The rupee is into a free fall. Without going into the actual numbers (trust us, they are sufficiently large and extremely worrisome), our trade and fiscal deficits are slowly reaching unmanageable proportions. The era of coalition politics has resulted in a policy paralysis – whichever undertaken reforms are stalled by some political party or other, no matter that the country at large will benefit. To compound matters further, tax rules and regulations, which are an important consideration for foreign investors committing funds and resources for long term projects are chopped and changed as per convenience.

However, it is not the end of the world. If a government does not learn on its own, at the end of the day the markets and investors comprising those markets have a way of teaching lessons. Now the government is being forced to sit up and take notice. If you think about it, the solution to the crisis is pretty straight forward. Instead of leaving the country as has happened, billions of dollars should be entering the country. Well, as we said the solution is simple – however, implementing it is another ball game altogether.

However, if there is one thing any government worth its salt knows and recognizes the importance of – it is that of survival. When one’s survival comes into question, one can even move mountains. Which is what is going to be required of our government, if it wishes to survive. Without going into the technicalities, suffice it to say that the ball is already in motion.

Also, we human beings whether as a government or private enterprise or the public – have a way of learning from our mistakes and pulling up our socks – and this syndrome – of making mistakes, suffering the effects of the same and then correcting the wrongs is also called a market cycle. These market cycles will keep repeating themselves as long as mankind exists.

So in short, yes, the markets are terrible right now, but in time things will brighten up. In the meanwhile, how should we, as investors tackle this situation? The simplest and the most effective solution would be to have a carefully thought out asset allocation policy in place. Now, a tailor made, suitable asset allocation strategy would indicate that rather than going overboard on fixed deposits and FMPs (as investors are doing now), during current times, you should actually be adding a little to your equity portfolio. Make no mistake – we are not suggesting that you shouldn’t be considering FMPs. However, disregarding all other asset classes (or even pulling out of equity) only to invest in FMPs would not be the best idea.

If you think about it, sticking to your allocation pattern would actually discipline you to buy low. And then eventually when the market picks up and the aggressively promoted equity funds make a comeback, it is your asset allocation that would prevent you from succumbing to the seduction. Sticking to the allocation pattern would have you actually reducing the equity component in your portfolio. In effect, you would have booked profits and sold high. And as everyone knows but seldom practices, buying low and selling high is the only way to make money in the stock market.

Continue With Your Financial Goals

That being said, we come to another aspect of the planning process and that is setting achievable goals. Without having carefully thought out financial goals, any asset allocation or investment plan will be meaningless. It will be like starting on a journey without any particular destination in mind. Note however that the goals have to be realistic and objective.

For example, you may wish to start a small business after retirement, your daughter wonders if you could lend a little financial support for her education abroad, you also want something in hand for her marriage when the time comes and then there is this small row house that you always wanted to buy at your native place…..yes the wants are many and all may or may not be fulfilled. However, the thing to do is to put it down on paper, in terms of cold numbers. This way, you have graduated from having a hazy idea about your requirement to being fully seized with at least a broad ball park figure.

Now in the case of your post-retirement needs, you need not worry about short-term fluctuations in the stock market. A large part of your investment for this purpose should go into stocks and mutual funds. But if your daughter is say four years from entering college or getting married, you may need to tilt your asset allocation to safer fixed-income investments.


Last but not the least there is rebalancing. As you must have figured out by now, by definition, asset allocation can never a one time exercise. Therefore, it is important to conduct periodic portfolio reviews, since over time the value of the various assets within your portfolio will change thereby affecting the weighting of each asset class.

So in order to reset your portfolio back to its original state you need to rebalance your portfolio. Therefore you would need to sell portions of your assets that have increased significantly and channel those funds to purchase additional assets that have fallen in value or increased at a lesser rate.

To Sum

The eventual goal of any investor is to maximize return for a chosen level of risk. The only way to achieve this goal on a consistent basis is by conscious asset allocation. The current economic environment is no doubt tough. To implement the practices mentioned in the article is entirely up to you. The question is are you up to it?

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