And just like that, the year 2021 has come to an end. The world looks both different from a year ago and also very much the same. It amazes us to see how some of the basic tricks of financial planning, which can have a huge impact on everyone’s lives, are taken for granted.
Life with Covid-19: 2021 took us a long way back to routine. Despite the delta wave in the first half of the calendar year, the country remained open for most of the year, and the economy began to gain traction. Consumer spending has returned, and businesses have remained confident in themselves.
As we enter 2022, there is a growing risk in the new version of Omicron. The epidemic can end in one of two ways, or we will achieve “zero cobid-19” or the disease becomes an ongoing part of the group of infectious diseases. We believe that companies will have to adapt to living alongside Covid-19. Thus, maintaining a drawer beam for emergency purposes is most necessary, now more than ever.
One of the methods used by central banks was to reduce interest rates to increase demand. This, together with the great disruption in logistics (from lack of chips to disruptions in shipping routes), has led to an increase in inflation. One of the main factors – apart from new waves of the plague, will be the tightening of interest rates when central banks focus on taming inflation.
Below are the four leading investment channels for 2022.
1. Model portfolios
- Volatility is here to stay – When markets recover after touching highs and losses begin to occur, it is difficult to avoid making emotional decisions to minimize those losses. This behavioral error can be detrimental to long-term wealth creation. Your first defense against these mistakes is to create a diverse portfolio across different asset types that match your investment horizon and risk tolerance. In times of market volatility, while your risky (home / global) equities investments may decline, overall portfolio performance may not be so affected. A diversified portfolio built from complementary assets helps you smooth out returns in volatile times and helps reduce portfolio risk.
Model portfolios collected according to the risk-return profiles of investors are most suitable in volatile market conditions. The portfolios can be constructed with different weights between cyclical and non-cyclical stocks. Portfolio returns are average weighted returns, meaning that returns tend toward the segment that has more weight in the portfolio. Model portfolios are backed by strong research and consulting and focus on the following aspects while investing:
- Sectoral diversity – Diverse model portfolios between different cyclical sectors such as banking and finance, automotive, metals, infrastructure and real estate. Non-cyclical sectors consist of IT, pharma, FMCG and consumer products.
- Market value diversification – Market value is another factor that should be taken into account when choosing stocks. These portfolios are well balanced between large, medium and small stocks. Large stocks are stable and yield moderate returns. Medium stocks and small stocks are more volatile and have the potential to yield higher returns.
- Rebalancing the case Stock portfolios require rebalancing because risk and returns are highly related to market volatility. Balancing investment portfolios helps record better-performing stocks and investing in low-performing stocks that have the potential to yield higher returns.
2. Recommended baskets of stocks and ETFs
Avoid buying a single stock. When markets rise, it’s easy to get FOMO and rush for the next “hot” stock, whether it’s an IPO or a “value” stock that someone tells us about. Instead, look at investing in baskets. A basket is a group of several securities that can be traded in one order. The components of the baskets are selected based on a particular strategy or theme. They are Christian and based on research done by professionals whose daily life is to do just that. An investor can choose a predefined basket or create a custom basket according to its preferences.
Some baskets are described below based on different risk-return profiles:
- Low risk – multi-asset basket
Investors with a low-risk appetite can choose to invest in a multi-asset basket. It can be a combination of capital, debt and ETFs. Rebalancing this basket helps fight concentration and volatility risks. A balanced multi-asset basket from time to time can earn slow and steady returns to meet long-term financial goals.
- Medium risk – diversified sectoral rotation
Different sectors are coming into the spotlight based on the economy. Sometimes Pharma may do well, and sometimes defensive stocks may succeed. The ability to gain overweight (or underweight) in the cut does wonders in creating alpha (exceptional performance). Holding a treasury basket that has a sector rotation strategy will do very well in volatile conditions.
3. Global investments
Let’s admit it. More than 50% of all the brands you know – whether it’s Google, or Pepsi, Identified or Nike, that we know well and consume in our daily lives are not registered in India. Making them part of our portfolio is not only good for diversity but also provides us with opportunities to participate in the global economy. Globalization and digitization have made the world a small place, and they are here to stay. Creating part of our portfolio strategy will probably be one of the best things you can do.
There are different ways to make this happen. One of the best routes is through the LRS route.
The Liberalized Remittance Scheme or LRS allows us to make international investments in assets such as stocks, mutual funds, exchange traded funds (ETFs), etc. Transfers of such transactions may be made through authorized dealers in accordance with RBI guidelines.
As with Indian stocks, we recommend investing in baskets – especially sector / country rotation baskets – as this part of your portfolio is definitely long-term.
4. Fixed deposits for companies
Fixed deposits for corporations are period deposits offered by a number of companies and NBFCs. They offer higher interest rates compared to fixed-term savings accounts and deposits. Corporate FDs are periodically rated by rating agencies to check the financial stability of the issuer. It is advisable to invest in a high-rated corporate FD to reduce credit risk. Corporate FDs diversify the portfolio of debt investments.
The advantages of these investment channels are:
- Low minimum investment value makes them best suited for retail investors. Investments can be made using SIP or lumpsum mode.
- Because there are no lock-in periods, investors can withdraw funds according to their financial goals.
The Bottom Line
While all of these investment channels look appropriate for 2022, it is advisable to make investment decisions after consulting your financial advisor.