This is an approach to portfolio planning that helps you build wealth without too much sweat while allowing some free play to your risk-taking instinct.
If one had to broadly look at three categories of investors, here’s how their Portfolios would shape up.
Aggressive investor
Core 60%
1) DSPBR Top 100 (Large Cap)
2) HDFC Top 200 (Large & Mid Cap)
3) Reliance Reg Savings Eq. (Multi Cap)
4) ICICI Prudential Dynamic (Multi Cap)
Tactical 25%
5) IDFC Premier Equity (Mid Cap)
6) Birla Sun Life Mid Cap (Mid Cap)
Debt 15%
7) JM Money Manager Super (Liquid Plus)
Conservative investor
Core 70%
1) DSPBR Balanced (Hybrid Equity)
2) Franklin India Bluechip (Large Cap)
3) ICICI Prudential Dynamic (Multi Cap)
Debt 30%
4) ICICI Pru. Income Opp. (Debt: Medium Term)
5) JM Money Manager Super (Liquid Plus)
Moderate investor
Core 70%
1) HDFC Prudence (Hybrid Equity)
2) DSPBR Top 100 (Large Cap)
3) Reliance Regular Savings Eq. (Multi Cap)
4) ICICI Prudential Dynamic (Multi Cap)
Debt 20%
5) ICICI Pru. Income Opp. (Debt: Medium Term)
6) JM Money Manager Super (Liquid Plus)
Tactical 10%
7) IDFC Premier Equity (Mid Cap)
The above can act as a general guideline and you can always mix and match to get to the portfolio that best suits your needs and keep you on track.
Conclusion
So an investor can have a portfolio of just seven funds and be very smartly diversified. It’s not a numbers game, it is quality picks that will make it for you.
Play it smart!
Note: THE IDEA BEHIND A CORE FUND IS THAT IT SHOULD BE ONE THAT IS ABLE TO
DELIVER RETURNS IN GOOD TIMES WITHOUT BEING TOO VOLATILE. THE TACTICAL FUND WILL GIVE YOU THAT EXTRA ZING IN YOUR RETURNS. THE DEBT PART IS FOR BALANCING YOUR PORTFOLIO BETWEEN EQUITY & DEBT.
Wednesday, August 18, 2010
Tuesday, August 10, 2010
Dangerous Advice For First Time Investors
New investors are bombarded with advice from everywhere. Financial television, magazines, websites, financial professionals, friends and family members all have advice on how to structure your investment portfolio. Beginning investors are much more likely to give credence to investment tips than experienced investors. While the advice is meant to be helpful, it may actually be detrimental to the investment newbie.
Here are five examples of the types of dangerous advice given to beginning investors:
1) "Buy Companies Whose Products You Love"
How many times has someone told you that when investing, you should buy companies that make products you love? This can be a risky and expensive proposition.
For example, let's say you want to buy shares of Bajaj Auto because you love your new bike. You buy shares of Bajaj Auto at its market price and wait to reap the rewards from all of the bike sales. The problem with this strategy is that it fails to take price into consideration. Bajaj Auto may be a great stock to buy at Rs.1500, but it could be a pricey investment at Rs. 2000.
New investors tend to overpay for companies that they really want to own. This buy-at-any-cost philosophy can leave you regretting your stock purchase at the end of the day.
2) "Invest In What You Know"
Investing in what you know is an old investment axiom. This works well for experienced investors who are familiar with lots of companies in different sectors of the economy. This is terrible advice for the investing novice, because it limits your investments to only businesses that you know a lot about.
What if the only companies you know about are in the hotel industry or retail industry? You may find yourself overinvesting in one or two sectors. Not to mention the fact that you would end up missing out on some great companies in the capital goods industry or technology sector.
3) "Diversify Your Stock Portfolio"
Diversification is supposed to help protect your portfolio from market drops and control risk. It's a great concept, but proper diversification can be difficult to achieve and expensive to do. New investors have difficulty building a properly diversified portfolio because of the costs. If not using an index fund to diversify, constructing a properly balanced portfolio in stocks requires thousands of Rupees and may require buying at least 20 individual stocks. It can also be difficult for new investors to maintain a balance between being diversified and not being overly diversified. If you aren't careful, you could end up owning 50 different stocks and 50 mutual funds. An investor could easily get overwhelmed trying to keep track of such a portfolio.
