Planning Your Investment Portfolio – A Look at the Asset Classes
What to keep in mind when planning your investment portfolio? How should you look at the asset classes and how can they help you?
No matter who you talk to when it comes to investment, planning takes the front row seat in discussions. Your investment portfolio – or the collection of all your investments across the market – needs careful thought and planning – especially if you have short- and long-term goals to cater to with the wealth that your investment generates. Any investment you make is always done in a particular asset class. In India, there are primarily four asset classes – equities/shares, bonds (government/corporate), cash, and real estate or commodities. Each asset class has its own benefit when used in an investment portfolio wisely.
Let’s take equities/shares for example. They allow the investor to have ownership in a business. This means as the business grows and performs better, the returns reaped by the investor also increase. On the flipside, if the business does not perform as well, the investor can incur loss or potentially have capital stuck in the business without making any significant profit. Government or corporate bonds fall under fixed income category. The money invested in them is basically being lent to someone else and the interest is paid to the investor until maturity. It is one of the oldest forms of investment. Cash and cash-equivalent asset classes are good for short-term investing. These can include money market instruments, commercial papers, treasury bills, and the like. These are highly liquid instruments with maturity periods up to a year. These are good for those with high-risk high-return appetite and are generally not advised to a fresh investor. Real estate asset class means exactly what it says. You invest in plots, buildings, and the like. They can be commercial or residential in nature. Owing to the large investment ticket size, getting into commercial real estate investment was previously quite difficult for retail (individual) investors, but with the rising popularity of fractional ownership and REITs, this asset class is also attracting a lot of attention now. Real estate is good for those who can invest across a very long period. It is a rather stable asset class, when it comes to commercial real estate (CRE), and the historical returns in India have constantly been on the profitable side. The cherry on top with CRE is the capital appreciation of the property that is invested in. If proper time and effort has been invested in knowing the market demand and supply, investment in CRE can yield bountiful returns. Commodities, as the name suggests, is investment in and ownership of goods that have some end use. Materials like silver, gold, crude oil, copper can fall into this asset class. While being profitable, there’s no saying how the market sentiment can change if there’s any big disruptive event on a global scale, and that can affect commodities in a major way.
Below you can find some of the popular asset classes in India and how they have performed over the past year.
It is always advised that investments should be done for the long term, so that the investor can have a grip on their understanding of the market as well as getting clarity on their investment goals, but if you are quick on the uptake, you can even plan investments that are short-term and that aid in your wealth creation effectively.
Commercial real estate, for example, is a long-term investment option. But, via Strata, you can switch your investments across assets without having to exit the investment altogether. Fractional ownership via Strata can help you do that. Interested in knowing more? Connect with us at strataprop.com.