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When markets are at an all-time high, here's the ideal portfolio mix

Personal Finance | Published on Oct 27th 2017 | Comment(s) 0
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'Do not put all your eggs in one basket'

With stock markets soaring, where should you invest right now? What is the ideal investment portfolio? This author weighs in

When the equity markets across the globe are at an all-time high, I am reminded of the old adage ‘Do not put all your eggs in one basket’

The dilemma surrounding the timing of making an investment in a complex, dynamic environment, clobbered by geo-political escalations but aided aptly by abundant liquidity makes decision-making even more onerous.

Albeit, if one is clear about one’s investment objectives (measured in terms of how much return expectations vis-a-vis the quantum of risks an individual is willing to undertake) and the periodicity of making an investment, then creating a pool of assets should more or less ensure that the objective of deriving a sustainable Return of Investment is achieved.

The first step in the entire process, as a thumb rule, is to look at one’s age and have the same deducted from 100 to arrive at an approximate figure that can be invested in assets with a higher risk weightage. Eg: If one's age is 40 then the approximate figure that can be invested in equities is 100-40=60. So, if one has Rs 100 to invest then Rs 60 can ideally go in equity assets and the rest can be spread over securities that can offer fixed, risk-free returns (including debt funds, provident funds, fixed income securities).

This is necessitated by the fact that depending on one’s age and keeping in cognizance the future cash flow needs (child’s education, marriage, medical expenses, etc) and a steady stream of returns from lesser riskier assets, is mandated. It also assists in creating stable, blended returns from a pool of assets that over a period of time beats inflation comfortably and abets in compounding one’s wealth.

Again, depending on one’s risk profile the selection within the equity basket is also mandated viz. Large-cap funds/balanced funds for less risk-taking investors and thematic/small cap/mid-cap funds for relatively higher risk-taking individuals.

Health insurance, gold investment

Apart from this when one is creating a basket of investment options, health insurance should be compulsory with a higher cover as it takes care of any other exigencies. A small portion should get into investing in Gold as it creates a hedge both against the anomalies created by a rising equity market and inflation.

Therefore, if one is able to create such a basket depending on one’s risk-reward paradigm, I, am reasonably confident that one can generate sufficient returns over a period of time to take care and compound their health, wealth and lifestyle. Cheers and happy investing!




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