Dhirendra Kumar explains the importance of having a portion of fixed-income exposure in your portfolio
08-Jan-2020
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Would it not be better to invest 100 per cent in equity for a goal that is 20 years away?
- Godrej
Yes, it may not be a bad idea. But humans have a tendency to regret decisions. Besides, having some fixed income enforces a certain degree of watchfulness. Assuming that you have 20 per cent invested in fixed income, you see that your 80 per cent investment in equity has actually become 90 per cent by virtue of rapid growth. In that case, if you take out a little bit from equity and move it to the fixed income in a disciplined way, you will feel happy about it.
There is absolutely no problem if you can invest and not get perturbed by volatility in the equity markets. If you're investing for the next 20 years and want to enforce some discipline, have some degree of fixed-income exposure.
I think over a period of time, as your risk tolerance comes down, your need for income from your investments rises. This is because, for a good amount of our time, we are investing to accumulate. And then, a phase begins where you start banking on your investments to derive income from it. So, in this case, having a fixed-income orientation in a limited way will prepare you for that withdrawal plan.
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