3 Principles & 3 Practices to generate Superior Lifetime Returns

All of sudden the dollar has become Mogambo for the investment market as both Equity and Debt markets have become very volatile. News channels have shifted their bases in coffins, and have started using terms like “bloodbath”, “butchered” and “bankruptcy”. Are you also disturbed? If your answer is Yes or May-be-little types, this article is for you. Yes your fear of investments turning into negative returns and panic is understandable but not justified if you have set your goals and believe in your financial plan. And the challenge to control your emotions, to stay away from panicking and taking impulse decision regarding your portfolio has come now. And it is not so hard if you believe in basics.

Superior Returns

Image courtesy of KROMKRATHOG at FreeDigitalPhotos.net

This article is part of EQUITY Series – that I started last week. This post is inspired from Nick Murray – he is financial advisor’s coach, based in US. My firms name (Ark) is also inspired by one of the books written by Nick Murray.

Superior Lifetime Returns

First we have to understand “Superior Lifetime Returns” – it’s not the highest return in the cosmos but return that is required to achieve goals with minimum time, effort & stress. If you stick with these principles & practices – they will account for 90% of your investment success. So goal is never to earn the “maximum return” or “be in safe zone returns”. So here are the 3 Principals and the 3 Practices:

3 Principles


First and foremost principle is Faith – if you have “faith in the future” nothing else matters and if you don’t have “faith in the future” nothing else matter. You have to understand that there is difference between HOPE & FAITH. Hope is the state which promotes the desire of positive outcomes related to events and circumstances in one’s life or in the world at large. But we don’t have proofs for hope but faith is based on historical data and facts. So you have Hope from your kids and not Faith. Last week I shared some data to restore investor’s confidence but our media can shake confidence of anyone. Currently media is comparing current situation with 1991 crisis, and they may be right but in the same period our index has gone up by 16 times or CAGR of 13.5%.

Read: Indian Equities – Past, Present & Future 


Warren Buffett said “The Stock Market is a highly effective mechanism for the transfer of wealth from the impatient to the patient.” Even who don’t lose faith easily lose patience based on current situation. Most of people focus more on breaking news than their goals. Even the long term investor will say, let me right now shift to debt till the things improve but he should remember, now he is taking responsibility and stress of being right TWICE – one at the time of exiting present investments & then to enter at the right time again. So now focus is shifting to “Timing the Market” – which is undoubtedly worst strategy for retail investor.

Read: Secret of Achieving High Returns.

One study suggests, more changes you will make in your portfolio, lesser will be the returns – another study suggests more often you look at your portfolio, lower the returns. So what one should do?? Read 3 practices that are given in second part of this post & stick with them.



Patience will help in not doing wrong things and Discipline will help in keep doing right things. Not far back, Indian investors learned benefits “Systematic Investment Plan” but now I realize that it was just because of herd mentality. I keep getting queries on TFL – “how I can discontinue my SIPs & redeem funds?” and even industry data suggest the same thing that investors are closing the SIPs. In 2010 I wrote this article “Do you really understand SIP” – this talks about why I am saying it was just herd mentality.  When discipline fails, the plan fails.

3 Practices

Principles dictate practices – if you don’t believe in principles, these practices will be counterproductive.

Asset Allocation

Combination of asset classes in different proportions is called a Portfolio. And the PROPORTION in which these assets are mixed is called ASSET ALLOCATION. Asset allocation means dividing the ratio of asset classes for investments as per the RISK and TIME HORIZON of the investment. So your asset allocation can be like-

  • 50% Equity 50% Debt
  • 50% Real Estate 40% Debt 10% Equity
  • 40% Real Estate 40% Debt 10% Equity 10% Gold
  • 70% Equity 20% Debt 10% Gold

Or whatever that you or your planner decide.


Diversification is a portfolio in particular asset class. If we are talking about equity (and we are sticking with Mutual Fund for that purpose) – adding 2 large cap funds & 2 mid cap funds is a diversification strategy. If we talk about debt – that can be split in FDs, Bonds, PPF etc. Make sure you don’t under-diversify or over-diversify. Also remember with whatever efforts you make, you will never be able to invest in best performers of future – for that you need a time machine to go back in history.


In Asset Allocation the weightage of each asset class are kept constant. Once you have made this portfolio you just need to rebalance it at pre-decided date. The profit in the asset lass which outperforms is booked & the proceeds are used in the asset classes which underperform in that particular period. This is done keeping the original weightage of the asset class in the portfolio. (same can be done at individual asset level – diversification)

You can read more about Asset Allocation & rebalancing here.

Without any doubt these are testing times for everyone but you have to understand that you should change your investment strategies if there are some changes in your life & life goals and not markets. If you don’t have any investment strategy – build one, write on paper – be it aggressive or conservative – important is it should be consistent. If you don’t have a written policy it will be tough to control your emotions and hope you know “Investing is a Mind Game”. Your behavior is more important than anything else in achieving superior lifetime returns.Stick with your “Goal Focused Investment Strategies”.

Feel free to share your view – what you are going through & what you feel about that.

Superior Returns


  1. Hi Hemant,

    Thank you for sharing this wonderful article in these hard times.

    I have done numerous mistakes in the past 8 years trying to time the equiy market.
    I have booked good profits at times, but the losses have been more.

    Now I do my investments via SIPs.

    From time to time, I do trade equities directly, but that is more like a hobby which I do for the fun and not for returns.

  2. Hi Hemant,

    Firstly – Great Article and something positive to learn during this negative and bad time.

