Why Multi-Asset Investing Works For Every Market Condition

Financial market investment is thrilling but fraught with risks. Some investments, such as stocks, bring substantial returns but carry the risk of volatility. Others, such as bonds, bring stability but could fail to give risk-adjusted returns. Commodities such as gold and silver provide a cushion during troubled times but don’t always give positive returns.

Equities or stocks have a long history of increasing wealth and historically giving better returns than other major investment options. For instance, in 2023, the BSE Sensex provided returns of 18.7%, demonstrating the power of equities. However, they can, nevertheless, be volatile. In 2008, the Sensex dipped by -52.4%, reminding investors that stock markets do experience volatile years.

Equities or stocks have a long history of increasing wealth and historically giving better returns than other major investment options. For instance, in 2023, the BSE Sensex provided returns of 18.7%, demonstrating the power of equities. However, they can, nevertheless, be volatile. In 2008, the Sensex dipped by -52.4%, reminding investors that stock markets do experience volatile years.

Debt investments, such as bonds, provide a stable source of returns and lower a portfolio’s risk. The CRISIL Composite Bond Fund Index returned 7.3% in 2023, which indicates that they give stable returns in the long run. Although debt might not provide high returns as equities, it is an essential part of keeping a balance in an investment portfolio.

Gold and silver have been regarded as safe havens for investments over generations. They act as a hedge against inflation and unpredictable market conditions. Gold, for example, returned 15.4% in 2023, showing its mettle in the face of economic turmoil. However, gold and silver also go through periods of low performance, like in 2014, when gold returns were -7.9%.

Rather than managing individual investments in stocks, bonds, and gold, investors can opt for a multi-asset fund, which invests in all these alternatives in one portfolio. This has several benefits.

One of the primary advantages of professional asset allocation. Market conditions fluctuate, and it can be tricky for a retail investor to decide when to withdraw money from stocks to invest in bonds or gold or the other way. A multi-asset fund is handled by specialists who decide when to do that based on proper analysis. When stock prices are excessively high, they can reduce stock holdings and move more towards debt or gold, saving investors from taking unnecessary risks.

Another benefit is reduced rebalancing expenses. When investing in various classes of assets independently, investors are forced to purchase and sell assets at regular intervals. This means they incur transaction charges, pay taxes, and make time-consuming decisions. With a multi-asset fund, however, such investments are overseen by professionals who rebalance them automatically without incurring tax implications and less effort.

Investing in multiple asset classes is like planning a trip with alternative routes. If you rely only on one mode of transport (stocks), your journey might be smooth, but an unexpected weather (market downturn) could cause delays. Having a backup plan (debt investments) ensures that even if your primary route is blocked, you can still reach your destination. Additionally, carrying travel insurance (gold & silver investments) protects you from unexpected problems like cancellations or lost baggage.

Likewise, in investments, a diversified multi-asset portfolio minimises risks and ensures smoother financial growth. If one asset class performs poorly, another could perform well, maintaining the overall portfolio stable. A multi-asset fund gives investors the best of everything, with a combination of growth, stability, and protection.

Multi-asset funds are an intelligent and cost-effective option for investors who seek to reduce risk, increase return, and reduce investment decisions.

Disclaimer: This article is not part of the Outlook Money editorial feature. The views expressed are personal and do not necessarily reflect those of Outlook Money. Readers are advised to do their own research or seek professional advice before making any investment decisions.

Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not indicative of future results.

Disclaimer: The Views are Personal and not a part of the Outlook Money Editorial Feature