Gold generally has a negative correlation with equity assets and is one of the key reasons why it forms a preferred portfolio diversifier during periods of macroeconomic uncertainty. However, if you were among the investors that diversified across equity and gold, you would be in a better position to achieve a balanced return or risk-adjusted return. For instance, during the onset of Covid, those who invested in equities alone saw their portfolio returns diminish considerably. To develop a diversified portfolio, you should endeavour to build a portfolio of imperfectly or negatively correlated asset classes. The asset mix is nothing but the relation between any two assets. 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? 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. Investing in just one asset class could hamper one’s financial goals. in 2020, while equity markets were at record low, gold prices were soaring. Sometimes equity performs better, while other times, so will debt or gold. There is no winning asset class as assets are cyclical. Accept that there is no winning asset classĭifferent asset classes perform differently across various times.Let’s explore the parameters you need to consider when building your all-weather portfolio. 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. It is essentially a mix of assets with varying risk levels and in line with your risk appetite. To cushion your portfolio and money against such volatile movements, you can create an all-weather portfolio.
Markets are volatile and over the long run the losses are likely to even out. While the Sensex dipped to 25,000 points in 2020, it soon crossed 60,000 in 2021. The last two years (20) witnessed some of the most unpredictable market movements.
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