Never put all your eggs in one basket, is not only a old adage but also a timeless personal finance advice. Though it stands equally correct even during stock market bull runs, Suresh Darak, founder, Bondbazaar told News9live that but unfortunately several investors get swayed by the lure of quick returns especially when they learn of superlative returns. Investors should follow a diversified asset allocation strategy such that there are benefits of upswings as well as cushion against sharp downturns, he emphasised.
Darak highlighted that it is essential to cultivate a balance of risk and return at all times. Even during bull runs, its advisable to book some profits and invest to fixed income assets. He also asserted that during bear phases investors should not panic. “They should use their fixed income portfolio to earn returns and invest if possible. Investors should always maintain a mix of equity and fixed income in their investment portfolio regardless of market conditions, and they can tweak the exact allocation depending on market and macroeconomic situations.”
What is the Rule of 100
The “rule of 100” in investing is also presented as “100 minus your age” principle. It means one should subtract one’s age from 100 and the difference would indicate the share of the total portfolio that should be invested in equities. The rest should be invested in debt instruments like bonds. Giving an example, Darak said, “Lets say you have 100 rupees and are 40 years old. You should invest a proportion equal to your age, in this case 40 rupees, to fixed income that can give regular stable returns. The balance, in this case 60 rupees, should be invested in high growth assets like equities. So, young investors at 25 years should invest more of their income in growth assets (and ~25% in fixed income) because they can take higher risks with long careers ahead of them and lower liabilities. Senior investors, say someone retiring at 60, should invest more of their portfolio in fixed income (~60%) because they have lower risk tolerance and need to protect their capital in the event of any emergency.”
Not cast in stone
However, these figures are not cast in stone. “The transition of an investor investing more in growth at age 25 to more in fixed income by age 60 does not typically happen overnight and it’s a journey. This evolution can be different for each investor, but the rule of 100 can help investors do a quick check whether their portfolios seem reasonably well balanced at their stage of life,” Suresh Darak added.
(Disclaimer: This article is only meant to provide information. News9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds and crypto assets.)
Every investment strategist warns against putting all the eggs in one basket, irrespective of age. Suresh Darak, founder, Bondbazaar told News9live invoked “Rule of 100” to explain how much should one invest in fixed income instruments. Despite the dazzling returns provided by equities and equity-linked mutual funds till recently, none should put all their eggs in that basket but have a more matured view of their portfolio, he advocates. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
