Building a corpus good enough to meet your long-term financial goals is a meticulous process that involves selecting the best from the lot and investing in them on a consistent basis. But you wouldn't be able to get there if you don't get your asset allocation right.
Often investors place their bets on seasonal frontrunners only to see them lose steam in a subsequent cycle. Since a plethora of options including equity mutual funds (MFs), ETFs and an entire universe of debt funds are available, investors have to get the mix right not only to maximise returns but also to protect their savings from sudden downturns.
The thumb rule is that the proportion of investments in equities should be 100 minus your age. This is because as you age your risk profile changes. You have to be more conservative with your investments with advancing age. Aggressive investors should have at least 75% of their corpus in equities and those with moderately aggressive outlook must have about 60% in equities, say financial advisers. "Fixed income (returns) is not even matching inflation and real returns (actual minus inflation) are still negative," says Suresh Sadagopan, certified financial planner, Ladder7 Financial Advisories.
And most persons who come for financial planning understand that they have to invest a large portion of their savings in equity-related instruments to meet their financial goals, he says. "Aspirations have grown now. You can't meet those aspirations from traditional options such as the post office deposits," says Sadagopan.
Asset allocation should be arrived at after checking the financial health of the investor, risk profile, time horizon for investments and expected returns. "If the person has liabilities such as a housing loan it would not be possible to create an aggressive portfolio," says Rupesh Nagda, head, investments and products, Alchemy Capital Management, a wealth management firm. An aggressive portfolio with about 70% of the investments in equities would be able to generate 15-20% returns over the long term, say experts. Even a moderately aggressive portfolio with only 50-60% in equities can bring 12-15% returns, they say.
"A post tax return of 10% would be decent enough for conservative investors above 45 years of age," Nagda says. Debt should occupy a major part of the portfolio with advancing age. And persons above 45 years of age should slowly start moving money from equities to debt. While aggressive investors can keep their exposure to debt related instruments at 25-30%, conservative investors and persons nearing retirement should have 70% of their surplus in the debt category.
Source: http://timesofindia.indiatimes.com/business/india-business/Get-asset-allocation-right-for-better-returns/articleshow/6588165.cms
Often investors place their bets on seasonal frontrunners only to see them lose steam in a subsequent cycle. Since a plethora of options including equity mutual funds (MFs), ETFs and an entire universe of debt funds are available, investors have to get the mix right not only to maximise returns but also to protect their savings from sudden downturns.
The thumb rule is that the proportion of investments in equities should be 100 minus your age. This is because as you age your risk profile changes. You have to be more conservative with your investments with advancing age. Aggressive investors should have at least 75% of their corpus in equities and those with moderately aggressive outlook must have about 60% in equities, say financial advisers. "Fixed income (returns) is not even matching inflation and real returns (actual minus inflation) are still negative," says Suresh Sadagopan, certified financial planner, Ladder7 Financial Advisories.
And most persons who come for financial planning understand that they have to invest a large portion of their savings in equity-related instruments to meet their financial goals, he says. "Aspirations have grown now. You can't meet those aspirations from traditional options such as the post office deposits," says Sadagopan.
Asset allocation should be arrived at after checking the financial health of the investor, risk profile, time horizon for investments and expected returns. "If the person has liabilities such as a housing loan it would not be possible to create an aggressive portfolio," says Rupesh Nagda, head, investments and products, Alchemy Capital Management, a wealth management firm. An aggressive portfolio with about 70% of the investments in equities would be able to generate 15-20% returns over the long term, say experts. Even a moderately aggressive portfolio with only 50-60% in equities can bring 12-15% returns, they say.
"A post tax return of 10% would be decent enough for conservative investors above 45 years of age," Nagda says. Debt should occupy a major part of the portfolio with advancing age. And persons above 45 years of age should slowly start moving money from equities to debt. While aggressive investors can keep their exposure to debt related instruments at 25-30%, conservative investors and persons nearing retirement should have 70% of their surplus in the debt category.
Source: http://timesofindia.indiatimes.com/business/india-business/Get-asset-allocation-right-for-better-returns/articleshow/6588165.cms
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