Weathering Risk With All-Weather Portfolios

There are occasions when equities will perform better, there are times when debt will perform better and there are times when gold will outperform the other asset classes. The purpose of an all-weather portfolio is to manage the risk aspect as you create wealth in the long term

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A majority of stock market investors are now nervous as well as confused about the short-term movement of the equity market. The recent run-up and a subsequent fall of the equity market from its high have indeed created chaos in the minds of equity market participants. Does it make sense to invest more at this point of time? This is the uppermost question in all discussions. There is doubt regarding the current momentum in the equity market. Concern around surging inflation that may become sticky rather than be transitory in nature is what has come to the fore. Higher inflation is seeping into the bond yields, which have started inching upwards.

This has resulted into making investment into long duration bond funds very unattractive. Most of the debt funds are generating returns in low single-digit and for some the returns are even lower than 5 per cent. Nonetheless, investment in commodities-related stocks has performed exceptionally well in the last one year. For example, funds with the energy theme have been the best performing and generated 88 per cent returns. In April 2020, due to the pandemic and expected lower demand along with a price war between two energy majors, Saudi Arabia and Russia, the oil prices sunk into the negative. This meant that oil producers were paying oil buyers to take the commodity. What all this means is that the future is unpredictable.