Do long-term investors need asset allocation? | Pure equity portfolio vs asset allocation strategies

Рет қаралды 59,276

Күн бұрын

If you are investing in equity for the long term, does it make sense to practise asset allocation? This video delves deep into this aspect. But what is asset allocation? Asset allocation is dividing assets across different assets such as equity and debt. It helps limit portfolio volatility. But is it useful for someone who has a long-term horizon?
In this analysis, we have compared a pure equity portfolio with various asset-allocation strategies: 70:30, 80:20 and 60:40. If we see the final amounts in each of the cases, the pure equity portfolio has turned out to be most rewarding. However, this is not to suggest that asset allocation is not useful for long-term investors.
To understand the efficacy of asset allocation, we studied the maximum drawdowns from these portfolios across market falls. The asset-allocation portfolios fall less than pure equity portfolios. During the 2020 market crash, they performed much better than the pure equity portfolio.
While asset allocation may give lower returns in the end, its main use is in containing the downside in the portfolio. An abrupt fall can cause many investors to sell out prematurely. Even seasoned investors aren’t immune to this behaviour amid market crashes. So, asset allocation ensures that one stays put through tough times. Given this, the small loss of returns shouldn’t be a problem.
Asset allocation also takes care of the dilemma of when to book profits and when to invest more. Its close cousin is rebalancing. Rebalancing means restoring the desired asset allocation periodically. So, if equity has run up, part of the equity portfolio can be sold to restore asset allocation. This can take care of profit-booking as well. Similarly, if the debt part has gained more in the portfolio, part of it can be sold to restore the desired asset allocation. Doing so will ensure that you buy more of equity when the markets are down.
Hence, whether you are a new investor or someone with a couple of years of experience or a seasoned investor, asset allocation is useful for you.
📒 Chapters
00:00 Introduction
01:53 Pure Equity Portfolio vs 70-30 Portfolio
04:51 Pure Equity Portfolio vs 80-20 Portfolio
06:00 Pure Equity Portfolio vs 60-40 Portfolio
07:28 Evaluating Asset Allocation and Rebalancing
👉 Link to the video data: docs.google.com/spreadsheets/...
👉 Asset Allocation | ET Money
• How to do Asset Alloca...
#ETMoney
👉 To invest in Direct Plans of top Mutual Funds for free, download the ET Money app: etmoney.onelink.me/unJQ/5ca1ae3b
👉 Subscribe to ET Money Hindi
/ @etmoneyhindi
👉 Learn about Investments, Tax-Saving and Future Planning www.etmoney.com/learn
👉 Follow us on:
► Facebook: / etmoney
► Twitter: / etmoney
► Instagram: / etmoney_official
► LinkedIn: / et_money

Пікірлер: 63

@sanjsharmanith 4 ай бұрын

Very knowledgeable video. Can we have similar type allocation based video on NPS.

@vijaykoduri1994 9 ай бұрын

Do you suggest the same even after no indexation benefit?

@Ar-zl3rp 9 ай бұрын

Very useful content , please do more such topics in upcoming vedios👏

@ETMONEY 9 ай бұрын

Hello, great to know that you liked the video. Do share it with your friends, family and colleagues.

@puneetporwal 9 ай бұрын

So it boils down to risk-adjusted returns instead of just pure returns. I guess there are quite a few MF schemes that will have better risk adj returns than NIFTY 50 TRI and asset-allocated portfolio as discussed here. It'll be great if you can discuss specific hybrid MF schemes that already are doing this. Its better than reinventing the wheel. These schemes will have the added advantage of not just asset allocation into debt but also diversifying the equity part into large, mid n small caps instead of just restricting to nifty 50 stocks. And ofcourse no need to track markets for manual rebalancing or thinking about tax implications related to rebalancing

@ETMONEY 9 ай бұрын

Hello, hybrid funds do provide automatic asset allocation and rebalancing. You can very well consider them if that's your requirement. Those who want control over their asset allocation can invest separately in equity and debt funds. The goal of this video is to bring home the point that asset allocation is useful even for long-term investors. But we have also noted your suggestion regarding a discussion on hybrid funds and will share it with our content team.

