How to Create Balanced Portfolio?

Asset Allocation: Balanced Portfolio

“I am at 31,suppose if I could save 20000 per month.How can i create balanced portfolio with that ..like how much i need to set for MF sips,debt funds,stocks, FDs  and if there is investment option?.
Thanks”

Many people in their thirties want to know the same thing. Means how to allocate assets. Here you have asked me that, How to create Balanced Portfolio? But well, actually you mean to say that, How to do proper “Asset Allocation” in your portfolio?

I think “Asset allocation” is the proper word and not the “Balanced Portfolio”.

Another thing is that, according to your question, it seems that for you Mutual Funds are the separate asset class like any other asset class such as stocks, bonds, gold and real estate. In fact, many people in this world have a false belief that mutual funds are the separate asset class. But well, this is not true. MFs are not the separate asset class. In fact, they are the professional asset management companies. MFs can manage anything for you such as stocks, gold, bond, debt, real estates, art or anything else that is an asset. So don’t consider MFs as a separate asset class.

By and large there are 4 Basic Asset classes and you should invest in them according to your age and risk appetite and number of dependents. And this is known as Asset allocation and not the Portfolio Balancing.

01) Stocks

02) Bonds / Debt

03) Gold

04) Real Estate

[Remember, Mutual funds are not the separate asset class. They can be any one or more of the above asset class]

Now, for proper Asset allocation there is a rule of thumb – And that is,

Equity Allocation = 100 – Your Age and rest should be in other asset classes (Debts/Gold/Real Estate).

For aggressive investors who are willing to take more risk for higher growth can go for modified rule of asset allocation.

Equity Allocation = 120 – Your Age and rest should be in other asset classes

Now in your case, you are 30. So according to the basic rule, you should invest 70% (100 – 30) of your total assets on Money and rest of the 30% in other asset classes such as bonds, gold and real estate.

And if you consider yourself as a aggressive investor, you can go for modified rule of thumb. In this case, you have to allocate 90% (120-30) of your total assets in Equity & rest in other asset classes. This because you are just 30 years only today and still retirement is far away so you have a time by your side and thus you can allocate as high as 90% in Equity.

So 90% of Rs.20,000 is Rs.18,000. So you should start the monthly SIP of Rs.18000 in some good Equity Diversified Mutual fund and rest Rs.2000 in some debt funds.

Now the Rule of Gold Investing -

Now suppose if you want to invest in gold also than remember one thing.

“Your Gold Allocation should not be more than 10% (MAXIMUM 10%) of your overall Portfolio Net Worth”.

Say for Example, if your total portfolio net worth is Rs.1 Lakh than the Gold allocation should not be more than Rs.10,000. Many people think that gold has given excellent returns in past few years so they should invest more in gold but this is not true. In the long run, Equity has outperformed the any other asset class in this world….!!!

I hope this Information is useful to you…