Paul Samuelson, a noted American Economist, once said, "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas."
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| Grow Your Money with the Right Asset Mix |
The underlying message here is don’t let yourself swing between euphoria to depression every time your portfolio reacts to fluctuations in equity, bullion or currency markets. Asset classes will fluctuate. On one hand, you can't stop investing because you have to meet your financial goals. On the other hand, your portfolio cannot be immune to its volatility. However, you can mitigate the impact by giving the right mix of assets to your portfolio
Asset allocation
Asset allocation is a technique through which you can balance the risk and reward quotients of your investment portfolio. You can allocate your money into different asset classes such as equity (stocks, mutual funds, derivatives), fixed income (bonds, FDs etc), real estate, gold etc.
The logic is each of this asset class has different levels of return and risk. If the value of one asset appreciates at a point of time, the value of another asset may be depreciating at the same time.
There is no standard rule for asset allocation. The percentage allocation of funds to various assets varies from individual to individual based on their age, goals and risk appetite
In you 20s and 30s, wealth creation should be you priority. This will give you a good financial base for funding downpayment of her future house, buy a car and also do a foreign holiday. This is the stage in which you can invest 70% of your portfolio in stocks and equity mutual funds as they beat inflation.
1) Allocate 30% of your take home salary towards SIPs in equity mutual funds or SIPs in direct stocks. A systematic investment strategy will help you tide over volatile markets
2) Use your annual payouts such bonus to invest in quality stocks
3) You can do SIPs in Gold ETFs to hedge your portfolio against inflation
Once you take a plunge into big commitments such as purchase of a house, marriage, parenthood or support your dependent parents, you have to add a hint of protection to your portfolio.
1) Buy term insurance to protect your dependents. Nowadays, you can buy term covers online and save up to 30% of the premium cost as compared to offline policies.
2) You can add fixed income products such as fixed deposits, NCDs, bonds to your portfolio. This will stability to your portfolio.
3) Buy a family floater health insurance to cover your family and another health policy for her parents. You can seek a tax benefit of up to Rs 30,000 under Section 80 D on premium payments for health insurance policies. This benefit is over and above the 1 lakh tax benefit available under Section 80 C.
Child’s education, marriage and your retirement are some important goals as you age. Just to give you an idea, if your monthly expense, as of today, is Rs 30,000, you will require Rs 1.39 lakh after 20 years just to foot your monthly expenses, if the inflation grows at an annual rate of 8%. This money will just suffice to maintain your current lifestyle. Retirement Planning is all about, knowing your real retirement costs, building a kitty by investing prudently and having a systematic withdrawal plan from your kitty post retirement.
1) For your child’s education and marriage, you should move some of your equity investments into fixed income products with fixed maturities such as Company FDs, NCDs and bonds. This will ensure capital protection and you will earn a fixed return. The maturity of the investment should be in sync with the fund requirement.
2) Government of India (through PFRDA) initiated National Pension System (NPS)- a contribution scheme, which helps you build a retirement corpus in a systematic manner during your working life. On retirement, you can withdraw up to 60% of the corpus as lump sum amount. The balance will be saved in form of annuities, which comes back to you as a monthly pension. You even have the option of taking the entire corpus as a monthly pension.
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