With 12:20:80 Asset Allocation Strategy, no ups and downs will ruin your sweet ride
Will the bears drag the equity markets or will bulls propel the markets to new highs? Will the risks to economic recovery persist?Will the equity rally sustain or lose momentum?Is it time to move to fixed-income investments given the uncertain mac...
By ET Spotlight | Updated:
ET Spotlight
These may be some of the questions that concern investors today. As we are nearing the end of the calendar year, it is a good time to review how your investments have fared. One of the key ways to review your portfolio is to follow an asset allocation strategy. Asset Allocation is the process of spreading your money across asset classes to lower downside risks and achieve long-term goals.
While it’s difficult to predict the market movements or the best winning asset class, investors can remember these facts about financial markets and asset classes:
There’s no clear winning asset class.
Not all asset classes move in one direction.
Markets are cyclical.
What this essentially means is that it is futile to predict the next best asset class as the economic backdrop keeps changing.
Asset Classes Move in Cycles Data as of Dec 31, 2022. Indices Used: S&P BSE Sensex; MCX Gold Commodity Index and CRISIL Composite Bond Fund Index. Source: Bloomberg. Past performance may or may not be sustained in the future.
Instead of putting all of one’s money into a single asset, diversification through prudent asset allocation is needed to enable you to capture the opportunities across different market cycles & trends and minimize downsides.
Advantages of Asset Allocation: - Helps to reduce downside risks. - Tackle fluctuating market cycles over the long term. - Helps to achieve your long-term goals.
As you see in the table below, the most diversified strategy (Equity + gold) yields similar returns with lower volatility and drawdowns, compared to a traditional pure equity strategy. Time frame is Dec 2004 to Dec 2022. The period is taken from 2004 since the asset allocation weights are calculated based on normalizing the historical monthly equity and gold indicators. Given the normalization time frame used in the strategy, data availability for certain parameters beyond the time frame analyzed was a constraint. Compiled by Quantum AMC Based on Sensex Index, Crisil Composite Bond Fund Index, and Domestic Gold Prices Note: Past performance may or may not be sustained in the future
So, the big question is how to build a Weather-proof Portfolio Quantum Mutual Fund has advocated the 12:20:80 portfolio to ride the market swings. There are three crucial building blocks that form the correct mix of stability, growth and protection needed for your investment portfolio. Please note the above is a suggested fund allocation only and not as an investment advice / recommendation.
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Please note the above is a suggested fund allocation only and not as an investment advice / recommendation.
As part of this strategy, before one goes out to invest in financial markets, it’s important to set aside an amount equivalent to 12 months of one’s expenses or more for emergencies, depending on their risk appetite. You can use Quantum Liquid Fund (QLF), an open-ended liquid fund that invests in government securities, certificate of deposit, commercial paper, treasury bills and AAA/A1+ rated PSU debt securities. QLF follows the SLR (Safety, Liquidity, Returns) principle and prioritizes safety and liquidity over returns.
Out of the balance investable surplus, equity forms the largest component of one’s portfolio. It comprises 80% of the investable surplus serving as the Growth building block of one’s portfolio. The larger allocation to Equity helps investors cope with inflation and stay on course to benefit from India’s long-term growth potential. Finally, investors can allocate 20% of their investable surplus into gold which generally has an inverse correlation with equity, via efficient financial forms such as the ETF or Gold Mutual Fund.
Investors wishing to invest in passively managed funds can build a diversified equity portfolio by allocating 85% in the Quantum Nifty 50 ETF Fund of Fund and 15% in the Quantum India ESG Equity Fund.
While no one can predict how best to respond to market uncertainties, how one responds to uncertainty can be planned well in advance. Investors can balance their portfolio to meet their wealth creation goals – without having to stress about timing markets and unforeseen circumstances. For more details, visit Quantum website www.quantumamc.com Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
