A: Before we go to the allocation of investments, let us focus on what should be a style of investment. I will recommend retail investors that your style of investment should be for short-term pain and long-term gain rather than short-term gain and long-term pain. Let me define this further; typically in a momentum market prices keep on rising everyday but over a period of time market loses its momentum and comes down to the fair value. When you invest in a momentum market you will always have short-term gain. You bought something today it goes up tomorrow, you buy more it goes up further, you feel happy. Eventually you put more money and the market corrects and then you are nursing your wounds.
On the other hand the market is not in momentum, you buy something invariably Murphy's Law come into play, you see the price erosion, you have to buy more and then again Murphy's Law come into play and you further lose money. Now you have to buy a lot and after that market will recorrect and it will go to fair value and you will make lot of money. So, you have to invest for short-term pain and long-term gain. Most retail investors follow the reverse strategy of generating short-term gain and incurring long-term pain.
In terms of an average tax paying investor, his allocation should essentially comprise in today's scenario, something towards safe assets and safe assets will include bank deposits, savings bank account, which will fund him for liquidity, liquid mutual funds which can take care of his liquid needs, he can invest in debt mutual funds, tax free bonds and corporate debentures and corporate fix deposits. All this combination on a post tax adjusted basis gives him surety of return with lower risk. You want to invest in high credit instruments and you do not want to take credit risk on the safe money, so invest in AA and above rated instruments, monitor the credit rating clearly and if there is a credit downgrade then do not hesitate to book loss and move out of that investment.
The other class of investments which comes which is bit illiquid is real estate and gold. Real estate is again something where you will need either for staying or for investment. If you are investing in real estate go towards reputed developers where delivery of real estate is not a question and try to invest in those areas which are developing and which over a period of time the center of city will shift over there. In gold again try to go via gold ETF where you don't have to worry about the quality and storage rather than buying physical gold. At least in gold ETF the liquidity is guaranteed whereas in physical gold you never know whether jewelers will be able to honor their commitment or not.
Finally other asset class which emerges is equity. Here again you will have to go for quality blue-chip names and if you are not able to identify them, go for equity mutual funds. One interesting thing which people need to do, like in Gujarati community every time in Diwali we follow a tradition of throwing garbage out of our house. It is a symbolic thing of throwing unnecessary garbage out of our house. I think we need to do that with our portfolio also. So over a period of time you will realize that you have so many aqua culture companies, NBFC companies, technology companies which are not in existence. It is time to throw that garbage out and keep good quality stocks in your house.
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