The word ‘balance’ first appears in our lexicon when we are quite young. When you’re young, it’s all about finding a balance between your academics and sports activities; when you start your professional job, it’s all about balancing spending and saving; and when you’re a decade into your career, it’s all about balancing your home and family obligations with your work.

To achieve this balance, you may do a variety of things, such as creating a study schedule throughout the school day or setting up specified no-phone/no laptop hours to spend more time with family.

The significance of having a well-balanced financial portfolio

Creating an investing portfolio serves two key functions. The first is to increase the value of your investments, and the second is to safeguard them. Too much growth sometimes can come at the expense of safety, while too much safety might stifle portfolio expansion. As a result, portfolio growth and portfolio preservation must be balanced. This translates to balancing both debt and equity exposure from an investing standpoint. In general, the equity portion of your portfolio should generate long-term development while the loan portion should provide downside protection.

This implies that if you have too much stock in your portfolio, you may be taking on more risk than you should, and if you have too much debt in your portfolio, your investment portfolio may not create enough returns to meet your financial objectives. As a result, balancing your debt and equity exposure in your portfolio becomes critical.

Balanced Advantage Funds bring value to your portfolio in a variety of ways:

  • A balanced advantage fund is a hybrid mutual fund that fits within the category of balanced advantage funds.
  • These funds invest in a mix of stock, debt, and gold assets to build a portfolio that can provide both growth and safety. The benefit of a balanced advantage fund is in the manner it manages debt and equity instrument exposure.
  • It often adjusts exposure between equities and debt assets depending on market circumstances and specific investment criteria previously determined by the fund management team. When equity markets begin to rise, BAF will be able to increase its investment in shares and take advantage of the growth potential they provide. When stocks begin to collapse, on the other hand, it is possible to dynamically shift a higher proportion of portfolio assets to debt instruments.
  • BAF may actively safeguard the portfolio from strong equity market changes and prevent losses in this way.

As a BAF investor, you will be able to build a strong investment portfolio that will help you meet your financial objectives. The following are some of the immediate advantages:

  • These funds can swiftly adjust equity holdings in response to changing market conditions thanks to dynamic asset allocation. As a consequence, your investment portfolio might expand in upcoming markets while remaining safe in weak or down-trending markets.
  • Because allocations are made dynamically based on pre-determined investing criteria, there is no need for you to try to time the market.
  • When dealing with equities markets, it aids you in overcoming your behavioral biases.

Assetmonk, India’s fastest-growing wealth tech platform focused on commercial real estate investments will help you add stable, high-yielding assets to your portfolios. The company offers investment opportunities at low prices via fractional ownership with a guaranteed yearly IRR of up to 21%. Furthermore, you can get advice from Assetmonk’s asset advisors for investment suggestions.

How does rebalancing a portfolio work?

In a word, rebalancing is selling one or more assets and reinvesting the profits to reach your target asset proportions. To realign your asset allocation with your risk tolerance, you would either sell some of your stock investments and transfer the money into bonds or buy additional bonds, as in the example above.

Which of these choices appeals to you the most?

  • Purchase lower-performing assets and sell high-performing ones.
  • Allocate fresh funds in a planned manner. For example, if one stock in your portfolio has been overweighted, put your fresh deposits into other equities you like until your portfolio is back in balance.

Since rebalancing the “conventional” manner — without investing any more money — forces you to sell your best-performing assets, you may choose the second alternative. We like the second strategy since it allows you to rebalance by adding new funds while leaving current champions alone to (hopefully) continue to outperform.

It’s worth noting that your portfolio may balance automatically if you buy through a robot-advisory service or perhaps an employer-sponsored retirement plan like a 401(k).

Identifying what a well-balanced portfolio looks like for you

Unfortunately, there isn’t a foolproof way to figure out how much diversification you need in a balanced portfolio. The Rule of 110 is one way of calculating the ideal asset allocation for you. Subtract your age from 110 to figure out how much of your portfolio should be invested in stocks, with the rest in bonds. For example, if you’re 39, this indicates that equities should account for around 71% of your portfolio, while bonds should account for the remaining 29%.

This strategy can be used, but it’s also necessary to examine your unique circumstances. If you consider yourself to be a risk-taker who is unconcerned with short-term market swings, your balanced portfolio may move somewhat in favor of stocks.

If stock market volatility is keeping you up at night, you may err on the side of caution and allocate more funds to bonds or even cash. A portfolio that is well-balanced for me is unlikely to be well-balanced for you!