When taking buy/sell investment calls, investors must understand that the market is not in their control
Some basics don’t change. In investing, you always need to go by your investment objectives, risk appetite, time frame and risk profile of the investment asset. Having said that, let’s discuss some perspectives in the context of the new year.
equity
Calling the market level on equity i.e. trying to guess the level of Nifty or Sensex is a futile exercise. Over a long period of investment, equities provide good returns, which are much higher than inflation. However, in the short term, it can be volatile. In this context, one year is the short horizon and 10 or 15 years is the long horizon; Five years or so is medium term.
So, don’t just look at the daily levels of Nifty or Sensex or individual stocks, and think of tampering with your equity exposure. Limit your equity exposure based on a portfolio component that (a) holds for 10 or 15 years, and (b) won’t bother you with daily price fluctuations.
On the economy and corporate performance, which is the basis of equity investments, our GDP is on a recovery path; Corporate performance, especially large corporates whose stocks you invest in, though MSMEs have been challenged by the pandemic. Market valuations, measured by parameters such as the price-to-earnings ratio or the price-to-book value ratio or the market capitalization-to-GDP ratio and the like, are not cheap. Hence a long horizon is needed; Don’t break your head on valuation levels or entry times, as volatility is par for the course.
For existing equity investments, as long as it is for the long term, you need not worry. Some investors are looking at partial profit booking; If the equity exposure in your portfolio is higher than your comfort level, you can do so. As an example, if you are comfortable with 60% equities and it has moved up to 70% driven by a market rally, you can exit 10% and gravitate towards a ‘defensive’ such as debt or hybrid funds. can turn.
loan mf
In debt mutual funds, returns have been muted in the recent past, and will remain muted in the next year as well. RBI is expecting a hike in interest rates next year. As interest rates rise, your returns from debt mutual funds are not good, as interest rates and bond prices move inversely. To that end, things improve as the accrual level, the rate of return earned by the portfolio, improves.
To reiterate, this should not encourage you to change the debt mutual fund allocation of your portfolio. It is a relatively stable component of your portfolio, less volatile than equities. However, this component is not expected to outperform equities in the long run. For near term or medium term cash-flow requirements and long term stability-the preferred component, you should invest in debt mutual funds.
Deposit
Deposits like bank deposits and corporate deposits are different from debt mutual funds.
Returns are defined, not dependent on interest rate fluctuations in the market. Gradually, as RBI raises interest rates, deposit rates are expected to rise.
However, this will happen gradually and banks will have surplus money lying with them during the pandemic; They will be in no hurry to raise rates. As the rates improve, you can book new deposits or even churn out earlier deposits at lower rates.
small savings schemes
Popularly known as post office schemes, rates here are centrally defined and revised quarterly, according to a formula where the base rate is a mark-up along with the government security trading yield in the secondary market. Is. For a long time, the Center has given a higher rate than the formula rate. This is good for the public.
The question that has been floating around is: is it going to stay that high, given that the government has allowed rates higher than the formula rates? It is likely that these rates will remain in place, as in an interest rate decline cycle, rates have been maintained and will be easier to maintain in an upward cycle, which is likely to begin. An upward revision is unlikely, at least in the initial phase of rate hikes, as small savings rates are already at high levels.
Sleep
The utility of gold in your portfolio is that of a diversifier. The term diversifier means, over a sufficient time frame, it will reduce volatility in your overall portfolio and optimize returns. One thing to note is that it aims to optimize returns and not maximize returns. Some people are going by the fall in gold prices in the last one year or so. That is not the point.
Instead of chasing a particular price or return, focus your portfolio on what you have on hand. If you are chasing a particular price and when things are looking bright and sharp, you may end up buying at a higher price than you expected. If the price today is lower than it was a year ago, that’s a reason to buy, not avoid. The allocation for gold should be around 10% of your portfolio, as it is a diversified and not a core investment – trying to predict the price next year is pointless.
Siren Call: Crypto
Your investments should be in assets that you understand and are confident about. If the lure of high returns is the cornerstone of your investment, it is better to avoid the cryptocurrency craze.
Conclusion
The market is not in your hands. What you can control is your portfolio. Do it judiciously, don’t get caught up in the noise around you. If cryptocurrency prices are rising and you are not participating, that’s okay; You can’t hold everything. If the market value of one of your investments is falling, you do not need to sell immediately, as long as the fundamentals are intact. Let the New Year’s resolution be a clear outlook on your portfolio rather than the markets.
(The author is a corporate trainer and author)
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