Expert Speak

A Balanced Portfolio Is Like A Balanced Diet! 

Hemant Rustagi
Chief Executive Officer, Wiseinvest Advisors 

It is important to have a balanced diet to remain healthy. Similarly, investing our hard-earned money requires us to adopt a balanced approach involving a goal-based investment strategy and following an asset allocation process. In other words, while eating healthy food ensures good physical health, investing wisely goes a long way in ensuring good financial health. In fact, different food items provide some interesting investment lessons for investors. To understand more about these lessons, let's take "Thali" as an example as it is made up of different dishes. 

Initial servings- A traditional thali meal begins with papad, raita, aachar and these are supposed to be eaten at different stages of our meal. If you get impatient and eat them in large quantities, it would usually result in not having enough appetite for main course and that would mean missing out on some of the delicacies. Similarly, while investing, don't spend too much time and efforts on investment options straightaway without ascertaining which asset class to invest as it could either make your portfolio very aggressive or very conservative. Both these can be detrimental to your ability to create wealth in the long run. 

Starters- Starters are served in small portions like "amuse bouche", but they set the tone for the food to come. Similarly, when you start investing early, it is usually done with smaller sums of monies and that sets the tone for your future wealth creation process. By starting to invest early, not only you benefit from the power of compounding, but you also understand the nuances of investing in different asset classes as well as implications of different strategies and prepare yourself for investing serious money at a later stage. 

Main course- The main course is the most filling and important part of the meal. Main course usually consists of variety of vegetables, dal, chapati and rice. While all these are important ingredients of a meal, you must eat them in the right quantity to make it a balanced diet. By eating too much of any of these dishes, irrespective of how much you may like it, you may miss out on nutrients in other foods. imilarly, a particular dish or two in thali may not be suitable for your health. In that case, either you should eat them in a restricted manner or avoid them altogether. 

This is akin to asset allocation, i.e. investing in different asset classes which is the main course of our investment process. An asset allocation process ensures that different asset classes are included in the portfolio in the right proportion. The right way to do so is to choose the right combination based on your time horizon and risk profile. 

Desserts-You usually finish your meal with desserts. While desserts can be exotic and tempting, you must have them in a moderate proportion, else they can be harmful. In any case, if you suffer from diabetes you must not have them at Similarly, while investing, you may feel compelled to invest in certain exotic products like sector and thematic funds as they perform very well during certain time periods. While those investors who have the risk appetite to withstand the attendant risks can invest in them in a small portion to improve their portfolio returns, risk-averse investors should stay away from them as they can take them beyond their risk-taking capacity. 

Look beyond your favourite Thali- While you may develop a liking for a particular type of food,say,North Indian, Gujarati Thali or South Indian Thali, it is important to try different varieties to develop taste for different cuisines and enjoy the food much more. Similarly, while investing your hard-earned money, you must look beyond traditional options and include market-linked products offered by mutual funds in your portfolio. Remember, mutual funds offer a variety of products that allow you to invest in not only different asset classes, but also products where fund managers follow different investment strategies to make them suitable for different time horizons. If you choose funds well, you can improve the chances of earning higher returns without taking any unnecessary risk