Friday, October 23, 2015

Alternate approach for new investor

Recently, I was thinking that instead of traditional approach towards investment (which works only for dedicated and disciplined people) why not have some alternate approach which would be helpful to all. Here is my attempt.

We always say that as a new investor, we should do the following:

  • Ensure we are adequately insured (health and life)
  • Build your emergency fund
  • Start investing in debt and equity as per your comfort and needs

Photo Credit: Flickr - 96tommy
First 2 are indeed very important and should be done as early as possible before starting investment.

In the investment strategy, what everybody suggests is decide on the debt to equity allocation (depending upon your goals and risk appetite). This means you will have to come up with a approximate figure like 5k for debt funds and 3k for equity funds. Then invest the amounts in corresponding funds.

Here is my alternate approach:

Instead of calculating debt to equity ratio and going on further, straight away start building your debt portfolio. Aggressively concentrate on building debt portion and ignore the equity part. Do this till you achieve a substantial amount in debt vehicles. This amount can be like 2-3 years of your expenses. Once you have this amount, go for equity and debt mix investment.

This approach has following advantages:
  • New investor fears about equity. Hence, asking him to invest in equity straight away can deter him. Here, we ask him to build debt folio. In an year or so, we would have large amount and can show him how investment helps him to build wealth. This gives him little confidence to enter equity.
  • New investor may get overwhelmed by the amount of work to be done immediately. This will help him slow down.
  • This approach will also give him time to do all other calculations on the side till he creates debt folio.
  • This will also give him a nice cushion to fall back if equity gives some short term 'shocks'.

Of course, there are few negatives too:
  • You may miss on some bear market investments
  • Your portfolio may seem to be heavily biased towards debt in the initial years
  • You may miscalculate the monthly debt investment amount (since you already have good amount of debt folio already)
  • If you are late to enter investment cycle, you may further delay it by 1-2 years which would further rob it of compounding


  1. RIPFPI - Remember it's personal finance, personalize it. I'm happy with this ALTERNATE approach for any new investor.



  2. Whether active debt market for retailers in India?

    1. Sorry I did not understand.
      If by active you mean - if it can be traded in India, then yes, there are few bonds and securities which can be traded by retail investors in the secondary market.