How To Build A Crashproof Portfolio

The surest way to tickle god’s humour is to tell her your best-laid long-term plans. Same’s the case with Mr Market. Second-guessing him is nigh-on impossible, both for us and all the ‘pundits’ on the telly and social media who claim to know they do

- Ashish Menon & Agnisheik Chatterji

So, do yourself a favour and do the next best thing: ASSET ALLOCATION. That’s your only fix to avoid the mood swings of Mr Market, especially when the drumbeats of a US downturn are getting louder by the day.

Lessons from snakes and ladders

Did you know the worldwide classic snakes-and-ladders game has its origins in ancient India? Interestingly, this game wasn’t played for entertainment alone; it was also a metaphor for how we should lead our lives. The snakes on the board symbolised vices and the ladder’s virtue.

What’s fascinating is that the game’s symbolism can be extended to how we invest as well. In this case, the snakes represent market turbulence; the ladders are a symbol for equity investing, as they can help your money climb new highs that few others can match; and, the colourful squares are like fixed-income. They ensure you remain on solid ground.

Just like the game is incomplete without any of its three elements, our investment strategies are imperfect if we don’t consider equity, debt and market volatility. Imperfect because equity and debt react differently to different market volatility. Hence, the need for asset allocation. It optimises the best of both equity and debt to tackle the uncertain nature of Mr Market.

A market crash best illustrates the importance of having a balanced approach. Let’s say someone was an equity fanatic and retired with ₹50 lakh in 2007. That equity-heavy nest egg would have been decimated by more than half to just ₹24 lakh in 2008, the year of the global financial crisis.