Keep Your Portfolio Simple, If You Are Investing Directly 

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


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.


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