With the world trying to adapt to the ‘new normal’, we are stepping foot into a world which is not only highly uncertain, but also has the power to leave certain surprises our way. The COVID-19 pandemic has brought the world at a standstill. It has also led to the slowing down of economic growth. Thus, investors must adopt a different approach while traversing the uncertain future ahead. Let’s understand how we as investors can utilise this pandemic as an opportunity to create more resilient investment portfolios for a post-pandemic world. Read on to know more.
Diversify Diversify Diversify!
Diversifying your investment portfolio across different types of mutual funds, asset classes, geographies, and sectors is the key to optimise risk-adjusted returns. When you diversify your portfolio, you spread out the risks as your investment options do not correlate with one another. What’s more, the losses from an under-performing asset(s) can be offset by other high performing asset classes. Diversification also helps to reduce volatility over time. So diversify your investments across different asset classes such as equity funds, debt funds, international funds, hybrid funds, gold funds, etc.
Realise the importance of asset allocation
The right mix of asset allocation can take an investor to great places. Why, you ask. It helps investors to reach their financial goals sooner. In order to get the ideal asset allocation mix for your portfolio, you need to understand your investment horizon and risk appetite, and how it can evolve over time. For example, an addition to your family, your child’s plan to study abroad, having a destination wedding, planning for an early retirement are some of the factors that can alter your risk profile. Assessing your risk profile regularly and accordingly adjusting your asset allocation will help you to stay on track on achieving your financial goals over a stipulated period.
Realise the negates of holding too much cash
Holding on to cash reserves beyond your emergency funds means missing out on potential significant long-term returns. Apart from your emergency funds, it makes sense to invest your money to achieve short-term and long-term financial goals. Financial advisors advise keeping at least 6 months of your income as emergency funds. To prepare you for any future downturn, it makes sense to invest in instruments that can help your money grow significantly.
Make sure to keep your investment expenses at the minimum
To ensure greater take-home returns from your mutual fund investments, ensure that you keep your investments expenses at the par minimum. Look for investment options that have a lower expense ratio. Expense ratio is the annual fee charged by fund houses or asset management companies (AMC) to manage an investor’s mutual funds. Thus, the lower the expense ratio, higher the returns. This is because high fees eats into your returns.
When you choose a mutual fund, ensure that it aligns with your investment objectives and risk profile. You can also take the services of a financial advisor or an expert who can help you with your investment decisions. Happy investing!