December, 2014 | Nooruddin's Blog

Building investment portfolio is an art and science, the former because it’s not a fixed formula you may apply to be successful at it, but there could a variety of ways around it, and latter because there’s still some method to the madness around building it. One of the simplest, yet intuitive investment principles is of the Investment Pyramid:

As you start out, there’s no need to put all your hard earned money into speculative and seemingly lucrative scrips, but to create levels of investments, allocating a variable percentage of your portfolio to different types of investments. As you move up the pyramid, there’s riskier, but more rewarding options.

Some people ask me why not invest directly in the riskiest asset classes, so that the return is the highest – It’s simple to understand why having a solid investment foundation to build onto riskier assets is a more sustainable approach. The percentage allocation to each asset class would be determined by a variety of factors, including the investor’s background, investment in question as a proportion of overall net worth, age, aversion to risk, liquidity requirements, etc.

When you are investing, it is important to keep this pyramid in mind in trying to expand out on a more sustainable investment strategy.

Many people start out doing on their own something they think needs to be done, without thinking too much on whether it is worthwhile to do everything on their own.As a result, more people are occupied doing things they’re better off getting done by someone else. Often it is the need to finish what we started, or start what we thought of or just get done with it which leads us to try doing things on our own. As important as it is to be able to work on things entirely independently, it is increasingly important to realize what work needs your attention and what you need to do to take the task to fruition.

Priority setting is an important skill that leaders of today are expected to have more than a lot of other things, and I call it a skill as it can be learned. One of the first steps in the process is to ask why you’re doing something before starting out to do on your own.