2021 was a bumper year for markets. Bourses scaled new highs and added to investors’ wealth. However, just as the year was about to end, the new variant of the novel coronavirus, Omicron, spooked investors, and markets saw a major correction.
The Sensex and the Nifty declined, leaving investors worried. Things have started on a precarious note in 2022. However, having these elements in your portfolio can help you sail through tough times with ease and preserve the gains that you have made over the years.
1. Asset Allocation
An evergreen strategy, asset allocation saved many from the bumpy fall in March 2020 when markets tanked significantly. Even this year, you must stick to the principles of asset allocation and make sure you diversify optimally as per your goals and risk tolerance. Prudent asset allocation will help you ride choppy waters with ease, provide balance to your portfolio and make sure gains don’t get eroded.
Aspects You Need to Consider for Asset Allocation
Financial Goals
A holistic view of your financial goals will help you gauge the returns you want your portfolio to generate in a given period. Divide your goals into three major buckets – short-term, medium-term, and long-term. While short-term goals could be building an emergency corpus or going on a vacation, making a downpayment for a house or purchasing the dream car could be classified as medium-term goals.
On the other hand, your child’s higher education and retirement are long-term goals. For short-term goals, you can invest in debt instruments, while for medium-term goals, you can invest in aggressive hybrid funds that invest in a mix of equity and debt. To secure long-term objectives, it’s prudent to invest in pure equities to gain inflation-beating returns.
Risk Appetite
It is another crucial aspect that you must consider for optimum asset allocation. Risk appetite refers to your ability to stomach risks. If you have a low-risk tolerance, it makes little sense to invest in high-risk instruments. On the other hand, if you have a high-risk appetite, you can better handle volatility. Invest in financial avenues that align with your risk tolerance.
Investment Horizon
Investment horizon refers to the time you need to remain invested to realize your goals. The investment period can range anywhere between 6 months to one year for short-term goals, while it could be five years for medium-term goals.
On the other hand, the horizon could be 15 to 20 years or even longer. Divide your investments into different assets as per your investment horizon. If you are dabbling in equities, make sure you remain invested for the long haul as they are a volatile asset class in the short duration.
2. Balanced Advantage Fund (BAF)
Adding a balanced advantage fund or BAF to your portfolio can help you take advantage of the bull and bear market. BAFs follow a dynamic asset allocation strategy whereby the fund manager shifts between equities and debt as per the current market situation. Generally, when valuations are high, the equity portion is reduced to protect the gains and vice versa.
Adding BAFs to your portfolio adds to your wealth during a market rally and protects the corpus from sharp losses when markets perform poorly. However, there is another significant advantage that BAFs bring to the table. They cut out emotions from investing. Investors tend to exhibit their worst behavior during the bull and bear market.
They tend to be extra adventurous during the bull run and overestimate their risk appetite. In the process, most end up investing at peak. On the contrary, when markets are down, many take the exit route and convert notional losses into actual ones. These traits came to the fore in the last couple of years when markets tanked and then bounced back.
However, BAFs help weed out emotions from investing thanks to their dynamic asset allocation strategy and help you take a rational approach towards investing. Before choosing a BAF to invest, check out the following:
Long-term record vis-a-vis benchmark index and peers
Underlying holdings
Experience of the fund manager
Expense ratio
3. Top-up Health Insurance Plan
We are all aware of the requirement for health insurance in our portfolio. It not only safeguards out-of-pocket expenses during a medical emergency but also prevents the drying up of savings. However, given the spike in medical inflation, it is vital to expand health insurance coverage, and this is where a top-up health plan makes a strong case for itself.
A top-up health plan is a kind of booster plan that provides you with extra coverage once you exhaust the sum insured of your regular health insurance plan.
Suppose you have a health plan of INR 10 lakh and a top-up plan of INR 12 lakh. If your medical claim is INR 15 lakh, INR 10 lakh will go from the regular health insurance plan, while the top-up plan will settle the remaining INR 5 lakh.
Top-up plans are easy to purchase and are affordable compared to regular health insurance plans. Compare multiple plans and choose the one that best fits your requirements.
4. Liquid Funds
Emergencies often arrive unexpectedly, and they can derail your financial plan in no time. Covid-19 has shown the importance of having an emergency fund, and you need to build one through disciplined savings and investment.
In this regard, you can bet on liquid funds. They invest in money market securities with a maturity period of 91 days. Since they primarily invest in debt securities, the chances of losing money due to market volatility are pretty low. A systematic investment plan (SIP) in liquid funds can help you accumulate the desired fund.
While earlier, an emergency corpus equal to six months of expenses was desirable, given the times an emergency fund worth a year’s expense is ideal. With this fund in your kitty, you can easily overcome cash crunch and make sure key needs are addressed hassle-free.
Bottom Line
The new variant of Covid-19 has taken a toll on investors’ confidence and has brought an air of uncertainty. However, having these elements in your portfolio can help you better manage your finances, ensure you meet your goals and stay on a solid footing.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
