Diversification as a Core Principle
Since my first lessons in Financial Management during the Chartered Accountancy days, I have always believed in a diversified portfolio when it comes to savings. Diversification is not the most efficient way of investment, but it is certainly the most effective way. It serves as a hedge against unexpected twists in life — and almost nothing in life happens exactly or fully as forecast.
Diversification allows risk mitigation while guaranteeing at least a decent return, come what may. The COVID-19 period — one that no one will ever forget — brought down the stock market immensely. Healthy trends in stock portfolios were abruptly stopped, vertically plummeting the prices. Real estate prices went down, and even a steady income as rent became zero for me.
The future is always unpredictable despite supplementing our knowledge every time. The same stock market later became a boon for the lucky few who invested at that time. But that was mostly just an unfortunate situation that turned out well for a few. Even man-made events like the demonetization of thousand-rupee notes by the Prime Minister himself had brought severe hardships to many in the country.
History has shown repeatedly that the future can never be predicted with any amount of accuracy. Applying my principle of diversification and the simple rule of not putting all eggs in one basket, I had my savings spread across real estate, jewelry, equity shares, mutual funds, bonds, digital gold, some risk-free long-term policies, and fixed deposits. I also maintain a healthy savings account balance in banks for quick liquidity.
The Over-Cautious Voice Within
Multiple banks — just in case something were to go down or forbid me transactions when in an emergency. Both for lack of need as well as safety measures, I don’t keep much cash on hand. But the over-cautious person in me reminds me of what could happen in a worse scenario.
For a moment, imagine an all-out war with China. Nothing too improbable — we have seen many things before. Given the dictatorial way in which even a democratic government runs today, a block-out or a freeze in bank withdrawals beyond a small amount needed to live as a poor man is not an exaggerated impossible situation.
All equity portfolios in whatever form — direct stocks or funds — would crash. Gold demand and pricing, being international, may remain stable, but if there were curbs on banking and withdrawals, the digitized world that I am in will face immense financial risks for daily expenses.
So, the cautious person in me tells me it is not adequate to diversify portfolios without also diversifying forms of ownership.
Digital vs Physical Gold
For example, investment in gold bonds is great — but when all are held in digital form, it still carries systemic risk. God forbid, if there’s a situation where a person forgets all passwords and access to financial accounts — or even loses a mobile phone linked to everything — it’s not easy nowadays to stand in front of an official and prove that one is alive and actually who they claim to be.
That’s scary! A digitally enclosed system can become a trap in such circumstances. Having some gold as solid physical gold will assure that last-minute security — even allowing an escape from country to my son's in other countries, in an unlikely eventuality.
Conclusion
Diversification, I’ve learned, isn’t only about the type of investment but also about the form in which it is held. Spreading wealth across physical and digital, tangible and intangible, ensures not just financial prudence but also a measure of independence and preparedness. In an increasingly uncertain world, a few solid grams of gold might still be worth their weight — in peace of mind.
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