There's no one right approach to investing that suits everyone, but there's surely one right approach for you. Figure that out, test it and stick to it.
Create your comfort zone which helps you stay calm across different market cycles and stay committed to it.
1/9
Create your comfort zone which helps you stay calm across different market cycles and stay committed to it.
1/9
One approach in which I have found my comfort zone with and have been following since many years is a 80:20 approach.
80% equity and 20% cash/debt.
When equity falls more than 5% or 10%, I refill it using the cash/debt.
2/9
80% equity and 20% cash/debt.
When equity falls more than 5% or 10%, I refill it using the cash/debt.
2/9
When equity is rising and going beyond 80% I let it grow (I never time the exit but only entry into equities) and keep investing incremental money in cash/debt so that equity exposure comes down without exiting and disturbing the compounding.
3/9
3/9
This approach makes sure that at any given point I have at least 10% to 15% cash/debt money available in my portfolio which can be deployed if markets correct.
More importantly it helps in maintaining a balanced behaviour during rising or falling equity market cycles.
4/9
More importantly it helps in maintaining a balanced behaviour during rising or falling equity market cycles.
4/9
If equity is rising I am happy with 80% to 90% participation, if it falls I am happy as I deploy cash into equities at lower levels.
Whatever upside I lose due to cash component during extreme market rise is made-up when cash is redeployed into equities during market falls
5/9
Whatever upside I lose due to cash component during extreme market rise is made-up when cash is redeployed into equities during market falls
5/9
The approach helps me in timing the entry into equities and then stay there for long. This doesn't time the exit from equities. I believe if you get even one leg right, incremental returns can be improved over long periods of time and across multiple market cycles.
6/9
6/9
My SIPs are also designed this way 80% pure equity funds and 20% ultra short term/liquid funds.
This approach helps in having comfortable investing experience whichever way market moves. Most importantly I am able to sleep peacefully at night.
7/9
This approach helps in having comfortable investing experience whichever way market moves. Most importantly I am able to sleep peacefully at night.
7/9
This is my comfort zone while investing in equities. I have tested it during multiple market cycles and it has worked well for me. I will leave sharing the results (xirr) of this approach for some another day.
8/9
8/9
A simple Hybrid Equity or a Balanced Advantage Fund can also make this work for you.
Important is to find your comfort zone, test it and then stick with it.
Equities is not only about making high returns, but good returns with acceptable risk.
9/9 ** END **
Important is to find your comfort zone, test it and then stick with it.
Equities is not only about making high returns, but good returns with acceptable risk.
9/9 ** END **
