Creating 2 portfolios is crucial

There are two aspects of investing-the purpose of depositing funds to achieve life goals and generating short-term benefits riding markets. The first objective is achieved by making a target-based portfolio, also known as core portfolio. The second purpose can be achieved by making a trading portfolio, also known as satellite portfolio. In this article, we discuss why you should consider creating both portfolio together. We also discuss optimal investment allocation in both portfolio.

Medium bias

Suppose you only invest to achieve your life goals. You believe that the stock market displays high volatility, often later only moves rapidly for later decline. Your extended family and friends produce beautiful benefits trading in the market. However, you are satisfying the ‘investment for long periods’. After a while, you are likely to do business like your extended family and friends to earn short -term benefits.

Now, consider an alternative route. In this state, you trade aggressively in the market, trying to capture short-term market fluctuations in the market. You are obliged to your share of loss. If your market time is not consistently good, you may lose an important part of your capital. In this world, you may regret not making money for long periods.

When you make only the main portfolio, you are asked to suffer from a behavior prejudice called hyperopia.

That is, you are concerned about long -term money at the cost of short -term returns. When you make only a satellite portfolio, you are asked to suffer from myopia; Your concern is short -term returns at the cost of manufacturing long -term money. Creating both portfolio is optimal. In this way, you can moderate both hyperopia and myopia. This is especially true when the markets are temporary as it is now.

conclusion

Some individuals prefer to focus on long -term, while others prefer to trade aggressively to occupy short -term benefits. Therefore, allocation preference for two portfolio may vary in individuals. He said, an optimal division will be 70% core, 30% satellite, with a route of five percent marks. Therefore, no more than 35% of your total investment in a year, satellite should not be in portfolio, with 30% optimal. If you produce significant benefits in satellite portfolio, you can transfer some benefits to your main portfolio. However, it is not optimal to carry money from core portfolio to satellite portfolio.

(The author provides training programs to individuals to manage their personal investment)