We often get asked by our clients about the need for Portfolio Diversification with questions including “Why do I need to diversify my portfolio ?” or “Why can’t I invest it all in Real Estate ?” or “Why do I need to rebalance my portfolio ?“
The answer is actually pretty simple. Take a look at the graphic below.
It’s a 10 year analysis of the performance of various asset classes like Equity, Gold, Debt and Gold.
The reason you need Portfolio Diversification and should constantly monitor and rebalance it because the returns from asset classes fluctuate with time based on how the economy is doing and various other global factors.
E.g. if you look at years 2004 to 2006, Mid cap Equity funds delivered the highest returns ranging from 40 to 75% per annum.
In 2008, Gold was a hot favourite as stocks all over the world melted.
Large cap stocks bounced back in 2009 and 2010 and gold made a comeback again in 2011.
Since then Madcap funds have again done very well.
So yes, you cannot adopt a ‘Invest and forget method’ as fluctuations in certain years may wipe out your wealth. It will also prevent you from cashing in on upcoming opportunities.
If you would like to invest your money in a planned manner with exposure to a diversified portfolio, or get your portfolio reviewed and rebalanced, get in touch with us below.