How 2020 Taught Us The Importance Of Asset Allocation

By Author: QuantumAMC
Total Articles: 80
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The year 2020 ends soon. But is this the end of uncertainties it brought along, no one knows! The outbreak of Covid-19 saw a global meltdown in financial markets. Throughout the year, the Index and various asset classes saw multiple ups and downs. Needless to say, financial health took a set-back for many of us across the world. Investments took a huge hit. But the most affected investors were among the ones who disregarded the importance of asset allocation, who ignored diversification.
What is Asset Allocation?
Asset allocation simply means dividing up your assets in the right proportions among equities, debt, bonds, and gold to maximize your chance of achieving your financial goals while also trying to control investment risk.
But, not to worry. It’s never too late.
It might be a good idea to relook at your portfolio allocation based on your risk appetite and ask yourself these questions to help decide your asset allocation strategy.
1. Is my investment portfolio concentrating on one asset class?
Investing in just one asset class could hamper your financial goals. By strategically diversifying ...
... assets across asset classes, you are minimizing risk of a bad outcome. Rebalancing your portfolio will help you eliminate the need to predict the near-term future of the financial markets. It reduces dependency on a single asset class to generate returns.
Minimize the risk of bad outcome: allocate money across asset classes
It is suggested to have a safe money in the form of liquid assets such as Liquid Mutual Funds at the heart of your portfolio. This liquid fund helps to meet short term cash and contingency needs and at the same time may help earn slight higher returns than those offered by savings bank accounts. You can then have Equity and commodities like Gold in your portfolio. The advantage of diversifying your investments is to reduce dependency on a single asset class to generate risk adjusted returns. This introduces other dimensions of the market that are imperfectly correlated and are expected to respond differently to the ever-evolving economic situation. A well-diversified portfolio can help mitigate downside risk of your investments while growing it.
2. Does it bring a good mix to my portfolio?
All asset classes generally don’t move at the same pace or in the same direction and that’s why having the right mix is important.
There have been years when equity markets had a dream run. Debt have seen times when they were touted as the most dependable of assets. At times it’s Gold that has shined the brightest. When equities are witnessing a correction, the presence of other asset classes in your portfolio could help you garner net positive returns. The chart shows how imperative it is to have Gold as a part of your portfolio to diversify risk.
3. Does it match my risk profile?
The key for building a successful investment portfolio is to focus on the risk you can control (inflation) and reduce the risk you can’t (market risk). Generally, our focus is on things that we don’t control (Market Risk, Time, and Emotions) while we rarely focus on factors we can control (Inflation, Investment Tenure, and Actions).
Even in the most conservative investment portfolio, it is suggested to allocate a portion of assets to equities to diversify your portfolio from inflation risks.
4. Does the asset mix have the potential to help me reach my goals?
The first step in determining your asset mix in relation to your investment goal is to think whether your portfolio can fulfill your goals. Consider your investment horizon carefully during this exercise.
The old thumb rule of subtracting your age from 100 works fine in most cases.
The above chart is for illustrative purpose only.
At Quantum, we suggest you consider an Asset Allocation plan that has a potential to help you reach your financial goals. Try the simple and hassle-free 24-80-20** portfolio.
a. Your safe money for 24 months:
Have enough money at your disposal that can keep up with your consumption pattern, ideally around 24 -36 months is recommended.
One such option is the Quantum Liquid fund, a fund that prioritizes safety and liquidity of your money over returns. Read more
b. Future planning with “80-20”:
All you have to do is invest 80% in equity mutual funds and the rest 20% of your portfolio could be in Gold.
At Quantum, we suggest an equity portfolio that consists of only three funds:
70% in Quantum Equity Fund of Funds (QEFOF):
Backed by 20 years research, we offer you a ready-made Equity portfolio shortlisted from a pool of more than 400 equity funds.
20% in Quantum Long Term Equity Value Fund (QLTEVF):
This scheme follows the value investment strategy offering the potential to build wealth over the long term
10% in Quantum India ESG Equity Fund
c. Final 20% in gold allocation – Quantum Gold Saving Fund:

Needless to say, in the recent past gold has stood the test of the Pandemic and proven to be an efficient portfolio diversifier.
Thus, investment of 15-20% in gold via Quantum Gold Savings Fund is imperative. Read more
5. Are the assets relevant to the emerging themes?
The Year 2020 has been ground-breaking for Gold and ESG funds globally.
Take advantage of emerging investment trends to enable your portfolio to capture maximum benefits from the market cycles.
Key takeaways are:
1. Investing in just one asset class could hamper your financial goals.
2. All asset classes don’t move at the same pace or in the same direction and that’s why having a right mix is important.
3. The key to building a successful investment portfolio is to eliminate the risk you can control (inflation) and reduce the risk you can’t (market risk).
4. Tailoring your asset allocation to your investment tenure improves your chances of achieving your financial goals.
5. Take advantage of emerging investment trends to enable your portfolio allocation to capture maximum benefits from the market cycles.
Conclusion
Markets are volatile by their very nature; they can plunge or rise like a phoenix at any time. Therefore, avoid taking short term measures which can harm your investments in the long run. Hold on to your investments for a long term. Let your SIP continue until you reach your financial goal, no matter what. Spread your investments across asset classes. Park your money in various assets of equity, debt or gold, and let your investments grow over the time.
This new-year get a head start to strengthen your asset allocation strategy.

**Note: The suggested strategy / asset allocation is to explain the concept of diversification. This shall not be considered as Investment advice/recommendation. Investment is to be made based on your investment objective, risk appetite and financial goals.

Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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