What should be the right portfolio mix for 2019 to create wealth?

Monday, January 14, 2019

Rahul Agarwal, Director Wealth Discovery/EZ Wealth

2019 is expected to be an extremely volatile year for the markets due the general elections, which are schedule to happen in the first half of the year. If the ruling dispensation is able to get a second term, the markets are expected to rally, however, if a possibility of a coalition government emerges the markets can see a huge sell off. In this environment, therefore it is advisable to be equity light especially in the first half of the year and to be invested in adequately diversified portfolios to mitigate the risk from volatility.

An ideal portfolio for 2019 should have a higher fixed income component such as debt instruments and fixed deposits, and the equity exposure should also be largely allocated to select large cap stocks along with diversified mutual funds, some capital can however be assigned to select quality midcap stocks that have taken significant beating in 2018. An example of a possible asset allocation that is focused on safe asset allocation is presented in the table below.

Equity:
Investment in equities has the potential to grow one’s wealth multifold in long-term but it also comes with a risk associated with it. To maximize one’s returns, investment in equity is must however, since 2019 is going to be a volatile year, only investors with some tolerance to risk should venture into equity investments. The best way to invest in equities in 2019 is through systematic investment plans either through mutual fund SIP’s or through direct investments in good quality stocks in a systematic and regular manner.

Debt Instruments:
Investors should have a significant portion of their portfolio allocated to debt instruments that will provide a cushion against equity investment volatility. One can directly invest in debt instruments through Govt. bonds, corporate bonds, short term money market instruments, or through debt mutual funds. It is advisable to invest in top rated debt instrument and allocate into both short-term and long-term debts.
 
Safe Deposits like FDs and Public Provident Fund (PPF):
PPF can be a preferred investment avenue for risk averse investors, PPF depositsoffer decent returns coupled with a complete income tax benefits from investment, interest income and maturity amount. Investors can also invest in secured fixed deposits (FDs) from by commercial banks, small finance banks, non-banking financial companies (NBFCs) or post offices. The tenure of investment in FDs can be as short as 7 days and can be spread as long as 10 years. The rate of interest can vary from a 3.5 percent to as high as 8 percent per annum depending upon the period of investment.

Gold:
Gold is one of the oldest investment asset class and is considered as a safe haven against uncertainties and market turmoil. Investment in gold can either be done by buying physical gold or through gold mutual funds, gold deposit schemes or through gold ETF’s. Since buying physical gold consists of carrying cost, and also is risky to store it is advisable to buy gold through exchanges in the DMAT form.

To sum up, 2019 is expected to be a volatile year therefore investors should focus more on capital preservation and risk minimization as in turbulent times, capital preservation is an important aspect of wealth creation.

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