Where to Invest in Difficult Times?
59The times are extremely difficult. There's bloodshed on the street and the stains can be seen on the portfolios of the small time investors. Investments have been rendered worthless in a month. Is time to keep that hard earned money in the vaults and forget about it? Following some simple investment principles should see you through the difficult times and at the same time reap you some rich dividends.
Divide your corpus so as to be protected against a downfall in any sector. No other investment instrument is as powerful as the stock market but with more money comes more risk. Let's have a look at the ideal division of investments.
Have a balanced portfolio
Divide your stock market investments so as to accommodate the top 4 sectors. It is not possible to accommodate all the sectors. Have sectors that balance each other. An ideal example would be realty and Information technology. Do not include sectors that are interdependent like realty and cement.
Have some sectors that never go bust like FMCG and telecom. This way you will have a balanced and considerably risk free portfolio in the sense that even if a sector fails you will still continue to float.
Ideally approximately 35% of your total money should be in the stock markets.
Invest in mutual funds
Mutual funds are less risky since they are managed by professionals who constantly monitor the markets. Even if the markets plunge be assured that the fund will bail out sooner than the stocks you have invested in. Again do not put your money in sector based funds but go in for diversified equity funds which invest in a variety of sectors and the fund manager keeps juggling the stocks.
Investing in Index funds should see you much safer than investing in pure equity based funds. Another safe option for investing in mutual funds is balanced funds which are a combination of equity and debt.
Ideally about 30% of your corpus should be in mutual funds of which 10% should be in index funds, 10% in balanced funds and the rest in equity diversified funds.
Invest in government Bonds
Government bonds are very safe and yield better returns than bank deposits. The only deterrent is the time period. Bonds require a lock in period of 2 to 3 years and hence not many people tend to invest here.
Ideally 25% of your corpus should be in bonds and similar investments.
Invest in bank deposits
Fixed deposits are the safest forms of investment, that is, until the bank goes bust! Fixed deposits earn decent interest, more than the money kept in that bank accounts and they can be withdrawn without any hitch. It is always advisable to keep a decent amount of money in safe instruments.
Keep the last 10% of your money in fixed deposits.
Following the above structure for your money should get you through difficult times and at the same time earn you a more than decent sum. Learn to manipulate the amount invested in the different investments depending on which sector is doing better at what time. And most important, learn to resist greed and have infinite patience!
