Investment Strategy: In the world of investment, ’60: 40 rule ‘is a very famous formula to invest money. This simply means- 60% money in shares (equity) and 40% money in date i.e. bonds or fixed income instruments. Its aim is to create a balance of returns and security. The share gets growth, while the date gives you stability to the portfolio.
These rules have been the basic way of investment for people who have taken medium risk over years. But now the question is arising whether this rule still works in today’s changing market?
60:40 Formula still effective, but …
Prasanna Pathak, managing partner of The Wealth Company, says that even today, the 60:40 model of investment is relevant, as the returns on bonds have increased and the shares have become cheap abroad. Both these things go in favor of this model.
But, there is another aspect of the picture. Today’s investors, especially youth, have overtaken this old rule. They are now ready to take more risk in search of more returns.
How is investors’ attitude changing?
Rahul Singh, Cio (Equites) of Tata Asset Management, says that now young and middle class investors run directly after performance. They are investing more money in smallcap and thematic funds (eg AI, green energy). Return can also be found in it, but the risk is equally big. Rahul Singh’s advice is that if you want a stable and balanced return, Flexi-Cap or large-middle cap funds are better options.
Prasanna Pathak also has more or less the same opinion. He says that young investors are now showing confidence in new themes. Such as Artificial Intelligence, Green Energy, Technology. At the same time, some Conservative Investors are now going towards international stock markets and defensive sectors (such as healthcare, consumer staples).
So should 60:40 be left out?
The direct answer to this is no. Experts say that 60:40 formulas do not need to be completely abandoned. But, it is not right to adopt it blindly.
According to Kaustubh Belapurkar, a research director at Morningstar India, “60:40 may be a base model, but every human’s risk is different. So the portfolio should be made accordingly.”
Kaustubh warns that young investors may want to take more risk, but they do not have financial backup. If more money is put in smallcap or some few shares and is damaged, then there may be a big shock in the long term. He clearly says – “Diversified and disciplined investment strategy is the most effective.”
How to create a portfolio for the next 5-10 years?
The condition of the market is not always the same. Therefore, experts believe that review and re-balance of portfolio is necessary from time to time. Belapurkar says, “Asset allocation is the biggest factor of the return of a portfolio.” After Covid, people whose portfolio has become very equity-heey should now focus on balance.
Rahul Singh believes that now investment is no longer limited to share and bonds. Gold has become an emerging asset class, especially for 3-5 years to come. They also recommend to include multi-asset funds in the portfolio. At the same time, Prasanna Pathak’s advice is to pay attention to the sectors where the earnings are visible and the benefit of long periods. Such as technology, finance and infrastructure.
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