How to build an All-Weather Portfolio??



·        What is an all-weather portfolio?

To cushion your portfolio and money against any volatile movements, you can create an all-weather portfolio. It is essentially a mix of assets with varying risk levels and in line with your risk appetite. An all-weather portfolio helps you adapt to the market volatility, adjust to different conditions of the market, minimize downside risks and gives you risk-adjusted return over the long term. Let’s explore the parameters you need to consider when building your all-weather portfolio.

·        Accept that there is no winning asset class

Different asset classes perform differently across various times. There is no winning asset class as assets are cyclical. Sometimes equity performs better, while other times, so will debt or gold.

Investing in just one asset class could hamper one’s financial goals. Hence, it becomes important to have an asset allocation strategy by diversifying across asset classes such as equities, debt and gold to generate risk-adjusted returns. So now that you have accepted that there is no winning asset class, how do you build an all-weather portfolio that can continue to perform under various market conditions?

·        Determine Asset mix

The asset mix is nothing but the relation between any two assets. To develop a diversified portfolio, you should endeavour to build a portfolio of imperfectly or negatively correlated asset classes. In simple terms, your portfolio should be formed in a way that a rise or fall in one share doesn’t affect the value of others in the folio.


·        Pick the right asset mix

The key to creating an all-weather portfolio is to diversify across asset classes. There are two approaches to diversification. One is where you do-it-yourself. This involves following an asset allocation strategy. The second is investing in readymade or dynamic asset allocation solutions like mutual funds. You can also have a mix of stocks, bonds and equity/debt mutual funds.

In the first DIY approach to asset allocation, you need the following building blocks to form a robust asset allocation strategy.

These are:

  1. Emergency Block – This is your go-to financial backup for emergencies when you are in urgent need of money. Experts suggest setting aside money equivalent to 6-12 months of expenses in low-risk highly liquid investment options or your bank account. Low risk options are those that have the least chances of a capital loss when you withdraw in an emergency.


  1. Earnings (Growth Block)– Growth block is the block where you park your high risk investments that give the edge to your overall portfolio while the portfolio diversifying block balances out the risk. Depending on your risk appetite, you can allocate your funds accordingly.

·        Achieve readymade allocation with a dynamic allocation

Some investors are unable to improvise their portfolios due to time constraints. Under these circumstances, one can use a readymade asset allocation offered by a Multi Asset Fund of funds. Such funds work to a hybrid fund and have underlying investments in more than one asset class, thereby achieving diversification in a single portfolio.

Advantages of a Multi-Asset Fund of Funds are built-in diversification, professional research and management, etc.

·        Conclusion

It is essential to build an all-weather portfolio that helps you stay ahead of inflation and be ready to face any market risk. Investing in a diversified portfolio enables you to strike the right balance between risk and rewards and helps you to ride the wave of market uncertainty.

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