YOUR MONEY: Multi-asset investment route can optimise risk-return outcome

Multi-asset investments have proved to be key for optimising investor wealth across changing market cycles.

By Vikas Madhukar and Rishi Manrai

Multi-asset investment solutions that focus on the efficient harvesting of financial risk across and within asset classes have grown in popularity. It not only delivers a pre-defined outcome but also helps in achieving a stable income stream. This is achieved by investing in a range of assets with different risks like equity, debt, commodities, real estate, and alternative investments class rather than investing in similar kinds of assets.

Changing market cycles

Multi-asset investments have proved to be key for optimising investor wealth across changing market cycles. The multi-asset funds use equity, debt as well as gold as three prime opportunities to invest. Research suggests that these three assets have a very low or a negative correlation with each other.

The investment is made based on research from the fundamental aspects that include the study of statements of change of a company as well as past trends (also known as technical analysis). Various investment funds use this technique of multi-asset fund allocation for inculcating financial discipline and removing personal biases.

Opportunity for global investment

Multi-asset investing recognizes the interconnectedness of global markets and the fact that new information can affect numerous asset classes simultaneously. Experienced fund managers make decisions on investment in overseas companies (international diversification), investing in assets beyond bonds and toward other income-generating securities, reducing risk, or seeking better opportunities. Investors benefit from a high-level allocation strategy, which is essential for investment success.

Investing is a game that involves a lot of risks. Choosing an objective that does not align with your own is one potential risk. For example, an investor may decide to pursue an aggressive strategy when a more conservative approach would be preferable. On the other hand, if an investor takes an overly cautious approach, he/she may find it difficult to achieve long-term objectives. Therefore, it is important to analyse funds and strategies carefully to determine which approach best meets your needs.

Five-point approach

A five-point approach is recommended for effective investment through multi asset investment.

Habit of investment: Everyone should have a habit of saving and invest this savings in different investment opportunities depending upon risk appetite.

Risk return profile: It’s very important to understand the individual expectation from investment and how much risk is one ready to undertake for achieving this target.

Balanced portfolio:
Invest in a balanced portfolio that includes equity, debt funds, gold as well as other assets with good returns.

Role of technology: Investing in the market, following the recommendations of the AI/ robot can also be good advice.

Market cycle/ volatility: Multi asset investment is an excellent way of mitigating the risk emerging out of the market cycle. It not only helps in safeguarding the principal but also helps investors to achieve optimum returns on investment.
It can be concluded that diversifying across asset classes reduces the risk associated with stock market fluctuations.

Madhukar is dean and director, Amity Business School Gurugram and Manrai is assistant professor, Amity Business School, Gurugram

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