Asset allocation strategy in times of market volatility: expert advice for investors

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Stock markets are volatile by nature, which tends to make investors nervous about their exposure to an asset class, especially stocks. To ensure that your asset allocation formula is the right one at all times, it is important that investors understand their risk appetite and choose the right strategy to build long-term wealth.

Diversification plays a key role in your financial planning. We asked Chirag Mehta, Senior Fund Manager – Alternative Investments, Quantum AMC if there is a rule of thumb for diversification to achieve long-term financial goals.

“Diversification helps balance risk and reward to achieve adequate returns while minimizing risk to increase the likelihood of getting the return an investor is looking for,” he said in an exclusive session. .
conducted by EconomicTimes.com to address investor concerns about market volatility.

Chirag Mehta also shared a proven 12:20:80 asset allocation rule that works in all market cycles that investors should adopt while investing in mutual funds to mitigate risk.

“The 12:20:80 asset allocation rule refers to 12 months of expenses set aside for emergencies such as job loss or business loss or a medical emergency. The rest of the money should be split 80:20, which means 80% should be invested in stocks and 20% in gold assets. Gold acts as a diversifier and adds stability to your portfolio,” adds Mehta.

Maintaining a good balance between asset classes that have appreciated too much and those that have not performed well in the short term is crucial. For investors to determine the right asset allocation, it is important to understand the characteristics of each asset class. “Investors should stick to their goals while diversifying into different assets like stocks, debt and gold. Since asset allocation is long-term, short-term volatility should not affect your portfolio,” said Anup Bansal, Chief Investment Officer, Scripbox.

On the factors that play a crucial role in portfolio rebalancing and monitoring, Kaustubh Belapurkar, Director – Fund Research, Morningstar India says, “Rebalancing is within a strategic boundary depending on the investor’s needs and market conditions. of the market. From 80%, the equity allocation can drop by a few percentage points but never by zero, it must be remembered.

Gold can be a great diversifier provided investors have it in their portfolio at all times, not just when it is performing. You have to stick to your thesis and continue to rebalance the portfolio within a confined framework rather than trying to make it zero or one because it’s always about modulating exposure where you see pockets of overvaluation and undervaluation.

Our experts have deliberated on how the 12-20-80 asset allocation rule helps in a market downturn. Watch the full session.

Should asset allocation change during market volatility?

Watch the experts deliberate on what your mutual fund investing strategy should be in today’s markets.

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