How Are You Protecting
Yourself against This Roaring Bull Market..?
By Mr. Rahul Shah, Co - Head of Research, Equity Master
It's a figurative way to ask what political,
economic, or market risks worry investors most. The implied question is: How
are you protecting yourself against this roaring bull market?
Equitymaster.com have own cure for investment-related insomnia.
We call it the 70:20:10 rule.
Investors should always have 70% of their corpus invested in large caps, 20% in mid caps, and 10% small caps.
Those with more risk appetite can have a slightly different allocation, but this is sufficient to not only earn good long-term returns from stocks but also limit downside risk.
In our view, it's simply the best protection you can have irrespective of the market environment. In fact, this is the third layer of protection we recommend. Long-term readers already know the other two: Invest in businesses with sound fundamentals and buy at valuations with sufficient margin of safety.
We aren't of the conventional view that, just because an
asset class is volatile, it's also risky. This line of thinking can cause a lot
of damage to long-term returns. It tends to keep people away from stocks and
not benefit from their enormous long-term wealth-building potential.
Now, we are not saying equities are not risky. They are. But without question, they should be a significant part of your long-term plan. The real risk you should be worried about is the risk of a permanent loss of capital. And the real question is how to minimise that risk.
Now, we are not saying equities are not risky. They are. But without question, they should be a significant part of your long-term plan. The real risk you should be worried about is the risk of a permanent loss of capital. And the real question is how to minimise that risk.
The three-layer protection is one of the most effective ways. The large caps provide much-needed stability and resilience to your portfolio, while the mid and small caps add that extra zing to your overall returns.
Do this and you'll have positioned yourself superbly to benefit from the long-term India growth story without exposing yourself to a lot of risk.
It is simply one of the best all-weather protection plans you can get, and we just made employing it extremely easy.
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