How to position your portfolio for the coming decade

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When you seek to position your portfolio for the coming decade, pay attention to the expected growth rate, the interest rate trajectory, and the industries and investments of the future. However, as you do this, also remain tethered to the tenets and opportunities that have stood the test of time and are likely to firepower your portfolio in the long term. 

Have a diversified  portfolio: Diversification refers to keeping a mix of different investment instruments in your portfolio to lower overall risk. For instance, you can invest in stocks, bonds, real estate, gold, etc. instead of investing in only stocks. Adding multiple options allows you to distribute risk across asset classes. 

Allocate as per your risk profile: Your risk appetite is highest when you are young and decreases as you age. However, this is not set in stone and your circumstances will determine your risk profile. Since every asset class has a unique risk element, allocating your money optimally is critical. There are three major asset classes—equity, fixed-income securities (debt), and cash. Equity carries the highest amount of risk, followed by fixed-income investments, and then cash. The rest of the investments fall within this spectrum. Your portfolio asset allocation will be highly influenced by your risk profile. 

Manage your debt exposure judiciously: Traditional debt funds can significantly lower risk and add a strong element of stability to your portfolio. However, in addition to pure vanilla debt instruments, you can also consider enhanced yield debt products like structured debt. These are customized vehicles that structure the cash flows from a debt instrument in such a way that the overall yield from the instrument increases without having too much of an impact on its risk. 

Seek real estate exposure through Reits: Real estate has been a reliable investment vehicle for decades. However, with the skyrocketing costs of property, investing in it is becoming increasingly difficult. This is where alternative options like Real Estate Investment Trusts, or Reits, can offer a way out. The income earned from these avenues is passed on to you as returns. One of the greatest advantages of Reits is that they do not come with the regular trappings of investing in real estate, i.e., large upfront investments, lack of liquidity, and higher risk. 

Don’t be afraid to optimize equity exposure for the long-term: Stocks are most susceptible to volatility in the short term and can tend to have a sharp impact on overall portfolio returns. However, they are also vehicles of long-term wealth creation. The key to optimally harness the value of stocks is to select carefully and then stay invested for the long term. The longer you stay invested, the more likely you are to ride out fluctuations and generate good returns over time. If you look at the benchmark Nifty, you will see that it has delivered average annualized returns of approximately 14% during calendar years 2012 to 2022 (till August). However, if you observe returns for each of the years in this period, you will see that there are some years when the returns have been negative, in  low single digits, and there have been years where the returns have been as high as 31%. Thus, while there are ups and downs in returns in the short term, these ebbs and flows smoothen out in the long term. 

Invest in innovation: We are currently living in an environment that enables innovation across industries, creating unique businesses and ventures. Today, India is home to 107 unicorns that have cumulatively raised more than $94 billion in funding and have a combined value of approximately $344 billion. Of these 107 startups, 21 entered the unicorn club in 2022 alone. For investors, these are exciting times as it allows them to get into future greats which are at the beginning of their journey. So, try to take advantage of it and invest in startups that are here to make a change. 

Diversify through international investments: International diversification spreads risk across geographies and lowers the risk associated with a particular economy. Thus, an element of international investment exposure can potentially enhance the risk-adjusted returns of your portfolio. Further, it can also help you hedge your exposure to a foreign currency and protect you from the depreciation of your domestic currency. 

Anirudha Taparia is co-founder &  joint CEO at 360 One Wealth

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