Tame financial markets through two-in-one approach of investing in equity and debt market proportionately, as this allows such funds to perform well in all market conditions.
Should market volatility be a cause for concern to retail investors? All major financial assets invariably exhibit a certain degree of volatility in due course of time.
One should always reminisce that no asset class is designed or programmed to move in one specific direction, say, in a straight ascending line. And, when it comes to financial assets, the exposition of volatility is more pronounced, particularly, when there is a slew of events including political, economic or financial lined-up, or when things related to business world go completely disarray.
For example, election results can be a major twister which can take financial markets by a big surprise, and send asset prices hurtling north or southward.
Warren Buffett, one of the world’s richest men and greatest investor said, “Volatility is not the same thing as risk, and anyone who thinks it is, will cost themselves money.”
It’s also proven time and again that with major shifts in macro-economic parameters, financial assets become relatively attractive compared to other physical assets, while the setting appears primed for growth in financial assets. Hence, it’s always recommended that retail investors should incrementally participate in financial assets to maximize their return on investments.
Nevertheless, the challenge remains for neophyte investors, who are mostly averse to typical market choppiness that’s encountered almost on a daily basis. So, how can such investors navigate market volatility comfortably, who have conventionally enjoyed the protection and safety of traditional investment avenues?
More often than not, market volatility tends to unnerve or frighten financial asset investors, that’s because asset prices swing wildly, while occasionally there’s blotch of red on portfolios. Investors often become fastidious when they look at temporary losses, while they can become vulnerable to making serious mistakes, which can cost their portfolios dearly. For example, investors mostly tend to sell when equity asset prices start falling, whereas, actually they should be making purchases in a declining market.
On the other hand, when equity prices are stretching to their all-time highs, investors generally tend to become greedy expecting further gains, while necessarily that may not be the right move.
Hence, in these interesting and dynamic environment, volatility suite of products finds the attention and consideration. The emergence of dynamic asset allocation/ balanced funds has helped to dispel fears among the conservative class of investors, while navigating them through capital markets.
Investors often hear and know that asset allocation is the cornerstone for long term wealth creation; however, the average investor finds it difficult to implement this strategy in their personal investments.
Dynamic asset allocation fund comes in as benediction for such investors as such funds are structurally designed to take care of appropriate asset allocation strategies depending on market conditions. More importantly, these funds help investors to negate the burden of emotions associated in the investing process.
For example, investors tend to pass opportunities to invest in a falling market, owing to fear that they may accumulate losses, in case market heads further south. But, such funds on the other hand, will only increase allocations to equity, due to its in-built market strategy, which is ideally the right thing to do.
retail investors have evolved with time, they have highly acknowledged the fact that over the long term, dynamic asset allocation funds aims to benefit out of volatility, and it doesn’t matter whether markets are choppy or outlook remain sanguine.
The upsurge in enthusiasm among the retail investors for this product can be derived from the fact that there have been increased inflows into dynamic asset allocation funds, over last two years.
dynamic asset allocation funds balance between two important financial assets i.e. equity and debt. At times when one asset class tends to exhibit a higher degree of volatility, the other helps to diminish the same.
Auto rebalancing in dynamic asset allocation funds depends on attractiveness and desirability of the certain asset class. The basic premise of volatility suite of products is to create long-term wealth, a feature with which conservative investors find comfort.
The experience of long-term investors has been very positive and encouraging with volatility suite of products. Hence, dynamic asset allocation funds – holds the potential to become as large as the cumulative equity asset under management of mutual fund industry.
As the world has become more indeterminate than before, your investment strategy needs to adjust, and, what can be better than incremental investment in dynamic asset allocation funds.
Source: Economic Times