@rohanshinde4327 9 ай бұрын

But you need to divide your money into short term and long term goals. The money that you don't need for 7 years can go into full equity fund. While till 3-4 we can use debt or hybrid fund. Personal I choose only debt and equity, no hybrid. Hybrid also takes more expense ratio.

@krithickk758 3 ай бұрын

@@rohanshinde4327 but the expense ratio will be updated in daily nav what you are seeing is returns after adjusted expense ratio

@yogrp 9 ай бұрын

Ty🎉

@Ar-zl3rp 9 ай бұрын

When we doing the rebalance meana chance of getting tax also short term or long terms tax after realising profits ,is this will affect the returns which put for long term

@Quantinvestor1 2 ай бұрын

Yes

@Quantinvestor1 2 ай бұрын

You must explain taxation also when asest allocation done annually

@varunbhati7428 9 ай бұрын

Only word ringing in my mind while watching this video was balanced advantage funds and then chill let fund manager decide....and let me focus on work and chill.... 😀

@ETMONEY 9 ай бұрын

Hello, balanced advantage funds provide dynamic asset allocation based on the fund manager's view of the market conditions. You can very well consider them if they fit your purpose.

@mudassarsayed4792 6 ай бұрын

Balanced advantage funds are also pure equity funds as a product, i wont not consider them as my debt portion, and would rebalance even with balanced advantage.

@keshavrao7 8 ай бұрын

I am an user of ET money genuies Request you to expalin mainly taxes as i see monthly rebalancing in this genuis porfolio in stocks are we giving enough time as every month in rebalancing if that stock goes 9-10% down its selling and buying one more . Then how are you doing analysis for portfolio and what percentage we buy or sell stocks in every month rebalance ?????

@drjigu2994 9 ай бұрын

Nice video but did you consider Taxation part during rebalancing?

@gabbbbbz 8 ай бұрын

Had the same thought, maybe rather than selling equity, it may be better to manage the SIP according to the market conditions, or sell upto 1L profit to not have to pay tax

@Vishwas997 9 ай бұрын

What was the xirr considered for the debt part ? I think for Nifty 50 ,we assumed 12%

@puneetporwal 9 ай бұрын

I don't think any assumptions were made. They used actual values from NIFTY 50 TRI and i-sec bond index from APR 08 to APR 23

@ETMONEY 9 ай бұрын

Hello, as @puneetporwal has pointed out, we have used actual values and not assumptions.

@ETMONEY 9 ай бұрын

Hello @@puneetporwal, you are right. Thanks for helping your fellow viewer.

@10renganatha 9 ай бұрын

Why not gold considered

@sumitthaper3164 9 ай бұрын

Nice content

@ETMONEY 9 ай бұрын

Hello, glad to know that you find it useful. Please share it with your friends, family and colleagues as well.

@PankajPoddar 9 ай бұрын

What about taxes on debt part and rebalancing? Most people investing this much will have to pay taxes as per slab which can be as high as 30 %. Mathematics can easily fool you. Why would I invest and compare with Nifty 50? Include a realistic mix of mid and small cap as well. Actual returns of any active fund such as multi cap are much higher than Nifty 50 index.

@puneetporwal 9 ай бұрын

While you have a point about using a realistic mix of mid n small caps and tax implications on rebalancing, would request to avoid harsh words. This is one of the few channels on YT where users can have a civilized discussion on important topics. Thanks.

@ETMONEY 9 ай бұрын

Hello, if you rebalance your portfolio by selling off some of the units, there can be a tax incident. One way to avoid it is to use the incremental investments to rebalance your portfolio. In that case, your selling would be contained. Also, in our view, the long-term benefits of asset allocation and rebalancing go beyond their cost. Nifty 50 has been taken as it's the market bellwether and a frequently used criterion for analysis. Even if you used an active fund, the takeaway would remain unchanged as the same fund would be used on both sides: pure equity portfolio and asset-allocation portfolio.

@puneetporwal 9 ай бұрын

@@ETMONEY I would not make the assumption that if nifty 50 TRI is replaced by an active fund on both sides, the asset allocation side would still give better risk adj returns coz there are quite a few schemes out there with very good risk adj returns esp in small cap n flexi cap space. Rebalancing these portfolios with debt could result in substantial compromise on returns for lower volatility. Hence it's more realistic to do this same analysis using a top active fund (based on risk adj rolling returns) AND considering tax implications related to rebalancing. See what the 7-yr rolling returns and their std deviation are. (To evaluate risk, just looking at drawdowns in extreme situations isn't enough - there are situations when debt outperforms even without a black swan even in equities. Std deviation of 7-yr rolling returns would take care of all this).

