2014: Aiming for stability amidst volatility!
New Year Greetings!
2013 was full of volatility be it equity markets, rupee value against the US dollar, gold price, or real estate. The interest rates and inflation remained high. Economic reforms are long overdue. Political stability is the most important factor now that should form the base in 2014 for economic reforms. UPA rout in Delhi elections and subsequent euphoria in equity markets is indicative of how keen the people (and investors) are looking forward to the change in the leadership at the centre.
I am sure many of you are wondering what to watch out for in 2014 and where are the underlying opportunities. Well, there are good buys across the asset classes. And one could easily be tempted to jump on them but I recommend, as always, to stick to your investment strategy that is formed on the basis of your risk profile and asset allocation principle. Needless to say your investments must be planned after you have established the core framework of contingency funds and insurance (life & health) as per the principles of financial planning.
As regards to investments, you would continue to see volatility until the general elections. Experts are all out forecasting stability in the second half but I am still reluctant to say so until the outcome of general election has given us political stability. So what do we do achieve stability amidst volatility in the next few quarters?
Don’t under-estimate inflation. CPI hovered in the range of 9 to 10% throughout the year in 2013. It should now be the guiding principle that your portfolio returns should surpass inflation every year. Period!
Protecting your corpus against rupee depreciation is crucial especially if you have financial goals dependent on foreign currency. Maintain your asset allocation to global equities. This can be through global mutual funds, equities and/or exchange traded funds.
Maintain your equity exposure through mutual funds. With volatility expected to continue, it is recommended you review your portfolio for any course correction and continue to hold the star rated diversified equity funds. Let their fund managers take the call on good buys & sell. Switch over to direct plans if your bandwidth allows you to, they are poised to give better annualised returns. Remember, equity allocation gives you inflation-beating returns.
Review your allocation to fixed income instruments. With tax free bonds still available, launch of IINSS-C i.e. inflation indexed bonds, PPF, Bank FDs and anticipated falling interest rate scenario it has become very confusing to choose the ones to hold on to. Assess them from taxability and liquidity perspective. Also remember that debt markets showed volatility in July 2013. This is your time to exit investments carrying interest rate risks and switch over to stable government backed fixed income securities if you can’t fathom volatility in fixed income assets.
Gold has lost its sheen. Thanks to measures taken by the government and global economic stability. Gold has come down by 19% in 2013. You no longer need high allocation to gold. Stick to what you need for financial goals related to weddings.
It’s time we had correction in real estate. Signs are pretty strong that it is happening. Affinity to tangible assets should now wean off. Developers & builders are cash-crunched. Buyers can negotiate hard now. Don’t over-expose your portfolio to real estate. If buying a property stick to buying one which is either ready or getting ready for possession soon. The sector is headed for a transformation.
Last but not least, consolidate your investments. The smaller the list of investments the better it is. Spend time with experts to narrow down your investments and use the current times of volatility to re-balance your portfolio. Achieving stability in the current times of volatility should be your immediate goal. Remember you are set for the long term growth if you avail the buying opportunities sticking to your investment strategy.
Have a wonderful year of investments, 2014!