The key to successful long term wealth creation is to spread risk in a portfolio by opting for prudent asset allocation, feels SankaranNaren, ED & CIO, ICICI Prudential MF.
At Cafemutual Confluence 2020 Investment Marathon, Naren said that asset class winners change every year. For instance, between 2003 and 2013, real estate did exceptionally well but the tide turned after that. Similarly, gold gave negative returns between 2013 and 2015 but the asset class has delivered handsome returns in the last 4 years.
He warned investors that it is difficult to predict the top performing asset class in each cycle as the decision making process may be clouded by sentiments of greed and fear. Therefore, the best way to long term wealth creation is to adopt and follow a prudent asset allocation strategy based on investor goals, investment horizon and risk tolerance.
Further, Naren feels that asset allocation provides the twin benefit of managing cyclicality of asset classes and managing investor behaviour.
He added that through MFs, investors can diversify among equity, debt and gold, invest in dynamic asset allocation schemes or hybrid category schemes.
He advised investors that for diversification across debt strategies, they can use dynamic duration schemes. And for diversification across geographies, themes, sectors, market caps and asset classes, they can park money in fund of funds (FOFs).
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