@PankajPoddar 9 ай бұрын

@@puneetporwal Corrected.

@alphacretz 2 ай бұрын

How To invest in debt

@tapasranjansanyal8718 9 ай бұрын

Please suggest a good Multicap Fund for SIP 7-8 years.

@ETMONEY 9 ай бұрын

Hello, unfortunately, we can't make specific fund recommendations. However, you can use the Fund Report Card and the other tools on the ET Money app to find a good multi-cap fund for yourself.

@arjunps6776 9 ай бұрын

As a salaried employee, can I consider my EPF accumulation and my PPF investment as a part of my debt portfolio?

@ramyasri6093 9 ай бұрын

We cannot rebalance through epf, ppf na

@nandagopal535 9 ай бұрын

Yes these are debt funds as well

@elitepunch1498 9 ай бұрын

Yes EPF & PPF are all part of the overall Debt side of your portfolio

@ramyasri6093 9 ай бұрын

@@elitepunch1498 but we cannot rebalance them na

@arjunps6776 9 ай бұрын

@@ramyasri6093 Question is if we should include the PF in debt portfolio calculation. Rebalancing can be done with additional debt funds or in equity itself depending on the proportion.

@shashankpandey7063 7 ай бұрын

So if my pf gets deducted and I invest in equities isn’t that asset allocation

@naveenkumar-ts6oj 9 ай бұрын

Dear Sir Please make a comparison video between Nifty Midcap 150 quality 50 index VS Nifty Midcap 150 momentum 50 index

@ETMONEY 9 ай бұрын

Hello, this sounds like a good idea. Will share it with our content team and they will take a look at it.

@sonumeena6878 9 ай бұрын

5 से 10 साल के समय मैं निफ़्टी स्माल cap इंडेक्स आसानी से 18 से 20 के cagr का रिटर्न दे देता। past रिकॉर्ड

@puneetporwal 9 ай бұрын

Is video ka point hai ki aap returns ke saath downside bhi dekhiye

@vishalambekar6240 9 ай бұрын

Ye video Hindi language mein hai kya sir. Please

@ETMONEY 9 ай бұрын

Hello, we understand that you prefer Hindi to English. We have a Hindi KZfaq channel as well where we post many of the videos on this channel post translation. You can visit it at www.youtube.com/@etmoneyhindi/videos

@puneetjuyal1605 2 ай бұрын

If you have more than 15 years do it 100 percent equity and do not check it daily

@akashghosh509 9 ай бұрын

My asset allocation is equity and PPF 2:1 ratio

@ETMONEY 9 ай бұрын

Hello, this is an asset allocation of 66% equity and 33% debt. The problem with having the PPF as your debt instrument is that you can't readily rebalance your portfolio. Still, you can use incremental flows to maintain this asset allocation up to a point.

@ganapathiraokaranam4375 9 ай бұрын

ET money videos are mostttt under rated.... 😢

@ETMONEY 9 ай бұрын

Hello, please help us reach far and wide by sharing this and our other videos with as many people as you can.

@ganapathiraokaranam4375 9 ай бұрын

@@ETMONEY I will

@shahbaaz2958 9 ай бұрын

Does ET money plan to launch some products specifically for muslims?

@genericstospecifics1856 9 ай бұрын

Why would muslims need a special fund?

@arunkarunanidhi1545 9 ай бұрын

@@genericstospecifics1856shariat principal

@tanujdhadwal1680 9 ай бұрын

Barood gola khridne k liye

@ETMONEY 9 ай бұрын

Hello, there are mutual funds that invest according to the principles of Shariah, such as Tata Ethical Fund, Taurus Ethical Fund and Nippon India ETF Nifty 50 Shariah BeES. You can explore them if they suit your requirements. ET Money allows your to invest in mutual funds without paying any commission.

@genericstospecifics1856 9 ай бұрын

@@ETMONEY woah, I didn't knew that.🤯