Investors should exercise cautious optimism, says Saumya Sarkar of Wealth Redefine

livemint.com:

Wealth Redefine. In an interview with LiveMint, Sarkar said that disciplined asset allocation safeguards investments by promoting a well-calibrated response to market dynamics. New-age investors are showing increased enthusiasm for aggressive equity investments, yet the key focus should always be on prudent asset allocation.

This strategy is fundamental for navigating the unpredictable market, as sustained one-sided trends are rare. Asset allocation offers a balanced approach tailored to an investor’s risk profile, ensuring they capitalise on market opportunities without succumbing to excessive risk. During bullish periods, there’s a tendency to overemphasise equity due to past returns, neglecting the significance of diversified allocation.

Conversely, in bearish markets, panic-induced shifts from equity to debt occur, fuelled by perceptions of expensive or undervalued markets. Asset allocation acts as a stabilising force, prompting investors to adjust their portfolios based on market conditions rather than succumbing to market sentiments. It’s an essential practice, especially considering diverse risk profiles, ensuring investors align their strategies with their risk tolerance.

In essence, disciplined asset allocation safeguards investments by promoting a well-calibrated response to market dynamics. Certainly, in the current market rally, there is a conspicuous surge, notably in some stocks that appear to be overvalued. Fund managers are diligently highlighting these overvalued stocks, anticipating a potential sharp correction.