When you keep things simple, you can reach any goal. Your ultimate aim when it comes to investing is this to do this – buy when the prices are quite low and sell when it is high.
But this is easier said than done. You can get overcome by emotions when you see equity prices coming down, and you could develop cold feet investing during market dips.
So what do you do?
ENTER BALANCED ADVANTAGE FUNDS.
If you are an investor who needs to be sure that you are a buying equities at the right prices, balanced advantage funds is your answer.
Balanced advantage funds are a special category of mutual funds that invest in both equity and debt – but the added advantage is that these funds park additional money in equities only when their prices fall.
Trying to invest when the markets are falling may be tricky since the entire market appears to be on the decline. With balanced advantage funds you get the advantage of an increased allocation in equities in a steady and continuous manner.
Likewise, when the markets are rising, balanced advantage funds move around to other asset classes such as debt and lower the equity component in your portfolio. With this strategy, you automatically ensure that you are booking profits – and locking in on the gains – every time the market inches higher.
BE ON TOP OF ALL MARKET CONDITIONS
When investing in financial assets, make sure you have an idea of how equities work – and how you can invest now. You have to buy equities when prices are low, and sell when prices are higher. All gurus say that you must buy when prices are low.
But, implementing this in the current market is not easy. Stocks prices are quite expensive on the valuation matrix. While the ideal range for investing has to be at a PE of a maximum of around 16-18 times earnings, stock prices are hovering at levels of around 24-27 times.
Notice also that all stocks will not move up. In the last few months, more than 70 percent of the stocks have fallen lower, which means that one in three stocks end up on the losing trade. So, you also don’t want to get caught on the wrong trade.
A balanced advantage fund will ensure that you don’t put all your money into equities at this point. Balanced advantage funds ensure that you get the benefit of diversification with some debt investing in your portfolios.
A BETTER WAY TO INVEST WHEN INVESTING LUMP SUM MONIES
Balanced advantage funds are better when you want to invest money at one go in the market. As equities are priced higher, you should not buy the market tops. You should, in fact, make a careful and tactical exposure to stocks.
So, when you make a lump sum investment in a balanced advantage fund at higher levels such as the current market, you will get a lower portion of equities. This will usually reflect the ideal ratio that you should take exposures to the market.
For example, you could get 65 percent bonds and 35 percent stocks when you make a lump sum now depending on the market valuations.
Balanced advantage funds will decrease the equity exposure. Say, stock prices advance by, say, 10 percent. Balanced advantage funds will reduce equity exposure to, say, 30 percent, and increase bond and fixed income investing to say 70 percent taking the above example forward.
Balanced funds balance risk and rewards. As you keep your equity and debt allocation dynamic according to market conditions, then there is no need to take extra risk to generate additional returns. You will be worry-free in the knowledge that you are doing the classic investment strategy of all times – ‘buying low and selling high.’
