Several macro factors such as political or economic have a deep impact on your investments both positive and negative. As a result, investors make wrong decisions in mutual funds that may result in negative returns. Given below are the five important reasons that you have to change your asset allocation.
1. Change in personal profile: When an individual achieves a certain age, for instance, above 50 years, the portfolio allocation needs to be changed. Before 50 years, an investment ratio of 70:30 for equity and debt is an ideal investment, but the debt portion should be increased after 50 years in order to get secured returns. This can also result in less volatility.
2. Risk Appetite: Every investor invests in stocks or mutual funds as per his/her risk appetite. The asset allocation should depend on one’s risk tolerance instead of market returns. One should keep track of the returns generated from mutual funds and diversify the portfolio in order to reap maximum benefit in the long run.
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3. Power Compounding: The millennials have an added advantage to grow money and stay longer in the market. The probability of positive returns is more in the long-term as the investor undergo numerous market cycles, and get the benefit of cost averaging. The chances are more that the corpus amount also increases over a period of time. This happens because of the compounding effect and the rupee cost averaging benefit over time.
4. Non-performing Investments – One should sell the investments due to negative returns in the short-term. As the market gets affected by various macro factors that are beyond the control of the investor, one should stay invested and may relook at his investment options. The risk and returns are two functions of time. The market is very volatile and gets corrected over time.
5. Financial Goals: The investor has to secure his gains incurred from investments in mutual funds and should invest in the debt funds post-rigorous understanding of the market. The returns from equity average out in the long run and give good returns as compared to other assets.