Equity, Debt or Gold: What should be the right asset allocation strategy in the current market?

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Updated: September 23, 2021 3:09 PM

From the view of equity markets, it is impossible to time the market and only in hindsight, it is known whether we are at all-time highs or have a significant runway from here.

Equity, Debt, Gold, asset allocation strategy, equity markets, debt fundsAt present when the market is at an all-time high, the equity allocation in the existing portfolio will look quite high when compared with the planned allocation.

When stock prices go up, many investors flock to buy them. Similarly, when gold prices go up, people rush to buy yellow metal. But, should that be the approach while investing across assets such as equity, debt, and gold? The simple way of making money by investing is to buy low and sell high, and that is true across all assets.

It is, however, easier said than done as most investors fail to stick to a proper asset allocation strategy that often does have a negative impact on one’s portfolio. A common mistake most investors make is to jump from one asset class to another, merely looking at its recent performance. “Asset allocation strategies must not be driven by short-term market movements. They are best driven by the risk appetite, investment goals, and horizon of the investor, paired with the long-term behavior and expected outcomes of the asset classes,” says Abhishek Dev, Chief Business Officer, TRUST MF.

However, how much do you need to invest in equity, gold or debt after taking into account your provident fund contributions? It has nothing to do with the stock market levels or gold prices, but a review of your allocation strategy may require a tweak depending on the market conditions.

So, even before you start investing, have an asset allocation mix prepared. Based on the short, medium and long-term goals as well as your risk appetite etc, you should build up an asset allocation strategy. “The asset allocation should be based on financial goals or objectives and not market conditions. At present when the market is at an all-time high, the equity allocation in the existing portfolio will look quite high when compared with the planned allocation. A better way to realign the asset allocation will be to do new investments in non-equity instruments if required,” says Harshad Chetanwala, Co-Founder, MyWealthGrowth.com.

“Asset allocation strategy will vary from person to person. For a normal investor, an Equity portfolio may comprise of 70-80% of the funds, 15-20% in Gold & 5-10% in Debt. For Conservative investors Allocation towards Gold can be increased to 30%,” informs Nitin Shahi, Executive Director of Findoc, Financial Services Group.

For instance, interest rates in the near term are expected to move up but the long-term trend is still intact. “In the short term interest rates may go up, but the longer interest rate cycles for Global economies may remain flat to downward cycles. At this moment 30% allocation should be in arbitrage funds, 40% in equity funds, 20% in Gold & 10% should be in Debt Mutual Funds. Amit Jain, Co-Founder and CEO, Ashika Wealth Advisors.

With the stock market at near all-time high levels, this could be the time to review and rebalance one’s allocation across assets. In investments that may have gone up considerably high, some trimming may be done. “Since small-cap index and funds have surged substantially in the last year, it can be a good strategy to do some profit booking in such investments. The rest of the equity-based investments can continue to remain invested. If you are planning to invest right now then a staggered manner of investing can work well, instead of one-time,” adds Chetanwala.

If the asset value has gone by and the proportion has changed, it requires modifications to stick to the original allocation mix. “From the view of equity markets, we believe that it is impossible to time the market. It is only in hindsight that we will know whether we are at all-time highs or have a significant runway from here. Having said the same, investors should rebalance their portfolios at regular intervals and in consultation with their financial advisors, decide the right asset allocation to align with their risk appetite,” says Prateek Pant – Chief Business Officer – White Oak Capital Management

As far as debt funds are concerned, it could be better to stay away from funds with long-dated securities. “For investment in debt, you can continue to invest in short to medium maturity duration instruments,” informs Chetanwala.

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