Social Investing for Dummies

Diversify, Diversify and Diversify

We trust the banks so much that we think money deposited in the accounts are the safest. Some people who do not trust the banks invest in land and property- they trust the government who provided them the ownership using a legal deed. People who don’t trust in either end up buying gold and storing them in a locker. They trust the security of their home and the strength of their locker. However one might feel about the banks, governments or their own locker, a wise man would invest in all of them. This is to reduce the risk of losing everything. The age-old adage of not putting all eggs in one basket holds a great value in the world of investing.

Why do we have pyramids in an article all about diversification? May be I am mourning the dead traveller in me or may be the pyramids can be a smart way to understand risk. Let’s start from the apex of the pyramid, the smallest part of an investment. These are the assets that are generally hyped up about- be it Bitcoin, Ethereum or NFTs. These assets are the riskiest in my portfolio, however since I am a daredevil and strongly believe in Ethereum’s future, I have invested around 5% in crypto. If you are in your mid-20’s, I would recommend spending this 5-10% on your passion project or setting it aside and letting it grow enough to fund your passion project! If you are new to the world of investing, try your hand with a couple of stocks using this money.

The next bit is the middle section of the pyramid. This covers your investment in blue-chip stocks- i.e, high value companies that are well established. If you are on eToro, you can also invest in people who maintain a portfolio of investments and have a good history of turning them into profits. Have a look at the people I follow if you are not sure where to begin. Usually this takes up anywhere between 25-75% of your investments depending on how old you are. If you are someone in mid-20’s I would highly recommend aiming for the higher end of the spectrum in this zone. Since you are investing most of your money here, I would recommend investing consistently every month in order to reduce the risk of investing prior to a bear run.

Now, the base of the pyramid is your safest bet- be it ready cash in your bank account, land assets or even gold in your own locker (nothing shady, of course). The traditional safe bets in stock markets are the mutual funds and ETFs. Your investment in these funds can be anywhere between 10-80% of your wealth depending on how rich you are and how much time you would like to spend on the market. I have around 10% of my savings invested in a mutual fund in India to improve my exposure to the country’s stocks as well. So, in essence, the structure is far more fluidic than you had imagined. 

Diversifying goes for your choice of trading brokers too. There are many investing platforms out there with various business models. It is definitely worth it to explore beyond what you already know in order to achieve the highest growth with the lowest risk spread across multiple domains. Right now I have about 70% of my savings on eToro accounts. Trusting the start-up with a lion’s share of my savings or any  mutual fund for that matter leaves me vulnerable to the unethical practices in the company or its closure.

I hope that this guide has given you a basic introduction to investing and how you can start off the way I started. Please let me know if this has helped you and if there is anything I may have missed out on. I will also begin posting blog articles on green investing, etc so stick around by subscribing to the newsletter if you are interested in it!