Festive seasons are also seasons of splurging; discounts compete for attention and markets show bursts of activity. But some people may want to treat this time to mark a new beginning, even financially. Diwali, the festival of prosperity, might also make for a good time to rethink your investment strategy. In this article, we will explore some tips and advices that may help you do just that.
The following strategies are intended for informational purposes and should not be considered as financial advice or guarantees. Every investor’s situation is unique, so these are general guidelines that may not suit all needs or preferences.
Table of contents
Setting clear investment goals this Diwali
One way to set clear investment goals may be to define them properly and deciding a timeline for them. Split goals into three buckets – short-term (0-3 years), medium-term (3–7 years), and long-term (7+ years). Label them plainly: emergency fund, car upgrade in 30 months, child’s college in 10 years, financial independence at 50. Put target amounts next to each. If a goal is under three years, it is advised to keep liquid funds or high-quality debt funds. For long-dated goals, you may accept equity volatility.
Also Read: What is 7-5-3-1 Rule in SIP Mutual Fund Investment?
The importance of asset allocation
Asset allocation is very important. A simple anchor that is commonly used is: your equity percentage should broadly match 100 minus your age if you’re a more conservative investor, or 110 minus your age if you understand drawdowns and have stable income. It is advised to keep 6–12 months of expenses in cash or liquid funds; place the rest across equity, debt, and (optionally) gold. Gold is often used as a hedge in a portfolio. Review and rebalance every year. However, make sure that you take into consideration your risk appetite and financial responsibilities while deciding your asset allocation.
Growth vs. defensive assets: Understanding the balance
Growth assets include equities, equity funds, equity-oriented index funds. They offer the potential for compounding over the long-term but may be volatile in the short to mid-term. Defensive assets such as short-duration debt, high-quality bonds, money market and overnight funds may provide relative stability. A balanced asset mix may smoothen your investment journey and make you less vulnerable to making emotional decisions, especially in volatile markets.
Building a solid foundation
Investing is not just about chasing outperformance; it is also about getting the basics right. Firstly, it is considered crucial to have an emergency fund: 6 months of core expenses in a liquid fund or high-yield savings, accessible within T+1. Second, insurance: a term life cover and a health policy (family floater if needed). Third, debt hygiene: close high interest personal loans and credit-card balances. Fourth, try automating investments the minute your salary credits. Once this foundation is in place, you may be more prepared to take market risks.
Past performance may or may not be sustained in future.
Staying steady through market volatility
Markets tend to function largely oblivious of the festive mood and there may be unfavourable outcomes in the short to mid-term. So, you may stay prepared in advance. Decide your maximum drawdown tolerance and use checklists for assessment: Is my emergency fund intact? Have my goal timelines changed? The answers may determine if you have to rebalance the asset mix and how.
The role of SIPs in potential long-term wealth creation
SIPs enforce investing discipline and remove the uncertainty of timing the market. The SIP amount may be split across two or three suitable funds for optimal diversification, balancing growth potential with relative stability. Try to keep expense ratios low and churn near zero. Review once a year, not every week.
Rebalancing your portfolio: when and how
Rebalancing is the practice of realigning your portfolio to secure potential gains and control overall risk. Pick either a calendar rule (once every 12 months) or a threshold rule (whenever an asset drifts by ±5 percentage points from target). Keep a log of every rebalance: date, weights before/after, and the reason.
Also Read: Investment strategies for different life stages
Conclusion
You could make this festive season different from others by reconfiguring your investment strategy. You may use the coming days to write your targets, set up an SIP, and schedule your annual rebalance date. As you celebrate the festival of lights with your friends and family, plan your SIP investment and move a step closer to potentially realising your long-term goals.
FAQs
What are the key elements of a balanced investment strategy?
Clear goals, a realistic equity-debt-gold allocation, a fully funded emergency reserve, adequate term and health insurance, automated SIPs, and a written rebalance rule.
Why is setting clear investment goals important during the festive season?
Festive spending may compete with investing. Goals tie every rupee to a deadline and return assumption, potentially preventing you from converting long-term investments into short-term purchases.
What is asset allocation, and how does it impact my investment returns?
Allocation is the split across equity, debt, and gold. It determines most of your risk and return. A suitable allocation cushions drawdowns and helps you stay invested long enough for potential compounding to work.
How do growth assets like equities differ from defensive assets like gold and debt?
Equities potentially grow earnings and wealth but tend to swing sharply. Debt and gold smooth the ride and provide liquidity during stress. You may hold both so you neither panic during falls nor stagnate during long bull markets.
What role do Systematic Investment Plans (SIPs) play in potential wealth creation?
SIPs inculcate an investing discipline. The rupee-cost averaging enables the purchase of more units when markets are low and less when they are high, potentially averaging costs and removing the challenge of trying to time the market.
How can I stay calm during market volatility and avoid impulsive decisions?
You may try to write your rules in advance: drawdown tolerance, rebalance trigger, and the checklist you’ll review before changing anything. Restrict portfolio checks to scheduled dates.
What is portfolio rebalancing, and why should I consider it?
Rebalancing restores your target mix when markets stretch it. It keeps the risk and return potential aligned with your plan.
How can I ensure my investments align with my financial goals?
Try mapping each investment to a specific goal bucket and horizon. Short-term goals may use liquid, low-risk instruments; long-term goals may use equities for potential compounding. You may want to review annually, rebalance, and update the map when the life situation changes.
Should I invest a festive bonus as a lumpsum or through SIPs?
For most investors, a balanced approach may involve investing a part of the bonus amount as lumpsum (depending on valuations and market conditions), and staggering another part of the bonus part via SIPs into suitable mutual funds.
Is gold necessary in the portfolio during uncertain times?
Not mandatory, but a small 5–10% allocation may act as a hedge and lend relative stability to the portfolio, especially when equities and currency are volatile.
How much debt allocation is enough?
It depends on your age, objectives and risk tolerance. Conservative investors typically favour a higher debt allocation.
What mistakes do investors commonly make during festivals?
Mixing short-term spending money with long-term investment money, chasing tips, skipping insurance renewals, and ignoring taxes. Automated SIPs may help you avoid most of these pitfalls.
Do I need multiple equity funds to diversify?
Two or three well-chosen, low-cost diversified funds may offer broad market coverage. Beyond that, further diversification may not really mitigate risk.
How do I decide between active and passive funds?
If you prefer a simple, low-effort approach, passive funds tracking broad indices may be a suitable fit. If you are comfortable evaluating fund managers and don’t mind paying extra for their expertise, an allocation to active funds may be considered.
What should I do this week to start?
You could write your goals with amounts and dates, fund the emergency bucket, set a monthly SIP (even Rs. 5,000 matters), pick a target allocation, and put a rebalance reminder on your calendar for the same week next year.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.
The content herein has been prepared on the basis of publicly available information believed to be reliable. However, Bajaj Finserv Asset Management Ltd. does not guarantee the accuracy of such information, assure its completeness or warrant such information will not be changed. The tax information (if any) in this article is based on current laws and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.
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