Portfolio construction: Why keeping it simple is crucial

However, an aggressive investor would prefer a more tactical asset play and would have actively gone overweight or underweight, based on the market scenario. As shared earlier, your risk profile and mental make-up plays an important role. While constructing a portfolio, an important point to note is that you should not compare returns generated between asset classes. You cannot compare the return generated by equity with that generated by debt. This is like comparing apples with oranges.

Both equity and debt have a role to play. Debt will provide the anchor and equity will provide the alpha. Both perform their respective roles and provide the stability to the portfolio. The total portfolio return is what needs to be considered and not the returns generated by each asset class in isolation. So, get the basics right and keep it simple.

Brick by brick

* First, you need to know your risk appetite, choices and goals

* With this background, you set small targets, which are in sync with your overall long-term goals. You set your goals and return expectations, and rebalance targets accordingly

* If you have a lower risk appetite, you will want to achieve a real return beating inflation on a consistent basis

*

... contd.