In current times when many are sceptical about adding too much of highly valuedand at the same time unwilling to allocate higher amounts in low yielding fixed return , the merits of are what come to mind.
Those who have experienced market cycles will know that no oneor within that, no one theme can consistently outperform at all times.
Intuitively too, you will realize that there are years when you get a high return on your fixed deposits and then there are years you don’t. Gold does well sometimes and not so much at other times. Unfortunately, it’s nearly impossible to predict when oneor a theme with it is going to do well and that’s why we fall upon for .
In simple terms, you have to spread out your investment portfolio in more than one type ofin order to benefit from the up and down movement in prices over long-term periods.
The question then arises, how manydo you need to adequately?
The answer is not a numeric value. It, rather, depends on your investment goals and time horizon.
If your goals are skewed towards wealth creation, you will automatically have a higher allocation to assets which can help you achieve that and if it is regular income you seek, then fixed return generating assets is what you will look for.
Primarily, there are two reasons to invest; for regular income and for wealth creation. Hence, while looking at creating an investment portfolio, includewhich can achieve either of the two goals.
If your goals are skewed towards wealth creation, you will automatically have a higher allocation towhich can help you achieve that and if it is regular income you seek, then fixed return generating is what you will look for.
As an example, let’s assume that to achieve your regular income goal you have the choice of three different; fixed income, gold (sovereign bonds) and real estate. Should you take on all three? For more reasons than one, that will not work.
Firstly, acquiring real estate for the purpose of generating regular income through rentals is a transaction that requires heavy investment and a very long-time horizon. Gold bonds too come with a long-term horizon as your money is locked in for seven years. Moreover, given the annual interest coupon of 2.75%, you would need to invest a high capital for reasonable regular income.
That leaves you with debt or fixed income. There are a few product options here which you canacross depending on the amount you wish to invest, the safety, , cost and time frame. You can choose from bank and corporate deposits, debt mutual funds, small savings schemes and government bonds.
Thus, the number ofand even within that, products, you choose will depend on the outcome you wish to achieve.
Diversifying with past return
If maximizing return is the only objective you seek, you may be looking tofor returns. Diversifying only for high return can prove to be very difficult. Including more than one type of in your portfolio helps balance out risk and return. When one falters, the other choices kick in to deliver growth. However, relying on past return it can be a dangerous way to approach .
price changes in 2020 have only reinforced that we can’t know in advance which is going to outperform another in a given period. If you are unsure of your goal and simply want to earn a return, a better approach is to filter choices on the basis of risk, , flexibility and cost.