Sticking to asset allocation to improve long-term returns -Ullas Girishbhai Shah


Adhering to asset allocation is one of the simplest and easiest ways to navigate through volatile times. Fund managers will ensure that your investment is invested in different asset classes, which will help balance volatility. In the long run, this turns out to be a game changer

The short-term outlook for the stock market remains uncertain. Concerns over the ongoing geopolitical crisis, the Fed seeking to raise rates to control spiraling inflation, similar rate hikes in India, the exodus of FIIs are all issues that will continue to keep the bond market actions on the nerves. In such an environment, investors are very concerned about how to invest in such a volatile period. However, the best way to navigate these volatile times would be to stay invested in stocks and not succumb to short-term emotions of fear and greed. Here’s how you can navigate through volatile periods.

Stick to asset allocation

In times of volatility, withdrawing all your money from the stock market is a tempting proposition. But to do so would be a mistake. One way to get through these times is to stick to asset allocation. Asset allocation is the practice of diversifying your investments among different asset classes like stocks, debt, commodities, etc. The reason for diversification between asset classes is that no two asset classes behave the same. While equity provides the element of growth, debt provides stability. In the case of commodities like gold, they act as a hedge against inflation. The important aspect to recognize here is that asset allocation does not guarantee that your portfolio will suffer no losses. This can help you generate a strong risk-adjusted return over the long term.

For investors wondering how to go about asset allocation, there is a simple solution here. Today, several mutual funds offer a variety of mutual funds such as the multi-asset fund and dynamically managed asset allocation funds. One can opt for these category funds depending on your needs and risk profile.

Invest in an asset allocation system

A diversified portfolio with assets spread across all asset classes can help an investor skillfully manage stock market volatility. But for investors who are unfamiliar with financial asset classes, determining its asset allocation will be a difficult task. When investing in an asset allocation system offered by a fund house, it is understood that the fund manager will manage exposure to the asset class according to changing market conditions, helping thus the investor to effectively profit from the market.

If you are an investor looking for equity and debt allocation, the optimal solution will come in the form of a dynamic asset allocation fund. Here, the portfolio is dynamically managed between these two asset classes. These funds change their asset allocation over time based on economic and market fluctuations.

On the other hand, if you are also looking for a gold allocation in the portfolio, you might want to consider a multi-asset program. Many fund houses are now introducing asset allocation funds. In such schemes, the portfolio is divided between stocks, debt and gold. In this sense, investing in such a device is similar to building a portfolio. The beauty of such an investment is that there is no need to rebalance the portfolio as this will be done by the fund manager as and when required.

Very often, investors find it very difficult to recognize profits or losses when necessary. During a bull market, investors believe that this market situation will continue and therefore will not make profits when necessary. On the other hand, in a bear market, when the stock market is most attractive, investors are afraid to invest, fearing further losses. Both of these approaches are bad from a portfolio perspective. Also in such a situation, investing in an asset allocation system will be helpful as it will save us from making bad financial decisions.

To conclude, embracing asset allocation is one of the simplest and easiest ways to navigate through volatile times. Fund managers will ensure that your investment is invested in different asset classes, which will help balance volatility. In the long term, this proves to be a game changer. Given this advantage, if you are looking to invest a lump sum, the asset allocation system is a valid consideration given the current market environment. .

Disclaimer: The views expressed in the article above are those of the authors and do not necessarily represent or reflect the views of this publishing house. Unless otherwise indicated, the author writes in a personal capacity. They are not intended and should not be taken to represent the official ideas, attitudes or policies of any agency or institution.


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