Equity market is overheated and sooner or later we are supposed to see the meltdown. Everyone is quite enthusiastic by the returns they have been able to generate in the last 2+ years. Those who gave up during the Covid-19 Crash booked heavy losses and now they want to invest and avoid missing out on an opportunity.
So what has changed now? Is it time to book your profits? I have been saying this time and again, your asset allocation is the key to meet your desired goals in a systematic manner. If you look carefully at the Mid Cap and Small Cap mutual fund segment and the overall returns generated by them in the past 2 plus year or so its been an incredible journey.
Now, the key take away – “always ensure that you should not allocate more than 25 to 30% of your overall portfolio into mid and small cap funds”. However, if you look carefully the returns generated by these segment of funds would have spiked and your overall portfolio balance would have changed from 30% to 45% approximately. This shift in your overall portfolio calls for trimming your positions in this space and restoring them to no more than 25-30 per cent of your equity fund portfolio. After all no-one knows till how long will the market continue to boom but periodically restoring your asset allocation helps keep the risks in check without actively taking a call on the markets.
Mid and small-cap funds can supplement a long-term growth portfolio well by acting as a booster. They are a valuable addition in a measured quantity of no more than 25-30%. But because these funds rise and fall more dramatically, your allocations to them can sometimes go out of the window, requiring you to restore them. Think again if you are a game for such funds and avoid them if you fall into one of the categories mentioned below :-
- Your investment horizon is less than 10 years
- If a fall (10 to 25%) in their returns shocks you
- You started investing now because someone one made money from them
Simplified Money Talks 