Diversification advocates having a diverse portfolio of investments to mitigate the consequences of market volatility.To meet all of your financial obligations, diversify your revenue streams. Investing in stocks, bonds, commodities, and other forms of alternative investments can help reduce the overall volatility of an investor’s portfolio in general. The gains in a well-diversified portfolio offset the profits and losses of one asset class. An investor’s risk tolerance and long-term investing goals should be considered while deciding on a portfolio of investments.
It is possible to achieve long-term wealth preservation and development by following the SMART Investing method.
- S – Safe (FDs, Bonds and Gold)
- M – Market Linked (International Equity and Domestic, Mutual Funds, ETFs)
- A – Alternative Investments (Real Estate, Private investments))
- R – Retirement Planning (Provident Fund, Pension Funds)
- T – Tax Saving (Tax Planning, Insurance)
SMART Investing allows you to build a thoroughly contemporary and diversified investment strategy.
Let’s take a closer look at SMART Investing:
S – Safety
Any investment must have a high level of security. Fixed deposits and gold have long been considered safe havens for investors. The goal is to keep as much money in the bank as possible. As a general rule, two types of investors choose to put their money in such secure products.
Novice investors learning the basics
- Investors that are searching for predictable and consistent returns
For a wide range of investors, fixed deposits have been the go-to investment option for protecting capital. Savings accounts and fixed deposits account for over a third of the financial assets of Indians. Investing in investment-grade bonds and debentures might provide investors with somewhat higher returns.
In the event of a reduction in interest rates by the Reserve Bank of India, bond investments may potentially provide investors with capital gains.
- Gold ETFs have grown in popularity in recent years
With the advent of physically-backed gold ETFs listed in the United States, where bids and offers are close, and GST is not applicable, Indian investors can now invest in gold directly.
M – Market Linked
The short-term volatility of market-linked financial products might be a concern for investors. These investments have a more significant potential for short-term gains, but they also offer a higher potential for long-term gains. The equities and debt markets are intertwined with indirect investments and mutual funds. Capital gains and inflation protection are the goals of market-linked assets.
For Indian investors, it is now possible to incorporate overseas companies in their portfolios. Indian citizens can send and invest up to $250,000 in a financial year under the Liberalized Remittance Scheme (LRS).
A – Alternative Investments
Alternate investments have been progressively creeping into investors’ portfolios to provide diversity over the past few years. Other asset types, such as debt or equities, do not have a high association with these instruments. More complex asset classes such as high-yield debt, structured products, private equity, and venture capital are now being sought after by investors.
Foreign investment in Indian real estate is rising, a significant trend. Investors have reaped the benefits of India’s increasing reputation in the industry due to a better regulatory environment.
R – Retirement Planning
Indian investors, particularly in the private sector, lack adequate retirement benefits. This has influenced the way Indian investors save for retirement. Pensions and provident funds are popular retirement planning options. The goal is to accumulate enough cash to use later in life.
With the country’s interest rates falling, provident funds (PF) are gaining popularity. They aid with tax-free debt returns and retirement planning. Both EPF and PPF are projected to stay popular because of better returns and tax benefits.
T – Tax Planning
The ability to save money on taxes translates into more money in your pocket, which can be used to make investments. Common and popular tax-saving investments include insurance policies, provident funds, and equity-linked savings programs. Tax-advantaged instruments are also options for investors looking to decrease their tax bills. The goal is to build a tax-advantaged portfolio while diversifying it.
A well-diversified investment portfolio that yields high returns while also protecting your capital is possible with SMART investing. While investing, diversity is essential because it reduces the impact of market volatility. Despite the difficulty of finding uncorrelated assets, it is feasible to design a portfolio with lower risk for any given projected return through adequate diversification across asset classes and geographies.
About The Author
Gaurav Heera is a stock market analyst & professional trader. He’s also known as best stock market trainer in India and sharing his knowledge & expertise through his two best known courses named Stock market course in Delhi & Technical Analysis Course in Delhi.