By Pankaj Sharma
Before zeroing in on a wealth management strategy, it is essential to understand that market volatility cannot be eliminated but its impact can be mitigated. Below are key practices to support sound financial decision-making in evolving markets.
Budgeting framework
The 50/30/20 rule is one of the most effective ways to initiate yourself into the world of budgeting and investing. This means you allocate 50% of your income to essential expenses, 30% to discretionary spending, and 20% to investments, creating a foundation of financial control and long-term goal setting.
Diversified asset classes
A well-diversified portfolio—spread across asset classes, industries, and geographies—can reduce volatility by 20–30% as compared to concentrated holdings. Sustainable investments, such as renewable energy infrastructure or companies with strong environmental practices, is one way to achieve this. A skilled wealth manager will design a diversified, tax-efficient strategy—balancing equities, property (like REITs or commercial real estate), and alternative investments—aligned with your long-term goals, risk tolerance, and horizon.
Avoid reactionary decisions
Although it is critical not to act impulsively during market fluctuations, inaction is also not a strategy. Professional advice based on data-driven insights can support informed decision-making during periods of turbulence.
Effective estate and tax planning can help preserve wealth and minimise tax liabilities. Strategies include setting up trusts, making use of tax-efficient investment vehicles, and staying updated on changing tax laws to optimise tax positions.
Alternative investments
Having different asset classes, including equities, debt, hedge funds, cash, commodities, gold, real estate, and the like, can help in the long run. Alternative assets are becoming increasingly popular because of their ability to leverage market neutrality and deliver higher risk-adjusted returns. Besides, alternative assets benefit from government incentives and tax relief. In fact, during the 2008 global financial crisis and the Covid-19 shock, portfolios with diversified alternatives exhibited greater stability.
The writer is director, Capital Markets Policy, India at CFA Institute.
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