Merry Christmas! Right Asset Allocation paved the way to be your own Santa this year

Identified as a potent tool for prosperity, financial advisors and planners have been advocating having the right ‘asset allocation’, since time immemorial. Another name for diversification, this core tenet of investing has a major impact on how you go about achieving your financial goals.

If there’s one instance or year in recent memory that has brought the importance of this fundamental principle of investing to the forefront, it’s undoubtedly the COVID-19 pandemic that ravaged global economies in 2020. Having said that, those who tactically got their asset allocation right have presented themselves with an early Christmas gift. Let’s dig deep to understand.

A Volatile Year for Equities

It has been a topsy-turvy year for equities. Markets nosedived in March by 40% — wiping gains made over the years in no time — and paced up by 19% in April. Since then there has been a steady recovery with benchmark indices touching record highs in recent months.

If you look at the past two months specifically, then global equities rallied strongly in November, riding on positive developments on the vaccine front from leading drug makers.

The rise of the Sensex and Nifty means that large-cap stocks of established companies have proven to be winning bets and having them in your portfolio would have augmented returns.

Rise in Performance of Mid Cap and Small Cap

While the bull run of the Sensex and Nifty has been in the limelight, another trend that has gained significant traction especially in the past few months has been the performance of mid and small caps.

Their performance has largely been positive, especially during the month of November with the mid-cap and small-cap indices rising by 15% and 13% respectively. In fact, both these indices have outperformed the benchmark Nifty that surged 11%.

Usually, investing in mid and small caps come with warnings. Companies offering them aren’t that resilient as large caps and uncertainty impact smaller firms more than their larger counterparts.

Having said that, the recent performance of mid and small caps would have benefitted those who had the risk appetite to expose their portfolio to them. In fact, the present scenario proves to be a good entry point to accumulate stocks in the mid and small-cap universe that may outperform the broader market in the near term.
Gold Emerging as a Winner

Always seen as a hedge against volatility, gold has outperformed several asset classes by a large margin this year. Moving up by 27%, it will not be an understatement that the yellow metal has been a clear winner.

Uncertainties hovering global economies have reaffirmed gold as a safe haven and a useful hedging tool. So, those having gold in their portfolio would have made significant gains.

Like always, it’s better to have gold ETFs or sovereign gold bonds (SGBs) instead of physical gold that has issues related to storage, purity, and making charges, among others.

In Conclusion

As evident, the right mix of asset allocation would have created wealth for you in 2020 and help you be your own Santa. If not, the opportunity is not yet lost.

The right dose of equity coupled with gold and debt products can turn things around in the next year and even in the future, thus helping you navigate choppy waters with ease.

Merry Christmas!

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.