A few days ago I did a War and Personal finance, here is the sequel…

Whenever I see the portfolio of an army person I am reminded of Napolean’s quote: “He who defends everything defends nothing” – or something to this effect. Give me the portfolio of an army man and I will be able to tell you where all he has been posted, who all have advised him, whether he listens to professionals or only to his family, …and why he will remain mired in the poor class inspite of getting a big OROP cheque, a pension cheque and a job that is currently paying him Rs. 86,000 per month.

Oops, how can one be poor with this kind of a cash flow? Well, well.

Why have 9 savings bank accounts, 30 fixed deposits in 8 locations (totaling Rs. 40 lakhs), 7 life insurance policies (obviously all endowment, totaling a sum assured of Rs. 18 lakhs), of course LIC  including 3 ulips. Honestly, Instead of “defending everything,” successful investors should “First reckon, then risk,” in the words of Von Moltke.  It should be obvious that we cannot successfully counter every possible headwind to our investments’ performance. The logical thing to do is to try to diversify against the most probable risks. Sorry, you cannot really prepare for black swans, but you can reduce complexity in your portfolio and simplify things as far as possible.

“Question the answers, I repeated every class. Reevaluate your conclusions when the evidence changes.” Craig M Mullaney. The Unforgiving Minute: A Soldier’s Education 

I seriously wonder why many people believe that EQUITY is the way to go even when they have personal empirical evidence to the contrary? beats me. If you cannot get good returns from equity, go to a mutual fund and do a SIP. However if you have read somewhere and believe that SIP does not work, do whatever you want, but do not invest on hope. Invest on facts. If the evidence changes, change the conclusion….you have no choice.

If the officers are leading from in front, watch out for an attack from the rear. -The Seventy Maxims of Maximally Effective Mercenaries” Howard Tayler

Too many officers think that the risk comes from equity, and there is no risk in debt. Too many officers assume that they understand volatility, however when it happens, they are scared (fear). Every fear situation need not result in a panic reaction. Fear has to be conquered, not acted upon. Who knows this better than a soldier?

“I wanted that future officer to weigh decisions with a supple mind and to be comfortable with nuance and uncertainty. ” Craig M Mullaney, The Unforgiving Minute: A Soldier’s Education.

Can there be a better saying for a person starting out on a personal finance? Here too you will have to take decision with a supple mind, be willing to deal with nuance and uncertainty. What makes you lose a skirmish, battle, war or a lesser fight like dealing with a banker? The ability of the opponent to force you to make poor choices and make poor moves. Exactly what would happen if you were to play chess with a GrandMaster – he wins because he can force you to make poor moves and make wrong choices!!

 “War is too important to be left to the generals”  Georges Clemenceau.

I could say the same thing about the process of Financial Planning. It is too important to be left to the financial planners. You need to get into the act and get your hand dirty. The planners speak in a lingo that you may not understand. You need to understand goal setting, asset allocation, timely action, benefits of inaction, making a will, etc. Most important perhaps is the ability to know whether the adviser is working in your interest or not. If you cannot find that out, you are up for a lot of trouble.