To refresh, these buckets are not asset allocation. How can that be? A true asset allocation should not have co-relation or may have very low co-relation. The ones that I show on this post, are all co-related and hence, not asset allocation. All are equities! When we talk about asset allocation, what it means is savings, FDs, bonds, equities, gold, etc. They are investment vehicles that are likely to provide true asset allocation benefits. Out of all these, I only focus on writing about equities on TIPBlog.

How did I get those percentage? Are they optimum for maximizing returns?

Simple answer is “I do not know”. When we are that the beginning, one needs to make a start at some point. You need to have a starting point. And this starting point cannot be random. In a well thought investment process, the starting point should be based on individual objectives, resources, risk profile, and time horizon. Based on these factors and long term vision that I have for my portfolio, I started out with a framework/guidelines that I had presented in TIPBlog investment buckets. Over last few years, I have learned quite a few things and decide to tweak (note: not change) these percentages.

• Portfolio 1: Index-Based ETF Fund (10%) The objective of this portfolio is to replicate the general market performance. I am assuming that as Indian GDP grows over time, it will be reflected in the growth of market index. In addition, it also sets a benchmark for my investments. I believe that in 10 years and beyond, the BSE SENSEX, NIFTY, and other indexes, will be higher than today. Having said that, I have observed selection menu is very small, and choice of good index ETFs are very limited. I am stopping short of saying index ETF space is non-existent in India. I have already discussed my index investing approach. Here, I tend to agree with Green World Investor on the present status of ETF industry in India. It is in this context, I reduced my percentage allocation down to 10% (instead of 30%).

• Portfolio 2: Opportunity Portfolio (30%) Here, I am focusing on capital appreciation. These are mostly value-based opportunistic investments. I invest in companies which I believe are undergoing short-term difficulties but are likely to have higher value in future. I have presented my understanding of value investing landscape and identified what I am (or will be) working on. I have increased allocation to 30% (instead of 20%).

• Portfolio 3: Dividend-Focused Portfolio (60%) This is allocated to income producing dividend-based investments. The objective is generate increasing passive cash flow and long-term capital appreciation. Here, I am attempting to practice long term buy and hold philosophy. Over the last year, I also discussed how I have adapted on selling decisions. I have increased allocation to 60% (instead of 50%)

TIPBlog Investment Buckets

As you can notice, I haven’t made any significant change in my framework. I still continue to believe this works for me. It provides me an optimum solution at this point in time. It takes sufficient risk to maximize my returns. In search for higher returns, I am willing to take higher risk by allocating more capital to potentially risky companies in portfolio 2. The fundamental notion here is simple. The assumption I make is, even if I lose this 30%, I can still sleep well at night. I can still comfortably pay my bills. My life will not change. However, I will be sad for few days and kick myself for doing this.

Do you makes any changes like this ? How do decide when and what to change?