An investor should keep his/her portfolio simple when deciding on the type of investment without the aid of advisors. With even thing available online, it is easy to invest.
There is enough coverage every day in the media. various discussion foram. etc. relating to guidance on investment- portfolio construction. This may confuse you. Ideally, you should take professional guidance from an investment advisor. If you arc doing it yourself, you can go by the following simple tenets.
where you invest. These are equity stocks, bonds, gold, etc. You expect to get back a higher amount later for the investment you arc making today. The difference between the asset classes is in the risk-return profile. There arc varying degrees of risk in these asset classes, and varying re-turn expectations, as per historical track record of the asset categories. The risk is. you may not get the expected return from the investment.
The way to invest is cither you do it yourself or do it through an investment vehicle. You can purchase equity stocks, bonds / de-bentures. gold (physical or financial form) etc. on your own. Nowadays, with everything available online, it is easy to execute.
However, it is not only about execution. It requires you to understand what you are getting into. And that requires bandwidth. time and expertise. To overcome this, there are investment vehicles, like mutual funds.
An investment vehicle will charge you fees, as they have to exist commercially. The returns you get arc net of expenses charged by the fund. There is a reason you pay the fees; it is not possible for you to do everything yourself Mutual hinds have multiple fund categories (large cap. small cap etc.) and various strategies (active. passive, etc.) from which you can choose.
Diversified portfolio
The bask principle of portfolio construction is diversification, and allocation to various assets in a ratio that suits you. This is the most important piece of the equation. Various asset classes behave differently in different market situations.
This b known as negative correlation. Though it is nor a perfect negative correlation i.e. minus I or minus 100%, to whatever extent it b there, it helps.
It balances out (he phases of market volatility in the portfolio. In other words, it makes the investment journey smooth. When the market movement b adverse and you are looking at the investment-account statement, it would look more palatable. Adverse performance of an asset dass b balanced out by the stable performance of another. The big question is, which allocation ratio b suitable? Equity b the preferred asset class, hence you can have a higher allocation there. You are participating in the great Indian grrvwth Gory Along with the growth of the economy, as the corporate top line and bottomline grow, you get the benefit over an adequate period of time. The thumb rule b allocation to equity in your portfolio should be 100 minus age. For example, if your age b 40, allocation to equity should be 60%. Bonds or debt schemes of mutual funds are relatively more stable in performance.
Cold is a good portfolio diversifier; in times of global market uncertainty, gold tends to do well. Currently, the concept of dedollarisation b gaining ground, which b positive for gold. However, gold, per se. is not a productive asset – it does not produce any economic value.
When you buy equity stocks, there b a company that is producing econom- k value, and the company b growing.
Allocation to gold
Hence, allocation to gold should be say 10 or 15% of the portfolio, but not on the higher side. Going by the thumb role mentioned earlier, if your age b 40 and you agree with equity allocation of 60%, then, you may have, say, 25% to 30% in bonds / debt fundsand 10% to 15% in gold. There is need for a liquid component in the portfolio, which can be easily encashed in times of need. This would be 5% to 10%, depending on the value of the portfolio. Ttus may be part of the debt allocation, and parked in liquid funds of mutual funds or bank deposits.
Insurance is must That was broadly about the portfolio composition. Besides, there b need for insurance to take care of the family if something happens to you.
Thus should be done in the form of term insurance. which b a pure insurance cover. It b advisable not to mix insurance with investment e.g. ULIPs or conventional insurance policies combining investment with insurance. Not only life, there b a need for health and accident insurance as well, for which you can buy appropriate policies.
If you do not understand or are not convinced about something, you should not put your hard-earned money Into such investments
Conclusion
You would be bombarded from various quarters on how to enhance returns, how to optimise your portfolio, “multi-bagger ideas” etc. The point b. if you do not understand or are not convinced about something. you should not put your hard-earned money Into it. It could be Investment ideas about loss-making companies becoming “future kings.” or cryptocurrency giving you multiple times returns etc.
Just keep it simple, and enjoy your life.
Source: https://www.thehindubusinessline.com/portfolio/personal-finance/keep-your-portfolio-simple-if-you-are-investing-directly/article66933104.ece