Benchmark Investments

Learn these time-tested investing strategies and feel more confident about your financial future.

History shows that when people invest and stay invested, they're more likely to earn positive returns in the long run. When markets start to fluctuate, it may be tempting to make financial decisions in reaction to changes to your portfolio. But people who base their financial decisions on emotion often end up buying when the market is high and selling when prices are low. These investors ultimately have a harder time reaching their long-term financial goals.

• Asset allocation
• Portfolio diversification
• Rupee-cost averaging

Appropriate asset allocation refers to the way you weight the investments in your portfolio to try to meet a specific objective. It's the act of investing in different asset classes, such as:

• Stocks
• Bonds
• Alternative investments
• Cash

For example, if your goal is to pursue growth, and you're willing to take on market risk to reach that goal, you may decide to place as much as 80% of your assets in stocks and as little as 20% in bonds. Before you decide how you'll divide the asset classes in your portfolio, make sure you know your investment timeframe and the possible risks and rewards of each asset class.

Different asset classes offer varying levels of potential return and market risk. For example, unlike stocks and corporate bonds, government T-bills offer guaranteed principal and interest — although money market funds that invest in them do not. As with any security, past performance doesn't necessarily indicate future results. And asset allocation does not guarantee a profit.

Asset allocation & portfolio diversification: go hand in hand. Portfolio diversification is the process of selecting a variety of investments within each asset class to help minimize investment risk. Diversification across asset classes may also help lessen the impact of major market swings on your portfolio.

If you were to invest in the stock of just one company, you'd be taking on greater risk by relying solely on the performance of that company to grow your investment. This is known as "single-security risk" — the risk that your investment will fluctuate widely in value with the price of one holding.

But if you instead buy stocks in 15 or 20 companies in several different industries, you can reduce the potential for a substantial loss. If the return on one investment is falling, the return on another may be rising, which may help offset the poor performer. Here Mutual Funds can help us a lot Keep in mind, this doesn’t eliminate risk, and there is no guarantee against investment loss.

Rupee-cost averaging is a disciplined investment strategy that can help smooth out the effects of market fluctuations in your portfolio.

With this approach, you apply a specific amount toward the purchase of stocks, bonds and/or mutual funds on a regular basis. As a result, you purchase more units when prices are low and fewer units when prices are high. Over time, the average cost of your shares/units will usually be lower than the average price of those shares/units. And because this strategy is systematic, it can help you avoid making emotional investment decisions (thus minimizing investment risk).

Let’s say for example, that you invested Rs. 1000 every month for six months – during a period of fluctuating prices. The table below illustrates how your average unit cost could be less that the average price per unit during that period.

Average price (NAV): 50/5 = Rs. 10.00 Your average cost: Your total investment / total no. of units: 5000/508.333= Rs. 9.84

In general, investments that have potential to generate higher returns are also more risky. Only you can decide how comfortable you are with that trade-off. The more time you have to save, the more likely it is that undertaking a little higher risk can pay off.

Once you understand your risk tolerance, you can construct you asset allocation — the mix of investments in your portfolio. As you approach retirement, your asset allocation strategies will change, and you may want to make adjustments to help protect you from market risk while retaining potential for growth. In retirement, your asset allocation needs to generate income from your savings while growing your overall portfolio.

Once you select your asset allocation, you need to choose the investments within it. The goal of diversification is to invest in a range of products such as cash vehicles, bonds and stocks, or mutual funds, so that your assets are spread over many unrelated companies, industries and regions. Diversification is an important strategy that can help reduce risk in your portfolio. While some of your investments may lose value, those losses may be offset by gains in other investments.

Determining your risk tolerance, constructing an asset allocation and diversifying your underlying investments can be a complex process.

If you have questions about these strategies, consider reaching out us