How to position your portfolio for the coming decade

have a diversified portfolioDiversification means having a mix of different investment instruments in your portfolio to reduce the overall risk. For example, instead of investing only in stocks, you can invest in stocks, bonds, real estate, gold, etc. Adding multiple options allows you to spread risk across asset classes.

Allocation as per your risk profile: Your risk-taking ability is highest when you are young and decreases as you get older. However, this is not set in stone and your circumstances will determine your risk profile. Since each asset class has a unique risk element, it is important to allocate your money optimally. There are three major asset classes – equity, fixed-income securities (debt), and cash. Equity carries the highest risk, followed by fixed-income investments and then cash. Rest of the investments fall in this category. Your portfolio asset allocation will be highly influenced by your risk profile.

Manage your credit risk judiciously: Traditional debt funds can significantly reduce the risk and add a strong element of stability to your portfolio. However, apart from pure vanilla debt instruments, you can also look at enhanced yield debt products like structured debt. These are customized vehicles that structure the cash flows from the debt instrument in such a way that the overall yield from the instrument increases without significantly impacting its risk.

Seek real estate exposure through REITs: Real estate has been a reliable investment vehicle for decades. However, with the skyrocketing property prices, it is becoming difficult to invest in it. This is where alternative options such as real estate investment trusts or REITs can offer a way out. The income earned through these routes is given to you in the form of returns. One of the biggest advantages of REITs is that they do not come with the regular trappings of investing in real estate, such as large upfront investment, lack of liquidity and high risk.

Don’t be afraid to optimize equity exposure for the long termStocks are highly susceptible to volatility in the short term and can have a sharp impact on overall portfolio returns. However, they are also a means of long-term wealth creation. The key to making optimum use of the value of shares is to choose carefully and then stay invested for the long term. The longer you stay invested, the better are your chances of weathering the ups and downs and earning good returns over time. If you look at the benchmark Nifty, you will see that it has given an average annual return of around 14% during the calendar year 2012 to 2022 (till August). However, if you look at the returns for each year over this period, you’ll see that there have been some years when returns have been negative, in the low single digits, and there have also been years where returns have been as high as 31%. , Thus, while there are fluctuations in returns in the short term, these fluctuations are smoothed out over the long term.

invest in innovation: We are currently living in an environment that enables innovation across industries, creating unique businesses and enterprises. Today, India has 107 unicorns that have cumulatively raised over $94 billion in funding and have a combined net worth of approximately $344 billion. Of these 107 startups, 21 entered the unicorn club in 2022 alone. For investors, it is an exciting time as it allows them to join future greats who are at the beginning of their journey. So, try to take advantage of this and invest in startups that are here to make a difference.

Diversify through international investmentInternational diversification spreads risk across geographies and reduces the risk associated with a particular economy. Thus, an element of international investment risk can potentially increase the risk-adjusted return of your portfolio. Furthermore, it can help you reduce your exposure to foreign exchange and protect you from the depreciation of your home currency.

Anirudh Taparia is Co-Founder and Joint CEO at 360 One Wealth