Sunday, March 15, 2009

IDEAL PORTFOLIO - WHERE AND HOW SHOULD YOU BE INVESTING?


We all have wondered at some point in time as to which is the best investment strategy for me? Where should I be putting my money? Which is the most stable, secure and flexible plan for me? Well in short we always wanted to know the ideal portfolio for us which will help us meet our investment goals. So here I will try and list down the ideal portfolio for each one of you.

Before deciding on the architecture and structure of your portfolio ,one needs to identify the investment goals of each person along with his risk appetite because its the investment goal or end result which will help you decide on the ideal investment portfolio. For simplicity sake , I am dividing everyone in age brackets coz age has go strong correlation with financial needs and goals of an individual.It also gives you an idea about the risk that a person can take with his investment.


So, the various age brackets are


1. 20-30 years


2. 31-40 years


3. 41- 50 years


4. 51 - 60 years


5. 61 and above


So, now that we have the various age groups with us , lets try and understand their long term financial goals with respect to their risk appetite.

AGE -- GOAL -- RISK APPETITE

20-30 -- Wealth Creation -- High


31-40 --Wealth Creation and liquidity-- Moderate


41-50 --Wealth Creation , liquidity and safety --Less than moderate


51-60 --Safety, liquidity and wealth creation --Low


61 and above --Safety and liquidity --Very Low
1. IDEAL PORTFOLIO FOR AGE GROUP 20-30


Since this group has time on its hand, their ability to take risk is highest among others. They can afford to invest is relatively risky assets which will give them higher returns over a longer period. So equity has to be the preferred investment choice for them. They also need to invest part of the corpus in debt and gold etc. Their portfolio should be invested in following proportion:


Equity - 70-80% of the fund

Debt - 5 - 15% of the fund

Gold - 5%

Liquid funds- 10%

Gold will give them hedge against inflation but not very superior returns and as such should be in the portfolio as inflation hedge only. And for every person an emergency fund is required and as such I suggest a minimum of 10% of the funds should be in liquid funds which can provide the needed liquidity at all points in time.

2.IDEAL PORTFOLIO FOR AGE GROUP 31-40

Since people in this age group too are relatively young and have time on side , they too can afford to invest in equities to get the benefit of superior returns and wealth creation that equities provide over a longer period. But, they also need to diversify more into debt to protect their capital. gold and liquid funds will remain the same. The final portfolio should be in the following proportion:

Equity - 60-70% of the fund
Debt - 15-25% of the fund
Gold - 5% of the fund
Liquid funds- 10 % of the fund.

3.IDEAL PORTFOLIO FOR AGE GROUP 41-50

People in this age bracket need to be more cautious with their asset allocation as the risk appetite that they have is less than moderate.They need to have comparatively lesser exposure to equity and more into debt funds. Balanced mutual funds would be ideal for them. The overall portfolio should be

Equity - 50-60%

Debt - 25-35%

Gold -5%

Liquid funds- 10%

4.IDEAL PORTFOLIO FOR AGE GROUP 51-60

People in this age bracket have low risk appetite and need to look at wealth creation but without compromising on safety of the invested funds. The equity exposure should come down even further and debt allocation should go up leaving the gold and liquid funds allocation unchanged.

Equity- 40-50%

Debt - 35-45%

Gold - 5%

Liquid funds-10%

5.IDEAL PORTFOLIO FOR AGE GROUP 61 and above

For people in this age bracket the top most priority has to be safety of the funds and liquidity. they need not aggressively look at wealth creation through equities. Most of the fund should be in debt leaving Small equity and gold exposure to help them beat inflation. Liquid funds will help provide liquidity.

Equity- 15-25%

Debt - 60-70%

Gold- 5%

Liquid funds- 10%

The above portfolio is designed to help you create wealth , guard against inflation, capital protection and to meet immediate liquidity needs. If you structure your investment portfolio with this in mind, it shall keep you in good stead.

Stay wise n Stay Wealthy..




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