Asset allocation in 2023: Start your investment journey with this ever-green strategy

Be excited to enter 2023 with joy and prepare a new list of solutions while ensuring your focus is not limited. It’s also important to add one of the most important aspects of life, your investments and financial goals, to your resolution list.

With the current trajectory of rising interest rates and the forecast of a global recession, 2023 will certainly prove important for investment portfolios. Steps should be taken to build a successful portfolio. Here are some reasons why and how you should consider this aspect as you approach the New Year.

Why should I review my asset allocation strategy?

Two factors that influence portfolio allocation are i) investment objectives and life stage, and ii) current market conditions. Both of these factors have a direct impact on your portfolio. You can effortlessly shift the weight of your asset allocation while considering your investment goals and life stage, with the latter expected to have the biggest impact on portfolios in 2023.

Global market conditions from stocks to commodities are currently very volatile. You may not have invested in global equities or commodities, but the Indian market also reflects fluctuations in global markets, and they impact your overall portfolio.

The outlook for U.S. equities and commodities asset classes in 2023 is relatively positive. US stocks have already corrected 19.7% in the S&P 500 and 32.2% in the NASDAQ-100 this year ahead of a possible recession. This could lead to a soft landing in the US market and could reflect a positive change for Indian investors.

Additionally, commodities, especially gold, have revised by 13% in 2022. We expect a moderate to positive outcome next year for commodities as the dollar is likely to turn around. However, financial markets can be volatile.

Current portfolio asset allocations may not be familiar with the economic and financial changes expected in 2023. Therefore, it is important to adopt an asset allocation strategy that can ensure stable returns while mitigating downside risk.

Which asset allocation strategy should you choose?

With interest rates rising and bond yields high, it’s a good time to invest in medium-duration funds. An asset allocation with adequate liability exposure ensures downside protection. You should ensure that your portfolio’s asset allocation strategy is consistent with the risks and that risk mitigation measures are in place.

For the most part, domestic long-term debt and Indian equities do well. However, given the macroeconomic outlook of relatively uncontrolled global inflation and its pass-through to India, a combination of low to medium term duration/accrual strategies in debt and Indian equities is recommended. Potential gains from falling interest rates are reflected in Indian equities. Rate cuts also lead to higher bond prices.

You should consult a financial professional to allocate your portfolio based on your investment goals. Remember that some forecasts may come true and some may not, due to the current unfavorable geopolitical situation and dire global growth outlook.Liquidity over the next two years Volatility in 2023 should not detract from your goals as long as you address your requirements and have a long-term outlook.

The best way to protect your investment from downside risk is to evaluate your current position and change your asset allocation with a view to your long-term goals. The aforementioned strategies may help you get through the next year, but there is no one size fits all, so you should assess your investment goals and preferences before making a decision.

(By Anup Bansal, Chief Business Officer of Scripbox. The above views are personal)

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