Use your monthly and lumpsum Investable Surplus to meet both your short-term commitments and your long-term goals. There are two main questions to be answered correctly to ensure investing successfully to meet your long-term goals.
- How much of your Investable Surplus do you invest in which asset classes i.e. Equity, Debt and Gold asset classes?” In investment parlance, it is called the Asset Allocation. And, then how much to invest in which specific assets within each asset class?E.g. in the Equity asset class, (a) How much into Direct Stocks, Mutual Funds and Index Funds, and (b) Within Direct Stocks, how much of a specific stock, which specific Mutual Funds or Index funds and how much to each one of them? This is all about choosing the right asset.In case, you have a definite commitment of money within the next 5 years, don’t put that money in equities. Because, there is always the risk that the market may not grow sufficiently in a 5 year period and give substantially better returns than a Debt Fund/Fixed Deposit.
- When the market and specific asset prices change, do you stick to asset allocation and asset choices? Or change them? And, if so, how and how often? Solution is to compare the future potential Risk-Adjusted Returns within the asset class and select the ones which are most promising. We call it Re-shuffling.
When you cover multiple assets, and re-shuffle it whenever an opportunity arises, you have more options to build a good Wealth-creating Portfolio.
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Read the next article to understand: ‘What are different Asset Classes?’
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