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GUARD BANDS helps you stay at EASE with risky, but potential investments!

What can be the plan for Diversified Investing?

Diversified Investing means investing in more than one artifact to reduce risk. As a matter of fact we are in Stock Market to make profit. But for attaining the target we should be with a plan. Most of the people out there are without a plan. We have read a lot of books on this and met many people in getting a real plan for the Financial Freedom. Then we come across through 3 assets mainly: Real Estate, Fixed Deposits and Stocks. Most of the people we met rely on Real Estate - they buy flats, lands and never sell them in the life time. They earn rent and long term capital appreciation from it. A set of other people rely on fixed deposits to generate an income with a huge capital at bank. We seen that only very few people invest in Stock Market. Most of them are doing short term trading and they think it as investing.

So down the line we come into a conclusion of having the savings diversified as:

1) 33.3% in Fixed Deposits
2) 33.3% in Real Estate
3) 33.3% in Stocks

The income generated from the above assets should be treated as capital and re-invested. Following this path we will be having a secured financial future. One can decrease the flow to Fixed Deposits as soon it can meet the monthly expense through interest generated. Stocks should be for long term like 10 year 20 years, meantime it will generate dividends that can be reinvested into other stocks. From the savings part, we believe a 50% of net income to be moved for savings. If less amount is being saved then it signals some serious issue with your career. You might have to either: Increase the income through career upgradation or Decrease your expense

Forever we have been hearing the statement that the laws are in such a way that rich becomes richer and poor becomes poorer..
This is absolutely wrong if you observe the matter further. An interesting quote to add here is that:
"The rich invest first and spend what is remaining and the poor spend first and invest what is remaining. "
So they continue in their current state and just blaming others is wastage of time.

The Master Plan

Serious Investors should understand the difference between Active Income and Passive Income. Although most of us will be heard about it - it requires further clarity. The day to day job provides income - which can be called as Active Income. This income is directly bound to the amount of time we worked. That means if zero work there zero income - if more work then more income. Our Job can be considered as an Active Income generator.

Passive Income is the Income which is not based on the active work. It will generate income even if we work or not work. That means it will be generating income passively. Eg: A fixed deposit is an Asset that generates Passive Income, A good stock is an Asset that generates Dividends which is Passive Income, Royalty of works we once done is returning cash until it is under existence.

So the core part is that we should use our Active Income to generate Passive Income so that after a certain point the Passive Income will accumulate and on re-investing using Power of Compounding, it will generate a tremendous amount of Passive Income again. Or either way, if we focus on parking money to assets that generates Passive Income we will be reaching Financial Freedom quickly. Once the Passive Income is ready to meet our Active Expense (the day to day living cost), we are financially free - and possibly look for change of job or starting a business - as long as the Passive Income will take care of running costs - and remember the additional income from business should be invested back. This is a great concept that requires much analysis and focus and only strategic personalities can execute. The people who are really rich - uses Passive Income to reach there - that is money is working for them.

To create the massive capital that generates passive income, one should start implement the follwoing steps.
1. Evaluate monthly expense
2. Create practise of investing amount after expense
3. Use the interest to invest back to speed up the Tremendous Capital Formation