And just like that, the year 2021 has come to an end. The world looked both different from a year ago and very much the same. It amazes us to see how some of the basic tricks of financial planning, which can make a huge impact on anyone’s life, are taken for granted.
Living with Covid-19: 2021 brought us a long way back to normal. Despite the Delta wave in the first half of the calendar year, the country remained open for the major part of the year, and the economy started to gain traction. Consumer spending bounced back, and businesses remained confident.
As we enter 2022, there is a mounting risk from the new Omicron variant. The pandemic can end in one of the two ways, either we achieve “zero Covid-19” or the disease becomes an ongoing part of the infectious diseases coterie. We believe societies will have to adapt to living alongside Covid-19. Thereby, having a contingency fund kept aside for emergency purposes is of utmost necessity, now more than ever.
One of the methods that Central banks had resorted to was by reducing interest rates to raise demand. This, along with the major disruption in logistics (from chip shortages to shipping route disruptions), has resulted in a rise in inflation. One of the major factors – other than fresh waves of the pandemic, would be interest rates hardening as Central banks focus on taming inflation.
Here are the top four investment avenues for 2022.
1. Model Portfolios
- Volatility is here to stay – As markets correct after touching the highs and losses start to loom, it becomes difficult to avoid taking emotional decisions to cut these losses. This behavioral mistake can be detrimental to creating long-term wealth. Your first defense against these mistakes is to craft a diversified portfolio across different asset classes that match your investment horizon and risk tolerance. During times of market volatility, while your risky investments – equities (domestic/global) may fall, the overall portfolio performance may not be so badly impacted. A diversified portfolio built of complementary assets helps you smoothen out the returns in volatile times and helps mitigate risk in the portfolio.
Model portfolios curated on investors’ risk-return profiles are best suited in volatile market conditions. The portfolios can be built with different weightage between cyclical and non-cyclical stocks. The returns of the portfolio are average weighted returns, i.e. the returns tilt towards the sector that has more weightage in the portfolio. Model portfolios are backed by strong research and advisory and focus on the below aspects while investing:
- Sector Diversification – Model portfolios are diversified among various cyclical sectors like banking and finance, auto, metals, infrastructure, and real estate. Non-cyclical sectors consist of IT, pharma, FMCG, and consumer goods.
- Market Cap Diversification – Market Capitalization is another factor that needs to be considered while picking stocks. These portfolios are well balanced between large-cap, mid-cap, and small-cap stocks. Large-cap stocks are stable and generate moderate returns. Mid-cap and small-cap stocks are more volatile and have the potential to generate higher returns.
- Portfolio Rebalancing – Equity portfolios require rebalancing since the risk and returns …….