At the end of 2023, experts had opined that the Nifty 50 is likely to end 2024 at 23000-24000. To some this seemed like a stretch given the relentless rally since end of March 2020. However, with Nifty 50 ending 2024 at 23,541, the prediction has come out to be rather precise. 

But 2024, for the capital markets is hardly been about the 10% or so return which Nifty 50 has delivered. Gold surpassed those returns with roughly a 20% gain, so did the mid and small cap indices with around 25%-30% gains respectively. Even the US benchmark S&P 500 has done much better than the Nifty 50 at around 24% return in 2024. Let’s not even discuss the 130% or so gain for Bitcoin. Clearly, domestic large cap equity stocks, did not carry the weight of the returns that have defined 2024, they fell relatively short despite the estimate on the benchmark level coming in precisely at the level predicted. 

Now what about 2025, are you going to go with what experts are opining or contrary or pull out thanks to all the risks that are still out there?

Your investments in 2025

If you follow social media experts, there are so many who are calling out an equity market doomsday. But when you are investing for the long term and looking for creating long term wealth, chasing extreme opinions is detrimental. Over time things change and your portfolio will be unable to switch lock, stock and barrel from one asset to the next. You have to instead build in flexibility such that you are able to capture the opportunities that feed your goal. 

If your goal is being able to buy a house in 2025, then you cannot leave the money you need for this goal in a risky asset like equity. Ideally, that money should be invested in some stable return assets. 

If on the other hand, your equity allocation is money you won’t need for another at least 7 years, then, what the equity market does in 2025 is irrelevant. What you need to make sure is that you are invested in good quality stocks and funds across market capitalisation which can deliver the expected compoundingCompounding is the concept of earning return on both your principle investment and your profit. It is a way of calculating return that assumes you pull back your return till yesterday and remain invested so that any change in value... in that period of time. For this you need, not just the benchmark exposure but also some amount of exposure to small and mid-cap stocks as the long term compoundingCompounding is the concept of earning return on both your principle investment and your profit. It is a way of calculating return that assumes you pull back your return till yesterday and remain invested so that any change in value... can surpass large cap in such long periods. Some amount of exposure to the US equity market may also help given a depreciating rupee and expanding US economy. 

What about buying property as an investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains...? Property investments have become riskier over the years with delays in construction and hurdles due to centre and state infrastructure projects. You have to be very discerning in selecting where you invest. Some micro markets can do reasonably well and a similar size investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains... even 2 kms away may languish. Unless you have the risk appetite to follow this through, it’s best left aside. Buying a house to live in doesn’t count as an investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains..., that really requires a reallocation of your existing assets. Loans are expensive now, hence, you must think through that decision carefully too.

That leaves gold and bitcoins. Gold has had a great 2024, with prices moving up 20% in the year. Is it sustainable? Long term price trend for gold doesn’t give the confidence that it is possible. However, the global geo political and economic dynamics are changing and one cannot rule out a continuance of the rally. The fear however, is that it can come to an abrupt standstill too and then there is no logic to fall back on for price to gain. 

Bitcoins, well, are not that well understood, highly volatile and unregulated. That’s a risk you need to assess very deeply and definitely not allocate huge proportion of your assets to. 

What should you do?

Sure, the calendar year is changing, but in 2025 too, balance and diversification will be the key. You cannot afford to be out of Indian equities, given the trajectory of India’s economic growth. Within this, you cannot afford to keep out of mid and small cap exposure if you want to enhance your gains. Fixed income is not yielding a great premiumThis is the amount you pay for keeping an insurance policy active. Usually paid in a lump sum at the start of the policy term or annually through the term, it includes all the charges and levies by the insurance... thanks to elevated inflationInflation is a common term thrown around in economics lessons and by politicians around election time. What it means in simple language is that prices of things you buy, stuff, keeps increasing every year. It happens because the economy in... More, but if you consider that rate cuts may not be too far, an interest rate trade could result in good gains in 2025. If you want some international exposure, it’s worth exploring US equities, taking advantage of their economic resilience and the rupee depreciation. This year, to make the most of market volatility across assets, you may want to keep aside a tactical fund and use only that surplus.

The basics remain the same, follow your strategic asset allocationAsset allocation is essentially an official term for what you intuitively know is a healthy investment practice. For starters most households are likely to own some property and gold. That is diversification in asset allocation. You allocate the money you... at all times and if you are booking profits, know where you want to reinvest. Lastly, a change in calendar does not necessitate a change in your portfolio. Happy New Year!