7 secrets of TRUE financial success

I am a true labourer; I earn that I eat, get that I wear; owe no man hate, envy no man's happiness; glad of other men's good, content with my harm. -- Shakespeare, As You Like It.

We do not know any magic formulae for making a quick fortune. Not only do we not know any of them, we would advise you to stay away from any scheme which is touted as an instant-fortune one.

The only real formula for prosperity is to work hard, save regularly and invest wisely. It is a long-drawn process; but the most enduring one.

If you aim at too high a profit, you may tend to take very risky -- even speculative -- decisions about investments, and go astray. Like Harshad Mehta, who said in early 1992: "I have come out of nowhere and I don't mind going back there."

In less than six months, his words proved to have been prophetic. Make it always a principle not to aim for very high returns; always aim for reasonable ones. A reasonable return, under the present circumstance, is 10 per cent to 12 per cent per year.

Whenever inflation is down, interest rates also decline. At such times, your expectations should also be revised downwards.

[Excerpt from N J Yasaswy's bestseller Personal Investment & Tax Planning Yearbook (http://www.visionbooksindia.com/details.asp?isbn=8170947529). Published by Vision Books]

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1. Be careful, particularly after 40

When you are around 30 to 35 years of age, you still have the time to start all over again if need be. You can afford to lose what you have and start from scratch. But once you cross 40, you should avoid major risks and mistakes.

This may sound conservative. It is. For it is better to be conservative in financial matters after 40 or so. We have seen many broken lives of 50, 55 or 60 years as a result of wrong investment decisions made after 40.

If you aim at peaceful retirement after all your commitments are over, such as the marriage and education of children, don't make risky investments. Every one need not invest in highly speculative shares all the time to make a lot of money.

2. Don't speculate, you'll lose in the end

Get over the 'quick rich' psychology and build a good balanced portfolio. Remember, you are an investor; you should not become a speculator. Most speculators end up miserably; you don't hear of them.

All the innocents who entered the market at the height of the boom of 1985-86 were massacred. So is the case of the guys who charged into the market during the 1992, 1994 and 1998 booms.

Very few speculators are successful in the long run. Don't be tempted that the other man is making more money through speculation. In all probability he will envy you after 10 years if you invest without getting involved in speculation.

Mark Twain said in 1894 that "there are two times in a man's life when he should not speculate: when he can't afford it and when he can."

In 1902, Andrew Carnegie warned that "there is scarcely an instance of a man, who has made a fortune by speculation and kept it." You should always remember what happened to Haridas Mundhra in 1957, and to Harshad Mehta in 1992.

Why does it happen that way? The answer is provided by Bernard Baruch in 1916: "A speculator is one who thinks and plans for a future event -- and acts before it occurs. And a speculator must always be right." How can anyone always be right?

While we are giving a warning, we know it is unlikely to always be heeded. As Lord Overstone said in 1846, "No warning can save a people determined to grow rich suddenly".

3. Maintain a balanced portfolio at all times

In order to minimise your overall risk, you must try to invest your money in different ways. Don't put all your eggs in one basket. You must aim at having a diversified portfolio of investments which balances the risk and the return on one side, and the liquidity and the profitability on the other.

If you go in search of very high speculative returns, your portfolio will be stuffed with junk bonds and junk stocks. Be careful of the quality of your portfolio.

4. Cultivate profitable hobbies

You may like to cultivate some profitable hobbies like collecting stamps, old and rare coins, and other items like antiques. A friend of ours has developed a hobby of collecting old locks; he has now over 100 such locks.

Since you are living in a crazy world, a rare piece of postal stamp may make your child a millionaire. The latest souvenir in the West is a piece of 'Berlin Wall' which was pulled down in 1990.

Whenever you go on tours, you may go round the antique shops and start accumulating genuine antiques. Since you are living in an ancient land, you will come across antiques everywhere.

5. Do not despair in times of financial difficulty

Life may not always be on an even keel. Some ups and downs are inevitable. When you are going through a bad financial patch, do not despair. Be patient and try hard to find solutions. If you become despondent, you will only add to the problems.

Maintain a positive attitude and try to convert your problems into opportunities. There will always be a silver lining to a dark cloud. Remember what the Quran says: 'God is with those who persevere.' You also know that by sheer perseverance the snail reached the Ark.

6. Invest in the best assets you have

The best assets you have are your family members: spouse, children and parents. Invest your time in them. This is the investment which will give you the best returns in the world.

There is no point in neglecting them in your anxiety to build a fortune for them. They need your attention, love and affection. Do not neglect them. Invest in them; not merely for them.

7. Giving is a great pleasure

The ultimate satisfaction comes not from the accumulation of money; but by giving it. You must have some cause dear to your heart. You can donate a small portion of your income to such charities and get a sense of satisfaction.

Money should be earned so that surplus can be donated. Life's objectives are clearly spelt out in a Sanskrit shloka:

Education should give humility, which, in turn, should give character.
Through good character you can earn money.
Use money for charity.
That is how you can derive real pleasure.

Real progress comes in a steady and gradual manner. Patience and perseverance are the two major winning strategies to be followed.

Let us share a secret with you. Knowledge, however unique it may be, is worthless if it is not tempered by common sense. You may read many books such as this and acquire theoretical expertise in investment and tax planning. But you will never become a successful investor if you do not also apply your common sense which is the most valuable -- and tax-free -- asset you have.

One pound of learning requires ten pounds of common sense to apply it.

Let us conclude with ancient biblical wisdom:

Blessed is the man, who finds wisdom,
The man who gains understanding,
For she is more profitable than silver
And yields better returns than gold.
She is more precious than rubies;
Nothing you desire can compare with her.
Long life is in her right hand;
In her left hand are riches and honour.
         -- (Proverbs 3:13-16)

[Excerpt from N J Yasaswy's bestseller Personal Investment & Tax Planning Yearbook (http://www.visionbooksindia.com/details.asp?isbn=8170947529). Published by Vision Books]

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