Introducing Portfolio Yoga – Asset Allocator

Re-balancing is a term that is rarely used in the investment advisory industry, let alone practiced with some amount of rigor. Re-balancing done rightly ensures that one is able to ride out the larger market cycles without just being a bystander to both the bull runs and the bear.

While it makes sense for a investor to have as much investment as his risk tolerance provides when the markets are moving higher, when the markets start to trend lower (and they do), it makes no sense to continue with the same allocation which can prove very detrimental to the health of the portfolio as the markets move lower and lower.

In one of my previous blog posts, I showcased how very good funds suffered draw-downs in excess of 50% when the markets collapsed in 2008. While the funds have recovered and posted new highs, at the lows when the logic at those times was to increase their exposure, data shows that investors actually exited, unable to bear the pain of such strong losses and fearing more loss if the markets continued to trend lower.

But what if a investor had exposed just 20% of his funds to the market compared to say 80%, would he be so concerned when the markets finally cracked?

A lot of sites provide a split on how much to invest into equity and how much into debt based on one’s risk tolerance. But that is a single dimensional approach since it does not look at the state of the market and whether even for the conservative investor, does it make sense to expose 40% of his funds to the market when its at its most expensive level.

At Portfolio Yoga, we are happy to introduce a simple way to calculate your asset allocation based both on your risk tolerance as well as the state of the market.

The PY-Asset Allocator will provide on a monthly basis, the split between debt and equity that is appropriate for the investor .Since the percentages can change on a monthly scale, the best way to implement would be via Nifty Bees since most mutual funds levy a high exit fee is the investment is unwound before a minimum amount of time (generally a year or more).

In the days and months that follow, we will also be implementing a simple questionnaire based process which shall enable you to assess the kind of investor / risk tolerance you have.

Here is the link for the page which shall be updated on a monthly basis. You can find the link on our home page http://www.portfolioyoga.com/ as well.