Holi — the festival of colors — celebrates life in all its diverse and varied forms. While celebrating this festival and having fun, it is a good time to also relax and review your financial goals and portfolio. While stock markets have done much better than expected, even the debt markets, especially Gilt Funds, have delivered attractive returns over the past one year. The economic environment the world over remains very fragile and disruptive. Forecasting return on any asset class can be a perilous exercise. Hence while the going is good, book some profits at regular intervals and keep increasing the cash levels in your portfolio.
1. Diversify portfolio like a dash of different colours: Always diversify your portfolio across different asset classes. This dictum certainly holds true in the present volatile times. In fact, one can compare the different assets in a portfolio to the different colours typically splashed and smeared while celebrating Holi. “Just as Holi celebration is not complete without a dash of different colours, no portfolio is complete without a number of different assets in it. Diversification helps you reduce volatility and risk associated with different assets. Each asset has a certain amount of risk associated with it. Risks vary with equity being a relatively higher-risk asset and fixed deposits with banks a relatively lower-risk asset,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
However, one must remember that every asset including fixed income products carry some risk. Usually returns are higher for riskier assets and vice versa. Hence a good, well-managed portfolio seeks to secure stability in returns and mitigation of risks by diversification. “Here it is useful to know that various assets have historically moved in opposite directions. Gold and the US dollar are two such examples. Hence, if we have a number of assets which are denominated in US$, investing in gold may help us cushion the impact of currency volatility on our assets,” he says.
2. Invest in instruments which give you happiness: Holi is all about fun and frolic. Do not invest in instruments which you do not like or understand. At the end of the day, investing is all about long-term capital creation. It needs dollops of patience as well as confidence in your investments. You can never be patient with any process unless you enjoy it. Hence, whatever you invest in should give you happiness.
For instance, “if equity investments give you sleepless nights, kindly refrain from doing so. You will never be able to able to stay invested through the rough and volatile times and in the process never make any return anyway. So while characteristics of every investment instrument is important, your temperament and attitude towards risk is also equally important to determine the best composition of your portfolio.
So, if equity with all its uncertainties gives you excitement, certainly go ahead and invest in it. If security gives you pleasure, go for fixed income products. Enjoy your life and all the festivals with a happy heart. After all, good health and happiness are without doubt the best results of anything you do in life, including investments,” says Kapur.
3. Get rid of the evil of debt: Holi is a festival which signifies the win of good over evil. The tradition of burning Holika signifies the burning of all that is bad, because only after that one can enjoy one’s life. Similarly, if you want to prosper in your life and accumulate a nest egg sufficient enough to last you through your golden years, then only saving and investing your hard-earned money is not enough. You also need to get rid of the evil of debt as soon as possible. For, in the absence of a good debt-management strategy, the financial planning for your secured future can not only get topsy-turvy, but awfully wobbly as well.
Debt management, in fact, assumes more importance in the light of the fact that today debt has become a way of our life, with the phenomenon of consumer finance schemes and credit cards becoming a big driver of this devil. Managing your debt means reshuffling and seeing what you should do to pay back the debts. This also means choosing the best loan option whenever you need to borrow. Remember, the less debt you have, the happier and wealthier you will be!