Moneycontrol
Oct 24, 2017 12:59 PM IST | Source: Moneycontrol.com

Portfolio building: How to maximise gains through proper asset allocation

A diversified portfolio should have a blend of equity, commodity fixed income, real estate and other alternative investment tools

Sarbajeet Sen

Is your investment portfolio heavily tilted towards equities? Or are you a risk-averse investor choosing to put most of your money in fixed income? Or are you one of those who buy gold whenever you have investable surplus?

Building your investment portfolio is an ongoing process and concentration on any single asset class may not be the best investment strategy. For best returns and steady gains one needs to spread their investment over different asset classes to balance out risk related to specific assets at different investment cycles.

“It is always good to be mindful of portfolio risk and that’s where diversified portfolios come into picture. A diversified portfolio should have a blend of equity, commodity, fixed income, real estate and other alternative investment tools,” Rahul Agarwal, Director Wealth Discovery told Moneycontrol.

Agarwal advises investors to periodically rebalance their portfolio. “If the time horizon for investment is long, market volatility should be either ignored or it should be leveraged to accumulate good quality stocks. Volatile markets are also periods where portfolios should be rebalanced to maintain the investment ratios of debt and equity among other assets. If a current investment portfolio does not have a fixed income component or the debt component is under represented it’s always advisable to get some exposure. If the risk tolerance is low we would advise to get some exposure through balanced mutual funds which have both equity and debt component,” he said.

S Sridharan, Business Head, Financial Planning, Wealth Ladder Investment Advisors, says a portfolio which a carefully chosen asset mix stands to deliver better returns in the long term. “Equity as an asset class delivers a CAGR 12-15% return over a long period. However, there is an element of risk associated with equity investments. On the other hand, gold as an asset class which could deliver a CAGR 8-10% over a long time. It is ideal to have an asset allocated portfolio which could deliver a better return,” he says.

Sridharan explains how investors can gain through proper asset allocation through a model portfolio:

ratio

“The asset allocated portfolio has delivered 11% CAGR compared to Sensex CAGR of 8.6%. The chart shows clearly that an asset allocated portfolio has delivered a superior return than blind investment in Sensex,” Sridharan says.

However, the chart is only for illustrative purpose and asset allocation would differ from individual to individual depending on factors such as risk-taking ability and age.
Sections
Follow us on
Available On