Asset Allocation Strategy: In the current global situation, it is clear that inflationary pressure still remains on the economies. However, it remains to be seen how economies react to this. In such a situation, its effects will be visible on the equity markets. Apart from geopolitics, India also faces general elections this year hence investors are cautious in the domestic market also. In such a situation, asset allocation strategy can be a better option. Experts say that whenever there is doubt about the market diversify your portfolio.
Asset allocation means diversified portfolio. That means giving some share to different asset classes in the portfolio. For example, the portfolio should have a mix of equity, debt, fixed income, gold or other options. The amount of share in which asset class should be according to the risk appetite and financial goals of the investor. Different asset classes can become market leaders in different cycles. That means their performance may vary from cycle to cycle. In such a situation, if there is ever a decline in debt, equity can balance it. Whereas, the decline in equity or debt can be balanced with gold or commodity.
Experts say that the asset allocation decision is important, but a stable fixed asset allocation strategy is not the answer. There is a need for an analytical asset allocation strategy that can adapt to the changing market environment and the changing needs of investors over time. Thus, diversification among low correlated asset classes, choice of fund manager, mix of active and passive funds are all important things to consider. To avail these benefits, it is equally important to remain in the market and maintain investments at all times.
Due to the variability of returns, diversification within asset classes is also necessary. In an emerging economy like India, growth stocks may outperform, while in developed and mature economies, value stocks may outperform. At present, investors should adopt a mixed strategy of growth and quality investment. This approach has worked well in the Indian markets over the last two decades. Although there have been phases of poor performance during this period, growth-quality investments have always bounced back. Value-oriented stocks have performed better so far. Cyclical stocks are performing better and small cap companies are performing better due to liquidity. It is expected that in the long term, growth in growth-quality stocks will continue based on fundamentals in the market.
A sensible approach is to not react to short-term fluctuations and phases of relative underperformance and not take any hasty portfolio actions. Remove frequently underperforming options from the portfolio and invest your entire investment in better performing options without wasting time.
Also, one must consult with market and investment experts to seek professional help regarding asset allocation and diversify their portfolio as per their personal needs and goals under professional guidance.