Everything I know about personal finance...

Everything I know about personal finance in 10 tweets.

Everything I know about personal finance...

"Stick to 60% Equity allocation in an index fund" is perceived as zero value-add from your wealth advisor. You could do this yourself, for god's sake! So your advisor will end up saying, "Ma'am buy Birla, buy DSP, buy HDFC". And next year, it is "Buy ICICI, buy Mirae, buy Axis". And so on...

But your main personal finance decision is asset allocation. Spend all the time in the world on that - until you arrive at an allocation you can live with and control, rather than on activity inside the asset class which your advisor wants you to focus on instead.

That's all that most of us need to do unless you have unique insights or access (private markets). Or you enjoy the process of stock investing: learning about business models, markets and valuations and are willing to pay the real-world admission fee to InvestingU - lose money ever so often, and learn from your experience.

Nassim Taleb's advice is to run a barbell strategy. Put most of your eggs, say 85-90% in a safe basket of stocks and bonds (I would modify this slightly to whatever you find safe and can sleep with stress-free) The balance 10-15% could be in 8-10 very risky investments like crypto or micro/small cap stocks.

In this barbell strategy, any of your risky investments going to zero hits you with only 1.5-2.0% of your net worth. And a 10x return on any one of these is still meaningful for your overall portfolio.

For the core portfolio, you should have no more than 75% and no less than 25% in equity at any time. What's the right Equity allocation? 100 minus your age is a popular rule of thumb (90 minus your age if you're conservative; 110 minus your age if you're a risk-taker)

A good framework for equity allocation for Indians is:

  • 50% Nifty ETF
  • 20-25% Nifty Next50 ETF
  • 15% Nasdaq ETF
  • 10-15% S&P 500 ETF

I'm not a debt guy (which means both "I don't invest in debt"; and "I don't follow the debt markets"). I do keep adequate cash or near positions, because cash = optionality to buy. In debt instruments, beware of structured products* and high-yield. Structured products are built to make $$$ for the wealth firm; not for you, but from you. If your wealth advisor can't deconstruct a structure, s/he shouldn't be selling it.

High-yield is often garbage (there's no such thing as a free lunch), or a function of the equation: high yield = low yield x leverage.

* Structured notes are essentially credit to the issuer bank/non-bank lender at sub-market rates plus a combination of long-term equity call and put options plus hefty upfront fees. If your advisor can’t peel the onion and tell you what the structure is made up of, she shouldn't be selling onions -- s/he is just mouthing speil from the structuring desk.

Don’t buy a structured note issued by your broker unless you’re comfortable lending to that broker -- essentially, that’s the bulk of what you’re doing in a structured note.