What Should Low Risk-Taking Investors Do Right Now?
Low risk-taking investors, such as retired people, find themselves in a bind today like never before. Fixed deposit rates have plummeted to sub 5% levels. Fixed income funds have rightfully turned ultra-conservative after 2020’s shocking wind up of a leading AMC’s six debt funds. Interest rates have hit a multiyear low, and the only way out seems to be up – spelling bad news for duration funds. Arbitrage Fund returns have fallen to sub 4%. What are low risk takers to do?
The simple answer is, settle.
Put simply, investing is much like a test match. Knowing when to attack aggressively and when to defend your wicket resolutely is what sets champion batsmen apart from the mediocre. Similarly, knowing when to buckle down, preserve capital, and “guard their wicket” is what sets champion investors apart.
The worst mistake that conservative investors can make right now is to recklessly “chase” returns by upturning their asset allocation in favour of equities. Doing so can have disastrous consequences; including being left with a much smaller corpus than before to generate income from once the tide does turn.
What conservative investors can do right now is to allocate 10-15% of their portfolios to dynamic asset allocation funds. Another 15-25% can be invested into gold funds. By doing this, they will be giving 25% - 40% of their portfolios the opportunity to earn “fixed income plus” sort of returns.
The remaining amounts should be invested into fixed deposits and well managed, short to medium duration debt funds with a very good credit profile. Though markets appear to be buoyant, many companies aren’t quite out of the “COVID woods” quite as yet, and we may well witness downgrades or even defaults in the second half of the year.
The returns from the conservative portion of your portfolio will not be earth-shaking, but you’ll sleep well at night knowing that your capital is relatively secure, and that you’ll bs starting off with a strong base when the tide turns and better opportunities come up for low-risk takers.
Conservative investors - guard your wicket right now. The time for big hits will come later
