lot like a safe bond. So a person who already has that safety can afford to hold more stocks in the part they invest. Judge how much stock-market risk you can carry by looking at the whole picture, not one slice.
A worked example
Rohan, 35, has ₹8 lakh in an index fund. He also has ₹25 lakh in EPF and 25 more earning years on a steady ₹18 lakh salary. Treating the salary and EPF as his safe 'bond' cushion, he keeps the ₹8 lakh fully in stocks instead of watering it down. [illustrative]
How to spot it
- ·your stock-safe split set from the demat balance alone
- ·EPF, PPF and future salary left out
- ·'how much risk can I take' answered from one account
Charles D. Ellis · Winning the Loser's Game