    Secondly – For those who still want to time the market, follow below strategy (It could work) Eg. If you want to invest Rs, 36000 annually through SIP. Divide this in SIP of Rs. 1000 Per Month for 2 SIP’s so total would be Rs. 24000. Balance 12000 invest when you feel market is coming down or has fallen drastically in 2 SIP of Rs. 6000/-

    But, a word of caution here is that you should have not spend this 12000/- and this would work in current scenario / trend as markets are falling. If market would rise, you would eventually lose money as you would be buying units for 6000 x 2 =12000 at higher rate.

    Thirdly, If you do check markets on weekly basis, Enrol for HIGHER SIP whcn markets are low and reduce SIP when markets are High.

    For E.g. If you want to invest Rs, 36000 annually through SIP. Start with SIP of Rs. 2500 Per Month in 2 SIP at present (as market are at low) and reduce the same when you feel market rise in next 6 months or so which would total your investment of Rs. 36000 per annum.

    Trust above helps many in achieving their FINANCIAL GOALS.

    Nikhil Shah

  3. Good Article, Hemant. Yes, these are testing times. I resist my urge to look into my portfolio everyday & would love to see it only once a month ! It is an ongoing mind game !

  4. Yes, Hemant, it is true. Excellent timing to write this post as Stock market and Rupee are melting down after congress announced the Food security bill which is going to eat away our fiscal deficit and damage our economy. That is purely a vote catching gimmick at the cost of India economy. Coming back to our topic, Just yesterday I was reading a article – “Investor Grandma owns a Portfolio of Rs 4 Crores‏” in Wall Street Journal. That GrandMa has wisdom to follow all ingredients of this post – 3 principles & 3 practices. We should learn from her and become Millionaire !!!

  5. Wonderful, great insight laid in the article.

    I follow a simple strategy, i increase my SIP’s when markets corect for more than 5-6, this way i not only save, but give more value for my money.

    I have folowing this for nearly 2 years, and had achieved my financial gal a couple of months earlier, you will be forced to save (rather I) when marlets are down and dont have money for unncessary things (which i can’t control at times spending on).


  6. Yes it is very true. and have just finished reading your book Financial Planning for Life.—But What one can do when you have reached the end of your retired life at 75. Only worry and get out, I suppose.–Any solutions.

  7. your advise is most adorable to todays generation people who lack patience faith and preservance hard work is key to all success and your principles show way to do hard work with smartnessp

  8. hi hemant,
    i investing in these SIP’S
    1. 1000 in Reliance Growth Fund – RP (G) since january 2009
    2. 1000 in Reliance Growth Fund – RP (G) since january 2010
    3. 1000 in HDFC Top 200 Fund (G) since july 2010
    4. 1000 in Birla SL Dividend Yield (G) since july 2011
    5. 2000 in HDFC GOLD FUND since feb 2012
    now pls suggest me about my portfolio. i want to start 3000/month SIP. So pls help.

  9. i will add 2 more advice what my mentor used to say

    1. dont earn 8 annas and spend 10 annas
    2. you, your health, your career, your family are the best investments

  10. “If you don’t have any investment strategy – build one, write on paper – be it aggressive or conservative – important is it should be consistent. If you don’t have a written policy it will be tough to control your emotions and hope you know “Investing is a Mind Game”. –
    Dear Hemant, I thank u from the core of my heart, I am a doctor by profession and has been investing in equity mf since my college day, all in equty, all in growth plans,all through SIPs of good diversified MFs, never redeemed a single unit , because I have put my extra money (after insurance premium some contigency plan etc etc). Suprisingly I dont have any goal ,( ofcouse I dont need all that money in near future 1o-15 from today).what is wrong in my such goalless investment ?

  11. Dear Hemant Ji,

    As I always said we are thankful to you to guide us such a secret things while the market is up or down. What ever the awareness I have about financial planning it just because of reading tfl articles and from you comments over there. Some time I feel if I could get in touch with tfl website 5 yrs back I’ll be a good investor & good bank balance as well in my savings. But still I feel Iam very lucky that I had learn a lot from your website .

    Thanks & Regards,

    • Hi Animesh,
      You rightly said “LOOKS like a sinking ship” but we should remember Nick’s quote “the world does not end……”

  12. Hi Hemant,

    Good Article, best time to get in to the market is when others are moving out i.e. when it’s falling. I agree that timing the market is practically impossible. Hence a systematic investment on every dip would be a good way to average your investment and maximize returns.
    I like the current scenario as it provides a great investment opportunity to meet my goals.

    Most investments that i have made were with a horizon of 5yrs when i started but i have shifted that to 10 yrs now. Hence i intend to hold my investments irrespective of the cyclical nature of the markets. In the long run a 10 yr period has always provided a +ve return, which should allow me to meet my goals.

    Best Regards
    Ismail Vandeliwala

  13. Hi Hemant,
    I started investing since last 3 years in SIP but if i see my portfolio now i see 1% profit per year.
    I am worried now how long it will keep on going like this.

  14. Hemant sir,
    In 2012 I have invested in SIPs and now I am getting good returns. Cuurently market is high…I have just simple question that can I invest some more amount in SIP In current situation.
    Please reply me


  15. I enjoyed ur article 3 principles and 3 practices.. Thanks.. Wish I become a financial planner thro structured learning …1) what e leRning can I do to become a real professional in this field 2) I am having a sip of 25000 per month.my agents at not helping me much. Is there a simple tool to check the efficacy of my Sips and suggest way forward.regards.anand

  16. Very nice i must say.Have just begun to take interest in dis arena and have been reading avidly about it for a week now.Your articles have been the simplest straight basic interesting and highly informative for me so far. Thank you

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