How to get rich this year: Your investment guide for 2021 and what to expect from Budget

The year 2020 was exceptional and events ranged dramatically from panic to happy investors. Equity markets collapsed nearly 40% in March due to Covid concerns, but only cleverly rallied to end the year at an all-time high. Interest rates fell during the year, reducing returns for FD investors but increasing returns for debt funds. Amid the uncertainty, gold continued to perform well, rising 31% over the year to emerge as the best performing asset class in 2020.

Impact on the investor's portfolio

Differential returns achieved by different investments change the portfolio's asset allocation. The capital allocation to an investor who started 2020 with 50% in stocks, 40% in fixed income and 10% in gold, would not have changed much if he had not added more equities when markets fell. If it did, the equity portion would now be more than 50%, which would require rebalancing the portfolio. The rebalancing restores the original asset allocation, thereby reducing risk in the portfolio.

Likewise, gold has achieved excellent returns during the year and the outlook is bright due to the global uncertainty caused by Covid. But if the gold supply in the portfolio increases by more than 3-4 percentage points, it may be time to make a profit. Or at least don't invest more in the yellow metal now.

How investments did in 2020

Be careful! Even debt funds and DCs can be risky

The past few years have shown how debt money can also be risky and why you can no longer invest in bank deposits with your eyes closed. Investors should prevent debt money from venturing into lower-quality bonds just to improve returns. The Franklin Templeton episode, where an estimated 28 billion rupees of investor money has been suspended due to poor investment decisions by fund managers, underscores the risk of chasing high returns. Stick with high-quality paper for the money, even if that means slightly lower returns.

Similarly, investors shouldn't be tempted by the higher rates offered by shady little banks. The crisis at PMC Bank, Yes Bank and Lakshmi Vilas Bank are all examples where growing NPAs have cast a shadow over the bank's viability. Find the financial position of a bank before investing your money. Invest only if the net NPAs are below the acceptable threshold of 4-5% and the bank has a strong capital adequacy ratio of more than 9-10%.

Is it the right time to buy a home?

Real estate has been in landfills for many years, and the Covid virus has only worsened the situation. To eliminate huge unsold stocks, cash-strapped builders are offering attractive discounts. Additionally, home loan interest rates are at their lowest level in a decade, starting at 6.75%. Therefore, the best time to buy a home.

While buying real estate for your own use is highly recommended, buying for investment purposes is not a good idea. Sure, plan to buy the home or commercial property of your dreams, keeping in mind that you will be the occupant. Due to the unexciting economic outlook, you cannot expect generous rental returns or significant appreciation in value. Therefore, it is better to buy it for your own use only.

Are you covered enough?

Before the Covid hit, not everyone took health insurance seriously, most bought basic coverage. The huge hospitalization bills for many Covid patients showed that Rs 4-5 health coverage would not be enough. A family of four needs a premium coverage of at least Rs 10-15 lakh. The supplemental policy is an inexpensive way to increase your health coverage without having to buy a new one.

It's also time to re-evaluate your life insurance coverage. Life coverage must be adequate to pay off all outstanding debts, as well as to generate sufficient returns to replace the insured's income. Low-cost pure protection plans are perhaps the best option for life insurance coverage. At least 5-6 times the annual per capita income is recommended.