I don't have any sectoral stocks in my portfolio. Which sectors can I include?
Normally, investing sectorally requires a good amount of research and constant tracking of the markets and various sectors. Moreover, this type of investing could lead to a higher volatility in one's portfolio. Instead of putting most of one's money in a couple of sectors, the ideal way to make a portfolio is to select a number of sectors that hold promise. One would, then, assign pre-determined weights to each sector within that portfolio and thereafter select stocks from those sectors to invest in.
One could have a judicious mix of defensive sectors such as pharma and fast-moving consumer goods, as well as growth sectors such as information technology. One could also look to invest in cyclicals such as metals and capital goods, as well as beaten-down sectors like financial and automobile.
Of course, such weights could be changed, depending on the market dynamics, because at certain times some sectors do better than others. Please note that neither is this list of sectors mentioned exhaustive, nor is it a recommendation to invest in these sectors. These are merely given as examples.
Many of my friends are redeeming their equity mutual fund holdings and investing in tax-free bonds. I am also tempted to do so, as I have not made money in the fund I have been invested in the past four years. And, these bonds are giving almost nine per cent. What would you suggest?
One should create asset allocation based on their risk profile and time horizon. This allocation should generally cover all major asset classes, which include equities and fixed income instruments. Any shift in weightage in the allocation from one asset class to another should only be after proper deliberation. On the one hand, almost nine per cent per annum tax-free interest income does sound very attractive. On the other, while equities might not have performed well over the past few years, it does not mean they could not do well going forward. Historically, in the long term, it has been seen that returns on equity tends to outperform return on fixed income instruments, although equities may be volatile in the shorter term. Therefore, make this shift only after considering your investment goals, time horizon as well as risk profile.
Normally, investing sectorally requires a good amount of research and constant tracking of the markets and various sectors. Moreover, this type of investing could lead to a higher volatility in one's portfolio. Instead of putting most of one's money in a couple of sectors, the ideal way to make a portfolio is to select a number of sectors that hold promise. One would, then, assign pre-determined weights to each sector within that portfolio and thereafter select stocks from those sectors to invest in.
One could have a judicious mix of defensive sectors such as pharma and fast-moving consumer goods, as well as growth sectors such as information technology. One could also look to invest in cyclicals such as metals and capital goods, as well as beaten-down sectors like financial and automobile.
Of course, such weights could be changed, depending on the market dynamics, because at certain times some sectors do better than others. Please note that neither is this list of sectors mentioned exhaustive, nor is it a recommendation to invest in these sectors. These are merely given as examples.
Many of my friends are redeeming their equity mutual fund holdings and investing in tax-free bonds. I am also tempted to do so, as I have not made money in the fund I have been invested in the past four years. And, these bonds are giving almost nine per cent. What would you suggest?
One should create asset allocation based on their risk profile and time horizon. This allocation should generally cover all major asset classes, which include equities and fixed income instruments. Any shift in weightage in the allocation from one asset class to another should only be after proper deliberation. On the one hand, almost nine per cent per annum tax-free interest income does sound very attractive. On the other, while equities might not have performed well over the past few years, it does not mean they could not do well going forward. Historically, in the long term, it has been seen that returns on equity tends to outperform return on fixed income instruments, although equities may be volatile in the shorter term. Therefore, make this shift only after considering your investment goals, time horizon as well as risk profile.
The views expressed are the expert's own. Send your queries to yourmoney@bsmail.in
Today, certified financial planner Rishi Nathany, answers your questions
Today, certified financial planner Rishi Nathany, answers your questions