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Asset allocation

2021 may be one of the most difficult years for investors, in terms of high volatility, poor expected returns from diversified portfolios and continued low return expectations from cash and debt. In view of this, we shall increase the flexibility of our portfolio. We shall keep 30% of our portfolio as floating, while maintaining an UW stance of equity and debt.

Large floating allocation implies that we shall be trading actively in equity.

(a)    The fixed equity allocation would be 40% against 60% standard.

(b)   The fixed debt investment would be 20% against 30% standard.

(c)    We would park 10% in cash/money market funds.

(d)   30% of portfolio would be used for active trading in equities and debt instruments.

Our target return for overall financial asset portfolio for 2019 would be ~8%.

Equity investment strategy

We would continue to focus on a mix of large and mid cap stocks. The criteria for large cap stocks would be growth in earnings; while for midcaps it will be mix of solvency & profitability ratios and operating leverage.

(a)    Target 6% price appreciation from my equity portfolio;

(b)   We shall be overweight on IT, Insurance, Healthcare, Agri input and large Realty stocks.

(c)    For trading we will focus on large cap liquid stocks.

Miscellaneous

We have assumed a relatively stable INR (Average around INR74/USD) and slightly higher short term rates in investment decisions. Any change in these assumptions may lead to change in strategy midway.

We would have preferred to invest in Bitcoin, but we are not considering it in our investment strategy due to inconvenience and unease of investing.

Factor that may require urgent change in strategy

1. Material rise in inflation
2. Material change in lending rates