Stay the Course

There are very few cardinal principles in personal finance and investment. But the most dominant one is your decision on long-term mix of assets, which is about how your long-term portfolio return is determined by way of equity, bonds or cash. This mix should be driven by real purpose and timely use of money. Besides, you should also diversify within the asset class. For example, in equity you should diversify into large-cap, mid-cap and small-cap. The reason being that unexpected incidents such as the pandemic or a financial crash can happen any time and usually when you are just not ready for them. A proper asset mix will therefore help you to contain your losses.

If you follow the above principle of investing while remaining patient and persistent, you will definitely be rewarded with better investment returns. Several investors who try to time the market and churn the portfolio depending upon the market fail to perform and do more harm to their investments rather than improving them. While there is no denying the fact that a few skilful investors really can add value by actively churning their investments, records show that their number is very limited. Therefore, for most of us it always pays to stay the course instead of deviating from the norm.

Our cover story of this issue will guide you in detail on how to take a decision on asset mix. Although there are various approaches to decide your asset allocation, we have taken a financial goal approach that seems to be the most suitable for individual investors. Besides, in one of our special reports on mutual funds, we have covered the fixed maturity plan. These debt funds can be a good substitute for your fixed deposits. Our special report on insurance cover decodes personal accident insurance and why it is important to have it in addition to life insurance. In short, here is an issue that covers a wide spectrum of information on how you can make your investments work for you.

SHASHIKANT