2022 has baffled investors in many ways.
β’ Despite rise in FD rates, govt securities give higher returns (0.5-1.5%)
β’ International investing seems a bad idea (NASDAQ 35% down)
β’ Gold didn't shine amid turmoil
Here are some puzzling trends and ways to deal with them.
Aπ§΅
β’ Despite rise in FD rates, govt securities give higher returns (0.5-1.5%)
β’ International investing seems a bad idea (NASDAQ 35% down)
β’ Gold didn't shine amid turmoil
Here are some puzzling trends and ways to deal with them.
Aπ§΅
β’ Govt securities are giving better returns than bank FDs
Despite an uptick in bank FD rates, they are offering lower returns than govt securities.
But, usually, this isnβt the case.
As bank FDs are riskier than govt securities, the former tend to give higher returns.
Despite an uptick in bank FD rates, they are offering lower returns than govt securities.
But, usually, this isnβt the case.
As bank FDs are riskier than govt securities, the former tend to give higher returns.
What does it mean for investors?
For short-term goals, T-Bills make a lot more sense than bank FDs.
And for medium-term deposits, you can explore FDs from top-rated NBFCs like Bajaj Finserv.
See table π
For short-term goals, T-Bills make a lot more sense than bank FDs.
And for medium-term deposits, you can explore FDs from top-rated NBFCs like Bajaj Finserv.
See table π
β’ Investing in international stocks look like a bad idea
The S&P 500 index of the US is down by about 20% in 2022.
Nasdaq is down by nearly 35%.
Major tech stocks (FAANG) have corrected by 20-60%. (see table)
So, geographic diversification may look like a bad idea in 2022.
The S&P 500 index of the US is down by about 20% in 2022.
Nasdaq is down by nearly 35%.
Major tech stocks (FAANG) have corrected by 20-60%. (see table)
So, geographic diversification may look like a bad idea in 2022.
What is the takeaway here?
Geographical diversification still remains useful.
But itβs always better to avoid going overboard with thematic indices like Nasdaq which can be extremely volatile.
Geographical diversification still remains useful.
But itβs always better to avoid going overboard with thematic indices like Nasdaq which can be extremely volatile.
Nasdaq, for example, took 15 years to reach the high it had made during the dotcom tech bubble days in 2000.
So, itβs always best to stay away from thematic international funds or indices.
A more prudent option is broad indices like S&P 500.
So, itβs always best to stay away from thematic international funds or indices.
A more prudent option is broad indices like S&P 500.
β’ Gold fails to shine as safe haven
Usually during economic turmoil, investors seek solace in safer havens like gold.
So gold prices surge during such periods and offer handsome double-digit returns. (see table π)
In 2022, however, gold has increased only around 6%.
Usually during economic turmoil, investors seek solace in safer havens like gold.
So gold prices surge during such periods and offer handsome double-digit returns. (see table π)
In 2022, however, gold has increased only around 6%.
A major reason for goldβs lackluster performance is demand for the dollar as a safe-haven asset amid rate hikes by the US Fed.
This event reinstates the importance of not going overboard with gold.
Use gold to diversify, but limit it to 5-10% of your portfolio.
This event reinstates the importance of not going overboard with gold.
Use gold to diversify, but limit it to 5-10% of your portfolio.
β’ Flat returns from equity; Rising returns from debt
NIFTY 50 has moved in a close range this year.
This indicates a time correction.
Time correction happens when markets move in a close range for an extended period until earnings catch up to the prevalent prices.
NIFTY 50 has moved in a close range this year.
This indicates a time correction.
Time correction happens when markets move in a close range for an extended period until earnings catch up to the prevalent prices.
Fixed income instruments (FDs, T-Bills, etc.), on the other hand, are offering better returns.
Reason - Inflation in many parts of the world is high. So, central banks across the globe are raising policy rates.
What should investors do?
Reason - Inflation in many parts of the world is high. So, central banks across the globe are raising policy rates.
What should investors do?
Investors should have a balanced approach.
For example, a portfolio of debt, equities and gold can be a prudent way to tide the current market.
Stick to the asset allocation and rebalance at least once a year.
For example, a portfolio of debt, equities and gold can be a prudent way to tide the current market.
Stick to the asset allocation and rebalance at least once a year.
β’ Liquid funds are top-performing debt funds
Liquid funds must invest in debt papers maturing within 91 days.
So they typically offer lower returns than other debt funds that invest for a longer period.
But this has not been the case in 2022. (see table π)
Liquid funds must invest in debt papers maturing within 91 days.
So they typically offer lower returns than other debt funds that invest for a longer period.
But this has not been the case in 2022. (see table π)
Why is this the case?
Liquid funds invest a big part in short-term govt securities like 91-day T-Bills.
As these securities have done well, they have boosted Liquid Fundsβ performance.
Besides, RBI hiking interest rates has favoured shorter debt instruments.
Liquid funds invest a big part in short-term govt securities like 91-day T-Bills.
As these securities have done well, they have boosted Liquid Fundsβ performance.
Besides, RBI hiking interest rates has favoured shorter debt instruments.
What does it mean for investors?
Itβs best to use Liquid Funds as an alternative to bank accounts.
For your short-medium term goals, match your investment horizon with average portfolio maturity and choose a fund accordingly.
Itβs best to use Liquid Funds as an alternative to bank accounts.
For your short-medium term goals, match your investment horizon with average portfolio maturity and choose a fund accordingly.
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