Diversify your Investment portfolio

One of the key issues any investor who has just begun his Investment journey faces is the risks arising due to market downturn.The equity/stock market will always be a rollercoaster ride.The ups and downs in the share value will naturally impact any direct stock Investment as well as mutual fund Investments.So what can an investor do to mitigate this risk and protect his overall Investment value.The best course of action is to diversify his Investments across various Investment avenues such as equity, debt market, gold etc...For a newbie investor who is just starting his Investment journey, equity Mutual funds can fulfill the need for equity component of his Investment portfolio while EPF/PPF/VPF, bank FD's, liquid mutual funds, corporate fixed deposits can fulfill the debt component.Some investors even prefer including investments in gold to provide an extra degree of diversification to their investments.So the key is to spread out the Investment risks and protect oneself against any kind of market scenario.The proportion of this equity to debt Investment completely depends on the investor's age, risk appetite and individual circumstances. However if a simple general rule is required then 100 minus the investors age should be the proportion of his/her equity Investment (for example: Mr.A's age is 30.Equity component of his Investment portfolio should be 100-30=70). A simple portfolio will have following Investments-Equity mutual funds,EPF,PPF, Liquid mutual funds, bank FD's, Corporate fixed deposits.Diversification is the key to risk mitigation in Investments. A smart investor will always remember this age old proverb-Dont put all your eggs in a single basket!

Comments

Post a Comment

Popular posts from this blog

The 70:30 Rule in investment world!

Ever heard of the 70:30 Rule? It is considered one of the basic personal financial rules to follow.Put simply, this rule states that 30% of monthly income should be saved & invested, while the 70% can be used for expenses. While it may sound bit daunting at first, it is possible when we follow a consistent & focussed monthly budgeting & investment plan.Following this rule religiously can even help us to achieve our life's financial targets like retirement, fund for children's education early. However there are some who break this cardinal rule by actually saving and investing more. An investoholic/ Addictive investor may even try to save up to 50% of monthly income which is great!..The underlying principle here is that when you aim really high level of savings (say, 50%), you end up breaching the initial savings target of 30% of monthly income.This will lead to a positive cycle set in motion resulting in higher savings and early achievement of investment targets.A h...
Read more

Be a consistent & prudent investor!

For the past few months, sensex has been going through its ups and downs(mostly downs!) resulting in erosion of investors wealth.The economic growth indicators are showing signs of a slowdown and in some cases ,steep drop in growth rate or even negative growth.The best example will be automotive sector.Most of the mutual fund investors are seeing that their holdings are losing value or showing negative returns.So what should an investor do now? Should he exit all his equity investments?.. Should he redeem all his mutual fund units?.. Should he stop/pause his investments?..A simple answer to all these questions will be 'No'.Every growing economy goes through growth & recession phases.No economy can keep on growing on full steam without a break.What happens to a car engine if it runs in full speed without a break.It results in a breakdown or overheating eventually!.. Similar is a country's economy.The bottom line is having trust in a country's potential & economic...
Read more

From shopaholic to investoholic!

In today's world where anything and everything is available online, many of us have become shopaholics without even realizing it.The ease of financial transactions, with freely available credit cards, is partly responsible for this addiction. We purchase many things without thinking about the actual requirements. Many of these online purchases will be lying idle at our homes with absolutely no use or value to anyone.We got to remember it's our hard earned money.How to come out of this addictive habit?..There is a solution.Human psyche is such that once we do something repeatedly, it becomes a habit over a period of time.So instead of indulging in compulsive shopping, why don't we indulge in compulsive investing?!...The benefits of becoming an investoholic (a cumpulsive investor) is manifold.first,Its a productive use of our money. Second,It will slowly become a habit that actually ensures our financial security and makes our future secure.Third, It will make us happy and s...
Read more