Investment Trends To Consider In 2022 - Forbes
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And just like that, the year 2021 has come to an end. The world looked both different from a year ago and very much the same. It amazes us to see how some of the basic tricks of financial planning, which can make a huge impact on anyone’s life, are taken for granted.
Living with Covid-19: 2021 brought us a long way back to normal. Despite the Delta wave in the first half of the calendar year, the country remained open for the major part of the year, and the economy started to gain traction. Consumer spending bounced back, and businesses remained confident.
As we enter 2022, there is a mounting risk from the new Omicron variant. The pandemic can end in one of the two ways, either we achieve “zero Covid-19” or the disease becomes an ongoing part of the infectious diseases coterie. We believe societies will have to adapt to living alongside Covid-19. Thereby, having a contingency fund kept aside for emergency purposes is of utmost necessity, now more than ever.
One of the methods that Central banks had resorted to was by reducing interest rates to raise demand. This, along with the major disruption in logistics (from chip shortages to shipping route disruptions), has resulted in a rise in inflation. One of the major factors – other than fresh waves of the pandemic, would be interest rates hardening as Central banks focus on taming inflation.
Here are the top four investment avenues for 2022.
1. Model Portfolios
Volatility is here to stay – As markets correct after touching the highs and losses start to loom, it becomes difficult to avoid taking emotional decisions to cut these losses. This behavioral mistake can be detrimental to creating long-term wealth. Your first defense against these mistakes is to craft a diversified portfolio across different asset classes that match your investment horizon and risk tolerance. During times of market volatility, while your risky investments – equities (domestic/global) may fall, the overall portfolio performance may not be so badly impacted. A diversified portfolio built of complementary assets helps you smoothen out the returns in volatile times and helps mitigate risk in the portfolio.
Model portfolios curated on investors’ risk-return profiles are best suited in volatile market conditions. The portfolios can be built with different weightage between cyclical and non-cyclical stocks. The returns of the portfolio are average weighted returns, i.e. the returns tilt towards the sector that has more weightage in the portfolio. Model portfolios are backed by strong research and advisory and focus on the below aspects while investing:
- Sector Diversification – Model portfolios are diversified among various cyclical sectors like banking and finance, auto, metals, infrastructure, and real estate. Non-cyclical sectors consist of IT, pharma, FMCG, and consumer goods.
- Market Cap Diversification – Market Capitalization is another factor that needs to be considered while picking stocks. These portfolios are well balanced between large-cap, mid-cap, and small-cap stocks. Large-cap stocks are stable and generate moderate returns. Mid-cap and small-cap stocks are more volatile and have the potential to generate higher returns.
- Portfolio Rebalancing – Equity portfolios require rebalancing since the risk and returns are highly associated with market volatility. Portfolio rebalancing helps to book profits in outperforming stocks and invest in underperforming stocks that have the potential to generate higher returns.
2. Advised Baskets of Stocks and ETFs
Avoid buying a single stock. When markets rise, it is easy to have FOMO and rush in on the next “hot” stock, be it an IPO or a “value” stock someone tells us about. Instead, look at investing in baskets. A basket is a set of multiple securities that can be traded in a single order. The components of the baskets are selected based on a particular strategy or theme. They are curated and are based on research done by professionals whose day job is to do just that. An investor can select a pre-defined basket or create a custom one based on her preferences.
A few baskets are described below based on various risk-return profiles:
- Low Risk – Multi-asset Basket
Investors with a low-risk appetite can choose to invest in a multi-asset basket. This can be a combination of equity, debt, and ETFs. Rebalancing this basket helps to combat concentration and volatility risks. A periodically rebalanced multi-asset basket can earn slow and steady returns to meet long-term financial goals.
- Medium Risk – Diversified Sector Rotation
Various sectors come into the limelight based on the economy. Sometimes Pharma may do well, and at other times defensive stocks may do well. Being able to go over-weight (or under-weight) on a sector works wonders on generating an Alpha (out-performance). Having a curated basket that has a sector rotation strategy would do very well in volatile conditions.
3. Global Investments
Let’s face it. More than 50% of all brands that you know of – whether it is Google, or Pepsi, Zoho, or Nike, that we know of well and consume in our daily lives are not listed in India. Making them a part of our portfolio is not only good for diversification but also provides us opportunities to participate in the global economy. Globalization and digitization have made the world a small place, and they are here to stay. Making a part of our portfolio strategy would probably be one of the best things that you could do.
There are various ways to make this happen. One of the best routes is through the LRS route.
Liberalised Remittance Scheme or the LRS allows us to make international investments in assets like shares, mutual funds, exchange-traded funds (ETFs), etc. The remittances of such transactions can be done through authorized dealers as per RBI guidelines.
As with Indian stocks, we recommend investing in baskets – especially sector/country rotation baskets – as this part of your portfolio is definitely for the long term.
4. Corporate Fixed Deposits
Corporate Fixed Deposits are term deposits offered by several companies and NBFCs. They offer higher interest rates compared to savings accounts and term fixed deposits. Corporate FDs are periodically rated by rating agencies to review the financial stability of the issuer. It is recommended to invest in high-rated corporate FDs to reduce the credit risk. Corporate FDs diversify the portfolio towards debt investments.
The advantages of these investment avenues are:
- Low minimum investment value makes them best suited for retail investors. Investments can be done through SIP or lumpsum mode.
- Since there are no lock-in periods, investors can withdraw funds as per their financial goals.
While all these investment avenues look well suited for 2022, it is recommended to make investment decisions after consulting your financial advisor.
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George Mitra the co-founder and CEO of Fintso, a deep tech-enabled platform as a service (PAAS) for financial advisors, product manufacturers and vertical aggregators. He has 25 years of experience managing teams and assets to the tune of $4 billion. He is a financial planning and advisory solutions expert.
Aashika is the India Editor for Forbes Advisor. Her 13-year business and finance journalism stint has led her to report, write, edit and lead teams covering public investing, private investing and personal investing both in India and overseas. She has previously worked at CNBC-TV18, Thomson Reuters, The Economic Times and Entrepreneur.