It is a brand new year; the sun is shining bright, bringing in new energy that comes with finishing a year and beginning another. We are sure you have resolutions for everything but financial planning on your list.
It is surprising how financial planning is not part of your list despite its lasting impact on your life.
The COVID-19 wave in 2020 caught people unaware and ill-prepared for the financial issues. However, 2021 was better in comparison, despite the Delta wave in the first half of the calendar year. India stayed open for most of the year while the economy started recovering. Consumer spending, manufacturing output, and corporate earnings bounced back.
Like clockwork, as we enter 2022, there is a mounting risk from the new variant –Omicron. It seems the pandemic is here to stay. We will either achieve zero Covid-19 cases or add them to the list of infectious diseases. The only way forward is to adapt to living with the virus, and creating a contingency fund for emergency purposes is the need of the hour.
The RBI reduced interest rates to boost demand, but chip shortages and shipping route disruptions through the year have led to a rise in inflation. The Central bank may resort to higher interest rates to tame inflation; while we face fresh waves of the new variant.
Despite the changes and shifts happening, experts are bullish in 2022. It makes strategic investments imperative, and we’ve found a few investment themes that may dominate the year.
Here are the top five investment avenues for 2022.
Risk-based diversified portfolios: Volatility is a part of the market and here to stay. While the market corrects, many investors make emotional decisions to mitigate their losses. However, making such decisions can be detrimental to creating long-term wealth. The best defense against such mistakes is to have a well-diversified portfolio across asset classes that match your risk tolerance and investment horizon.
In times of volatility, your equity investments may fall, but your overall portfolio may not be affected badly. For instance, a diversified portfolio with complementary assets can help you smoothen out the returns during volatility and minimize risk.
Does this mean you must avoid investing in equities? No.
A wise investor, will always have exposure to equities, based on his/her age, risk-appetite, financial goals etc.
At R & R, we help investors create diversified equity portfolios. Our model portfolios have different weightage between structural growth stocks, momentum stocks, and special opportunity stocks. These stocks are selected after in-depth research, focusing on sector diversification, market capitalization, management pedigree, and other factors.
Basket-based Stocks and ETF’s: FOMO can be a powerful motivator making investors rush into a buying or a selling spree. Avoid buying single stocks, or the next hot stock someone recommends. Instead, consider investing in baskets.
Basket-based Stocks are multiple stocks that are put together based on a theme or a particular strategy. You can trade these securities in a single order. The stocks put in a basket are backed by solid research. You can either pick a theme-based basket or create a customized basket based on your preferences, like a low-risk multi-asset basket or a medium-risk –diversified sector basket. Such baskets can be modified or rebalanced depending on the market conditions. They let investors either earn steady returns on their investments or generate Alpha.
Talking of rebalancing, we at Research & Ranking periodically monitor your diversified equity portfolio and recommend rebalancing if and when required.
Invest in Global Stocks: Have you noticed, most brands that you often use or love, such as Nike, Google, Apple, and Amazon, are not listed in India? Have you considered investing in these stocks? Well, this year, making global stocks a part of your portfolio is a good idea. Not only is it a good diversification strategy, but it will also help investors participate in the global economy.
The Liberalized Remittance Scheme allows investors to invest in international assets like Equity, mutual funds, exchange-traded funds, and more. You can remit such transactions through authorized dealers per RBI guidelines. Like basket-based investing for Indian stocks, consider sector or country rotation baskets when investing for the long-term in global stocks.
Corporate Fixed-Deposits: Considering the robust recovery of the economy and the growth in corporate earnings in 2021, it makes sense that Corporate FDs is an investment theme you may want to think of while building your investment portfolio in 2022. FDs are term deposits several companies and NBFCs offer at higher rates of interest; compared to savings accounts and term fixed deposits.
Credit rating agencies periodically rate the Corporate FDs based on the issuer’s financial stability. Reduce your credit risk when you invest in high-rated corporate FDs. They are best suited for retail investors who can invest through a SIP or lump sum amount.
No doubt, corporate FDs offer relatively higher returns than Bank FDs. However, there is no guarantee that these returns hedge inflation. Thus, having an equity portfolio makes absolute sense to beat inflation.
Sustainable Impact Investing: Per the Global Sustainable Investment Review Report 2020, sustainable investments globally had an AUM of $35.3tn, growing 15% in two years since 2018 among the GSIA members. Experts believe sustainable investments will attract more retail investors in 2022 and the future.
Environmentally conscious companies that treat their employees well and give back to their communities will play a key role when new-age retail investors select stocks for their portfolios.
The market will grow, but predicting a trajectory is not possible. However, you can follow the themes mentioned above after you have consulted your financial advisor.
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