Decoding the 12-20-80 asset allocation strategy to achieve financial freedom, with Quantum Advisors’ Ajit Dayal Ltd., sponsor of Quantum Asset Management Company Pvt. Ltd., talks about the merits of asset allocation while decoding the 12-20-80 strategy and the larger market in India for SIPs
Mutual funds as an investment vehicle and a method for generating long-term wealth have become more popular over recent years. Although many people may be invested in mutual funds, few understand the importance of ensuring asset allocation and building a portfolio that ensures long-term wealth creation by leveraging the right investment strategies, such as the 12-20-80 strategy.To decode the 12-20-80 investment strategy and share his thoughts on the changing face of the wealth industry in India as well as the larger market for mutual funds, Ajit Dayal, founder of Quantum Advisors Pvt. Ltd., sponsor of Quantum Asset Management Company Pvt. Ltd., spoke to Miloni Bhatt, Editor - Digital Broadcast, EconomicTimes.com in a session on ‘Building a Portfolio for the Long Run: The 12:20:80 Strategy.’
Building A Portfolio For The Long Run: The 12:20:80 Strategy
Protecting your financial health is key to a successful and happy life. It takes time and effort to build a resilient portfolio through asset allocation. Asset allocation involves dividing your investments among different assets, such as stocks, bonds, cash and gold. Asset allocation is a personal decision, and individuals should allocate based on their requirements and ability to tolerate risks. Risks can be mitigated by a diverse portfolio. One of these strategies is known as 12-20-80. This strategy follows 3 simple steps that will help all investors to rise above challenges that are keeping them away from achieving their financial goals. To help investors understand the importance of asset allocation, diversification & strategies such as 12-20-80, and how it directly relates to your financial goals- we bring together experts from the field for this specially curated session to decode 12-20-80 and help investors allocate their assets well. They will also break down the impacts of the current macro economic state, and how investment strategies need to change accordingly.Ajit Dayal – Founder: Quantum Advisors Pvt. Ltd., Sponsor of Quantum Asset Management Company Pvt. Ltd.Dayal elaborated on the merits of asset allocation and long-term portfolio building and said studies have shown that 90% of returns come from asset allocation. This means, being in the right asset at the right time is where the majority of returns come from, as opposed to being in the right stock.
“Most people really don't get to choose the right funds to invest in because they go to a bank, or they go to their friendly advisor or wealth manager. And that friendly advisor or wealth manager directs them to certain funds. I think people get caught up on performance; that last P, everyone gets hooked on.”
If you are investing in mutual funds, by default you are a long-term investor, but most investors don’t understand the actual need for asset allocation and the benefits of ensuring you allocate your assets when building a long-term portfolio, said Dayal.
The 12-20-80 asset allocation strategy was born from Dayal’s suggestions to investors about how to invest their money, based on what he was doing. The 12 is the money that is put into a liquid fund. This is emergency money or 12 months of expenditure. Once you have put aside your emergency money, the rest of it is split between gold (20) and equity (80).
“The 12-20-80 is for anyone and everyone,” Dayal said, explaining that the 12-20-80 asset allocation strategy is a powerful wealth management and creation tool that can be used by anyone, from the person who is just starting their financial planning journey to a more established organization such as the Premji Foundation.
“For the person who's just starting, they may begin with a higher allocation to equity because they're 25 years old or 28 years old. They've got a relatively steady job. They don't really have many expenses, they can change the 80-20 to 90-10 to 95-5,” Dayal said while highlighting the fact that it is a flexible investment strategy that can be customised as per your needs.
Dayal added that 12-20-80 should be seen as a framework, and believes that rebalancing your portfolio as your situation changes is something that people need to do. Investors should avoid having a static approach for too long, Dayal said, adding they need to be more aware of what they own, and what their goals are, and keep changing their portfolios based on that.
When speaking about risk appetite, Dayal said that everyone should be asking themselves only one question: “When COVID hit in March 2020 and you were stuck at home, how much money do you wish you had access to, for you to take care of that unknown period that COVID was going to be there for?”
He elaborated on the need for setting aside emergency money that can cover your expenses for an X amount of time, while the rest can be invested.
When talking about the bigger picture of investing in India, Dayal underscores the shift from hard assets to more liquid assets. Prior to 2012-13, less than 3% of household savings went into stock markets and about 10-12% went into financial assets as a whole. So about 85% was in property, real estate, and gold, Dayal noted. Today, people have moved away from fixed assets, certainly less in property, and are moving into financial assets, Dayal said. He believes that generational shifts will exacerbate this trend as the younger generation is less inclined to buy fixed assets like houses and cars. “So for them, 12-20-80 is fantastic as a solution by itself,” he said.
When talking about the future of investing in India, Dayal is ‘very optimistic about India’ as long as people are sensible about investing in the three asset classes.
“We expect that for the next 10 to 20 years, you will probably make 12-14% by being an investor in Indian stock markets… we're very optimistic about India. We're optimistic about the future of the economy. We're optimistic about the future of stock market returns. But having said that, you have to be sensibly balanced across the three major asset classes of safety what we call the quantum liquid fund, gold which is the hedge against inflation and third, the opportunity to create wealth by being a part of being an investor in the stock market,” said Dayal, as he signed off.
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In Video: Building A Portfolio For The Long Run: The 12:20:80 Strategy (This article is generated and published by ET Spotlight team. You can get in touch with them on [email protected])
This story originally appeared on: India Times - Author:Faqs of Insurances
