When you think of a balanced portfolio, you’re probably thinking of a portfolio built on a “set it and forget” approach. Sadly, such a portfolio is as real as a Unicorn.
No single investment can help you earn profits and protect against risks. Because as financial markets fluctuate, your portfolio is bound to get out of balance. So, if you’re aiming to fulfil your financial goals in time, you need to maintain a healthy balance of risks and returns or when your asset allocation aligns with your desired portfolio mix. This is why, balancing your portfolio is a must.
Additional Read – How to Manage Your Mutual Funds Smartly/Wisely
How to build a balanced investment portfolio?
With the right balance of debt and equity exposure, you can achieve your investment goals while softening your bearish falls. This bit is easy to understand. But how do you create that balance from the start?
It’s actually pretty basic. When doing asset allocation, consider the following:
- Define your investment goals and investment horizon.
- Evaluate risk appetite
- Account for your capital requirements
This will help you choose assets with different risk/reward characteristics and coordinate different holdings towards a common goal.
Another helpful method to determine your ideal asset allocation is the rule of 110.
110 – (your age) = % of equity allocation
So, if you’re 25 years old, you should allocate 85% of your asset to equity instruments and 15% to debts and bonds.
But if you’re looking for a safety cushion against potential risks but don’t want to put in the work, you can consider investing in balanced funds.
How to balance your portfolio using mutual funds?
With a balanced mutual fund, portfolio diversification becomes a lot simpler. Since they invest in a mix of debt and equity instruments based on specific ratios, they maintain a good risk-reward balance. Thus, helping you earn more ROIs and invest prudently.
But before investing, you must consider two things:
1. Orientation of the fund
There are two types of balanced funds you can choose between. Debt-oriented funds whose 65% portfolio comprises debt and money market instruments, while the rest is debt or kept as cash. And equity-oriented funds that allocate 65% of its assets in equities and the remaining in debt.
Besides, these ratios are usually fixed irrespective of the market condition. So, you should assess the risk involved and take your pick.
2. Time of investment
Balanced funds are most suitable for goals you’d like to achieve within the next 5-7 years. Since capital appreciation is moderate, they do well for short-term goals like a car purchase.
The trick to achieving the ideal portfolio is simply discipline. Make portfolio balancing and rebalancing a disciplined investment like SIP,and you can always maintain a healthy risk-reward ratio.
Additional Read – Benefit of Asset Allocation in the Portfolio
To sum up
Portfolio balancing is a science best learnt through market research and knowledge. But with your busy schedule? That’s not a possibility, is it? If so, Tata Capital’s Moneyfy app is the ultimate fix for your investment needs.
Get all your mutual fund information in one place, from tracking market trends to fund suggestions based on your risk profile, and a lot more. Download the app now!