Portfolio construction: Why keeping it simple is crucial
A well-flighted ball is asking to be hit. But with the fielder positioned at long off and long on, will you take the bait. More times than not, Yuvraj may take the bait, but Dravid may not. There is nothing right or wrong about it. What matters is the confidence each of them has while executing the shot. So, execution is the key.
Similarly, your mental make-up, which drives your portfolio design, plays an important role in the wealth creation journey.
You cannot compare the equity returns with returns of other asset class. So, having an appropriate asset mix is the core requirement. This is more popularly known as asset allocation. Again, there is no thumb rule about the asset allocation methodology. For sake of convenience and monitoring, typically, a percentage of asset mix is recommended.
Again, this is not a thumb rule and you are free to follow your own self-designed mix if you have the time and resources to track and monitor them.
The crucial part
You plan, design and execute. But things may not go as per your plan. A freak run out in a cricket match changes the course of the match. Wickets tumble and you are bowled out.
Remember the years 2008 and 2011 when the equity markets went down; so did your portfolio value.
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