Depending on their financial intentions and aspirations, various people may interpret portfolio diversification differently. However, the majority of us almost surely agree that any diversified portfolio should strike a balance between growth and stability. One such obvious diversified strategy is a 60/40 portfolio, which invests 40% in bonds and other fixed-income securities and 60% in stocks.
In today’s economy, diversification is necessary for long-term wealth creation.
Portfolio diversification is primarily done to protect against unforeseen market downturns and reduce the risk of losing invested principal.
Investment advisors have historically preferred a 60/40 portfolio, but even their estimates have recently shifted in favor of very lucrative investment alternatives. Investment choices have a reputation for offering better returns than conventional fixed-income securities while also reducing market volatility.
Modern market volatility and conventional portfolios
When it comes to reducing volatility, traditional portfolios fall short. For equities markets, it goes without saying that a turbulent market would, over time, result in a stagnating or slowly expanding portfolio. A straightforward 60/40 portfolio is inadequate for long-term sustainable wealth building due to stock market volatility and bond interest rate risks.
Alternative portfolios: Today’s diversification
Alternative assets are economic assets that don’t fit inside the parameters of conventional investment vehicles like stock investment , bonds, and real estate. Private equity, venture capital, farmland investing, real estate, commodities, and the regulated P2P lending ecosystem are a few common examples of alternative investments. A diverse portfolio keeps a healthy balance between rapid growth and sound stability. By doing so, you may combat the market uncertainties, which are regrettably quite typical these days, and guarantee that your portfolio generates the maximum profits possible.
Alternative portfolios for regular investors in India
The average Indian investor is still getting used to the idea of alternative investing. In reality, the epidemic and the lockdowns that followed can be blamed for the rise in popularity of alternatives.P2P lending involves investors acting as borrowers and extending their cash to people and companies who want debt financing. This investing strategy is strictly regulated by the RBI, and only licensed platforms are allowed to operate. It can produce returns of approximately 12–18% annually.