You’re a bright, young and ambitious professional. Maybe you’re just out of the college or maybe you’ve just started working. Currently, you are performing well in your job and the boss admires your magnificent work, but you are not sure whether you’ll stay here for much longer.
You have big dreams. You want to achieve remarkable things in life and you also know that you’ll be successful one day – either by working really hard at your current job, or maybe by starting your own business and making an impact upon the universe. However, you’re not too obsessed to work. You know the importance of having a social life, exercising, spending quality time with your family and friends. You also have a thought about settling down early in your life by making enough money to enjoy the retired life.
The good news is that you’re young and that you’re in pretty good shape financially. Not that you can afford to buy an Audi or a Ferrari (it is out of the question at this point), but you’ve saved enough money to lead a decent lifestyle.
Even though you expect to grow your income in future, you’re not sure how it can be done. We all go through this phase in our lives. Here is a simple framework that we could use to approach our investments. The following framework is inspired by one of the world’s most innovative companies: Google.
Applying Google’s 80/20 Rule for Investing
This is a very famous policy invented by Google, where employees are encouraged to spend 80% of office hours on core projects and the remaining 20% for working on creative side projects that they like. This policy led to the invention of many great products such as Google News, Gmail, and even AdSense.
We can approach our investments in the same way!
Imagine a scenario where you could allocate 80% of your capital to your “core” investments such as FD’s, PPF’s, Insurance etc – the stuff that’s steady, incremental and proven to work in the long term. It may sound boring, but the good news is that once you have set it up, you won’t have to spend too much time on it. You just need to stick to it for the long term, and you’ll most certainly end up rich.
So, what do you do with the remaining 20%? Here, you can afford to take some high risks. I don’t mean going and playing a game of poker. Maybe you can choose an investment option that yields high returns in a minimal time frame – such as stock market trading. You can work on building the trading skills in your spare time, and slowly level up your trading game by investing consistently in the market.
Therefore, the 80/20 framework provides just the right balance between proven investments without risk and investments with risk coupled with the right knowledge.