Investment is a long-term journey which helps one reach several financial goals while ensuring the menace of inflation does not dent your pocket. During this journey, asset classes witness several market cycles. Since different assets have distinct market cycles, often not in tandem, it is highly likely that performance of all asset classes will not be in sync.
There could be times when one asset does quite well while others underperform and vice versa. As a result, when investing for the long term it is important to gain from the strengths of all asset classes in an optimal manner. That is why, it is important to stick to certain basics to ensure that the investment journey remains smooth and enjoyable.
Two of the most important factors which help towards improving the portfolio yield are risk management and diversification. For a successful goal achieving investment, the first and foremost focus needs to be on risk mitigation through various investment strategies. Multi-Asset investing is one of them.
Multi-Asset investing, as is amply clear by the name itself, is an investment strategy which facilitates investors to have exposure to multiple asset classes - namely equity, debt, commodities and infrastructure-related instruments, at any given point of time. Given the fact that different asset classes have distinct features, different market cycles and varied risk to reward ratios; a multi-asset investment strategy helps yield the optimum long-term returns.
However, it is often seen that majority of investors tend to chase returns. In the process, they often ignore the risk involved in investments. This is generally the result of recency bias among most investors who tend to think that outperforming asset classes will keep on performing while the laggard will remain an underdog always. This is a flawed thought process. Historical trends suggest that investors who chose multi-asset investing emerged wealthier during various market cycles.
At the same time, it is equally true that investors, at large, do not know why, when and how much allocation to make to different asset classes. This is where multi-asset mutual fund schemes become relevant with their professional investment management strategy. Such funds take suitable exposure to debt, equity, gold and other asset classes and are flexible enough to change the allocation as per the market cycles basis the changing macro-economic situation.
Generally, a multi-asset fund allocates 50-70% of assets to equity-related instruments, 20-35% to debt asset class while the rest is invested in gold and others. Equity exposure aids in delivering growth, debt brings in stability, Gold acts like a hedge against inflation while instruments like InVITs and REITs offer extra yield to the overall portfolio. Given the structure of the fund, an investor is spared from the stress of asset allocation and rebalancing the portfolio as and when required.
Benefits of multi-asset investing
By having a multi-asset approach one is ensured of asset allocation and diversification which are the important pillars of long-term wealth creation. Apart from these the other notable highlights are as follows:
1) Risk Mitigation: An ideal portfolio focuses on risk mitigation while trying to maximize returns. This is exactly what a multi asset strategy does by taking exposer to multiple asset classes.
2) Volatility under check: Extreme ups and downs in portfolio valuations is not easy to digest by most investors. Multi-asset investing is meant to keep market extremes at bay and thereby rendering a largely stable investment portfolio.
3) Optimum Returns: As a result of all the above mentioned practices, the returns generated will be optimum in nature. Multi-asset investing takes the advantage of market cycles and keeps repositioning its asset allocation as per the changing times to benefit the most out of any market conditions.
To conclude, multi-asset investing is an evergreen investment strategy which does not lose its relevance irrespective of the market scenario. It is like an all-weather investment approach which every investor should consider while investing for the long-term. As a means to smoothen this allocation journey, make of multi-asset category fund wherein the fund manager will do the needful on your behalf.
Dipankar Pattnaik, CEO, Services 1UP
The views are personal and are not part of the Outlook Money editorial Feature.