Investment Tips: In the world of investment, the ’60:40 rule’ is a very popular formula for investing money. It simply means investing 60% of the money in shares (equity) and 40% in debt i.e. bonds or fixed income instruments. Its purpose is to create a balance between returns and security. Shares provide growth, while debt gives stability to your portfolio.
This rule has been the basic way of investing for people with medium risk appetite for years. But now the question arises whether this rule still works in today’s changing market? Prasanna Pathak, Managing Partner of The Wealth Company, says that the 60:40 model of investment is relevant even today, because the returns on bonds have increased and shares have become cheaper abroad. Both these things go in favor of this model.
But, there is another side to the picture. Today’s investors, especially the younger ones, have moved beyond this old rule. They are now willing to take more risks in search of higher returns.
How is the investor sentiment changing?
Rahul Singh, CIO (Equities) of Tata Asset Management, says that now young and middle class investors directly run after performance. They are investing more money in small cap and thematic funds (such as AI, green energy). The returns in this can also be high, but the risk is also equally high. Rahul Singh advises that if you want stable and balanced returns, then flexi-cap or large-mid cap funds are better options.
Prasanna Pathak also has more or less the same opinion. He says that young investors are now showing faith in new themes. Such as artificial intelligence, green energy, technology. At the same time, slightly conservative investors are now moving towards international stock markets and defensive sectors (such as healthcare, consumer staples).
So should the 60:40 rule be abandoned?
The simple answer is no. Experts say that there is no need to completely abandon the 60:40 formula. But it is also not right to blindly adopt it. According to Kaustubh Belapurkar, Research Director, Morningstar India, “60:40 may be a base model, but every individual has a different risk appetite and requirement. Therefore, the portfolio should be made accordingly.”
Kaustubh warns that even though young investors want to take more risk, they do not have financial backup. If a lot of money is invested in small caps or a few select stocks and a loss is incurred, it can be a big blow in the long term. He clearly says – “A diversified and disciplined investment strategy is the most effective.”