12:20:80: Formula to boost your financial immunity

Protecting your financial health is the key to a happy and successful life. Just as good physical health cannot be achieved overnight, financial immunity takes time to build. Increased exposure to equities when markets are trending up and sudden redemptions when markets are down can hurt your portfolio returns.

How can you ensure that your investments are protected from short-term volatility and market fluctuations? While investors can’t always time the market, there are ways to help build their financial immunity. Having an emergency fund or money set aside for emergencies, adequate health insurance, and a strategically diversified portfolio can be some of these.

Spreading your assets in the right proportion among different asset classes plays a crucial role in building the desired financial immunity for investors. Overexposure to a single asset (like stocks) or zero allocation to another asset (like gold) can both have negative implications for your financial planning and derail your investment plans.

To build financial immunity, investors need to follow an effective strategy and diversify their portfolio across different asset classes like stocks, debt, and gold. While equities are best for the long term and should make up a significant portion of your investments, gold can act as a hedge against a declining economy and inflationary pressures. Generally, gold prices rise when interest rates fall, which is directly proportional to the strength of the economy.

A good asset allocation strategy helps investors mitigate downside risk and take advantage of market movements. Three simple asset allocation steps can help you overcome any challenges that may be holding you back from achieving your financial goals.

These 3 steps are based on the
12:20:80 fundamental of the asset allocation which represents: 12 months of expenses; 20% investment in gold and 80% in stocks.

Step 1: Safe Money

The first step in any investment journey starts with a contingency plan and 12 months of contingency funds is the first criteria in the rule. You can put that money into a liquid open-end mutual fund that could give you similar returns to your friendly neighborhood bank. Liquid funds generally invest in government securities, certificates of deposit, debt securities and fixed income securities.
Quantum Liquid Fund
is one such liquid fund that provides you Insta redemption facility to liquidate (up to Rs.50K) whenever you need. As this fund takes minimal credit and interest rate risk and has a portfolio of AAA/A1+ rated PFI/PSU bonds and investment grade government securities with a maturity of no more than 91 days, it is considered a security or foundation block of your portfolio.

Step 2: Don’t Ignore Gold

The second step is a 20% strategic investment in gold funds. After setting aside an emergency corpus, you should take steps to reduce the downside risks to your investment in the face of volatility and inflation. Gold not only helps investors gain much-needed diversification, but is also beneficial due to its risk-reducing and return-enhancing characteristics. Investors can consider Gold ETFs or Gold Fund of Funds for a profitable and liquid investment. Quantum Gold Fund ETF is backed by 99.5% pure gold. As a step forward, the fund also undertakes regular independent purity testing of all gold bullion. Investors also have the option of investing without a demat account with the Quantum Gold Savings Fund.

Step 3: Fairness is essential

The third and final stage represents an 80% investment in a diversified stock portfolio that has the potential to help you achieve your long-term financial goals. Within equities, investors need to ensure that their portfolio is not biased towards any sector or style. Investors can look into
Quantum Equity Funds of Funds
which simplifies your equity mutual fund selection needs by investing in 5-10 well-researched diversified funds of third-party equity mutual funds. A portion of the equity portfolio (15%) can be held in value funds, allowing you to reduce downside risk with a portfolio that is at a discount to its intrinsic value based on the historical average. Such a fund is our flagship fund
Quantum Long Term Value Equity Fund
. And an additional 15% can be allocated to alternative funds such as ESG. ESG funds focus on non-financial parameters such as environmental, social and governance of a stock. Invest, one of the first funds in the ESG space that uses its own proprietary ESG rating methodology developed through our own learning curve in the ESG space and the evolution of our integrity filter founded over the years 1990 at group level.

Quantum Mutual Fund’s 12:20:80 Asset Allocation Rule not only helps to diversify, but also helps improve an investor’s financial health.

Spotlight on ET

Warning: The opinions expressed here in this article/video are for general information and reading purposes only and do not constitute any guidelines or recommendations on a course of action for the reader to follow. Quantum AMC / Quantum Mutual Fund does not guarantee/offer/disclose any indicative return on investments made in the programme(s). The Opinions are not intended to be professional guidance / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund shares for the reader. The article/video has been prepared based on publicly available information, internally developed data and other sources believed to be reliable. Although no action has been sought on the basis of the information provided here, every precaution has been taken to ensure that the facts are correct and that the opinions expressed are fair and reasonable at this time. Readers of the article/video should rely on information/data from their own investigations and advised to seek independent professional advice and make an informed decision before making any investment. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their affiliates or representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary loss or damage, including lost profits arising in any way whether on account of any action taken based on the data/information/views provided in the article/video.

Investments in mutual funds are subject to market risk. Read all plan documents carefully.

About Meredith Campagna

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