How to master the art of building assets

Personal finance is contextual. The book asks us to plan early, but most retirement questions are posed by 50-year-olds. If you aren’t taking a loan, you typically don’t care about how EMIs work. Savings must be invested, but most want a ready answer, preferably with a few names. Portfolio construction sounds like high theory.

Financial literacy is constrained by this extreme application orientation. Can one simplify personal finance? In one column length? Without complicating the principles for age, life cycle, preference and levels of wealth? Hoping for the readers’ indulgence, I keep trying. Everyone associates wealth with assets. We can easily stay there and weave most principles around that idea. In our everyday life, our ability to spend on basics and luxuries determines our sense of financial well-being and comfort. We need income to spend and our assets must contribute to that need and be useful in our everyday lives.

Many of us fail to make that connection about assets. I meet many NRI friends who have many properties in India. Neither them nor their children are likely to return or use these assets. The rental yield is poor or nil if relatives occupy them. They argue that they don’t need the income, but like the asset to remain. Much like the neem trees they grow indoors in their homes in America: never harvested or pruned, insulated from cold winters, and merely a symbolic connection to their pasts.


The choice of assets must obey the core principle of value. Without being a store of value, that can be drawn and used, an asset is wasted. Of all assets, the human asset is precious. Not everyone has an inheritance. We use our skills, knowledge and attitude to generate an income. As long as that income covers the expenses we routinely make, we are able to build more assets with the surplus.

We retire when the human asset loses productivity and the other assets built with savings can take its place.


Readers routinely ask if there is a formula to determine how much one needs for retirement. Estimating future expenses is not a science; only rules of thumb prevail. Many presume that keeping the assets untouched and making lifestyle compromises are the two principles for retirement.

Instead, gather your assets, I would say. Everything that you built from your savings during your work life, must come of use in your retirement. Not long ago children were the only assets. We now know that those assets will generate income for another household, not yours. Retirement is about using your assets, for yourself. Bequeath what is left, if at all.

Assets must not lose value, we argue. Fair point. In a world where rivers dry out and rains flood the homes in our cities, we do not seem to have acquired the intelligence for sustainable value. Nothing that we create exhibits the predictable discipline and resilience of natural wonders like the sun. Most assets do not exhibit lasting value, not even man. We have no choice but to manage this risk.

Therefore, we insure the human asset. We strive to protect the risk to our wealth, should something happen to us even as we build it. As for physical and financial assets, we clamour for the risk-free, and chase gold and property; we try to hoard and hide; we pile and preserve. But all assets gain and lose value. Even the bank deposit loses value to inflation.

Our intelligence as creators of wealth should point us towards asset allocation and diversification: the core strategies in wealth management. Not all assets lose all the time, and averaging them out is a sensible strategy. It protects our assets from unknown and unexpected risks and insulates us from our mistakes in choosing assets.

That is all there is to personal finance: build assets to generate income to spend and save; diversify your investments to sustain this process over your lifetime.

We make several mistakes before we master this core idea in our financial lives. We spend recklessly and fail to save; we spend beyond our means and acquire credit card debt; we rearrange income and assets with loans; we choose assets carelessly; we juggle assets with the hope that they outperform; we lock our wealth into assets we don’t use; we deplete our assets in denial; we compromise on critical comforts succumbing to the fear about the future; and we live in the hope that everything will be alright.

Not everything goes wrong all the time. Just like a diversified portfolio, it averages out. Columnists like me survive on repeating the same few ideas again and again since there is always someone to whom it resonates each time.

We have no choice but to learn how to manage our personal assets. The problem in teaching this skill is that no one cares about the concepts or principles; people simply want action points. What should I do right now, they demand.
Personal finance supports an army of service providers who know these questions and strive to offer answers each time, with an eye on their own incentives and their own balance sheets for asset creation. One man’s problem is another man’s opportunity.

Someone like me who is sitting on a perch and observing this drama is only amused and intrigued. My fellow passenger who can’t place his bag out of sight, will ask me for a stock name in 30 minutes of conversation. Can’t trust anyone with a few thousands; but can invest lakhs based on hearsay. My aunt wears diamonds in her ears and looks up the price tag to change her mind about a saree she loves. Can’t indulge in simple pleasures; but holds on to costly assets.

My friends who accuse me as being a mutual fund stooge cannot think beyond the stock bets they took and lost money. Cannot pause to consider diversification, even if they believed in equity as a growth asset. I make no progress with elderly uncles who believe that the whole world is out to get them and that every financial institution is run by incompetent and dishonest people.

They rest their case with the statement that property is the best asset. They cannot see the thuggery and fraud in a market they participate in, even as they blame another market they know so little about.

Thus we keep rolling, needlessly complicating a simple exercise of building and using assets that every one must master.

(The author is chairperson, Centre for Investment Education and Learning)