4) "Trade Your Brokerage Account"
Since the market crash of 2008, more investors are abandoning a buy-and-hold strategy and turning to short-term trading. Financial television shows and market experts have even been recommending that investors trade their accounts. Short-term trading may work for sophisticated investors, but it can crush the confidence of new investors.
Short-term trading requires the ability to time buy and sell decisions just right. It takes lots of available cash to hop in and out of positions. It can also decimate your entire portfolio because of trading fees and bad decision making. Daytrading stocks is a strategy best left to the experts.
5) "Buy Penny Stocks"
Emails, advertisements, friends and even family members often trumpet penny stock investing for new investors. The attraction of penny stock investing is that it seems like an easy way to get rich quick, since penny stocks are subject to extreme price volatility. If shares of ABC Company are selling for Rs.1.50 per share, you could buy 1,000 shares for Rs. 1,500. The hope is that the stock goes to Rs.3 or more so that you could double your money quickly.
It sounds great until you realize that penny stocks trade in the single digits for a reason. They are normally very flawed companies with large debt burdens and whose long-term viability is usually in doubt. Most penny stocks are much more likely to go to zero than to double your money.
The Bottom Line
As you can see, sometimes investment tips can do more harm to your portfolio than good. One size fits all may work for others, but it does not work when it comes to investment advice.
Here are five examples of the types of dangerous advice given to beginning investors:
1) "Buy Companies Whose Products You Love"
How many times has someone told you that when investing, you should buy companies that make products you love? This can be a risky and expensive proposition.
For example, let's say you want to buy shares of Bajaj Auto because you love your new bike. You buy shares of Bajaj Auto at its market price and wait to reap the rewards from all of the bike sales. The problem with this strategy is that it fails to take price into consideration. Bajaj Auto may be a great stock to buy at Rs.1500, but it could be a pricey investment at Rs. 2000.
New investors tend to overpay for companies that they really want to own. This buy-at-any-cost philosophy can leave you regretting your stock purchase at the end of the day.
2) "Invest In What You Know"
Investing in what you know is an old investment axiom. This works well for experienced investors who are familiar with lots of companies in different sectors of the economy. This is terrible advice for the investing novice, because it limits your investments to only businesses that you know a lot about.
What if the only companies you know about are in the hotel industry or retail industry? You may find yourself overinvesting in one or two sectors. Not to mention the fact that you would end up missing out on some great companies in the capital goods industry or technology sector.
3) "Diversify Your Stock Portfolio"
Diversification is supposed to help protect your portfolio from market drops and control risk. It's a great concept, but proper diversification can be difficult to achieve and expensive to do. New investors have difficulty building a properly diversified portfolio because of the costs. If not using an index fund to diversify, constructing a properly balanced portfolio in stocks requires thousands of Rupees and may require buying at least 20 individual stocks. It can also be difficult for new investors to maintain a balance between being diversified and not being overly diversified. If you aren't careful, you could end up owning 50 different stocks and 50 mutual funds. An investor could easily get overwhelmed trying to keep track of such a portfolio.
4) "Trade Your Brokerage Account"
Since the market crash of 2008, more investors are abandoning a buy-and-hold strategy and turning to short-term trading. Financial television shows and market experts have even been recommending that investors trade their accounts. Short-term trading may work for sophisticated investors, but it can crush the confidence of new investors.
Short-term trading requires the ability to time buy and sell decisions just right. It takes lots of available cash to hop in and out of positions. It can also decimate your entire portfolio because of trading fees and bad decision making. Daytrading stocks is a strategy best left to the experts.
5) "Buy Penny Stocks"
Emails, advertisements, friends and even family members often trumpet penny stock investing for new investors. The attraction of penny stock investing is that it seems like an easy way to get rich quick, since penny stocks are subject to extreme price volatility. If shares of ABC Company are selling for Rs.1.50 per share, you could buy 1,000 shares for Rs. 1,500. The hope is that the stock goes to Rs.3 or more so that you could double your money quickly.
It sounds great until you realize that penny stocks trade in the single digits for a reason. They are normally very flawed companies with large debt burdens and whose long-term viability is usually in doubt. Most penny stocks are much more likely to go to zero than to double your money.
The Bottom Line
As you can see, sometimes investment tips can do more harm to your portfolio than good. One size fits all may work for others, but it does not work when it comes to investment advice.
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