Year-End Review: Strategies for Maximizing Returns in 2024
As December draws to a close, it's a natural time to pause and reflect on the year that has passed. The rapid pace of 2023 has left many of us catching our breath as we prepare for the new year. As we review our experiences and prepare for another dynamic year, it's also important to take stock of our financial strategies.
In just two months, Genius will celebrate its second anniversary. It’s been an eventful journey for both us and the Indian investing community. This year, the markets faced numerous challenges, including geopolitical tensions, ongoing interest rate hikes, the near-collapse of regional banks in the U.S., and fluctuating valuations in the Indian startup ecosystem. These factors, along with other minor issues, resulted in the NIFTY delivering modest returns, while the Mid and Small-cap indices offered only slight gains.
However, a broader perspective reveals a different story. Despite the market's volatility over the past two years, the long-term view shows steady growth. Markets often experience short-term fluctuations but generally trend upwards over longer periods.
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It's Not the Fund or the Stock, It's You
The key to achieving strong returns in the market isn’t just about selecting the best stocks or funds; it’s about giving your investments time to grow. This simple strategy is often overlooked by many investors.
For instance, as of December 1, 2023, NIFTY 50’s Systematic Investment Plan (SIP) and lump-sum returns over the past two years were 14.05% and 9.9%, respectively. Yet, 58% of investors earned returns lower than the NIFTY 50, with the average investor return at 13.6%.
This discrepancy arises from the inherent volatility of equity markets. Over the last 24 months, the NIFTY 50, NIFTY Mid Cap 150, and NIFTY Small Cap 250 indices experienced volatilities of 14.2%, 15.9%, and 17.4%, respectively. These fluctuations often lead investors to make impulsive decisions, such as skipping or canceling SIPs, redeeming funds at inopportune times, or investing based on fear or greed.
Human nature makes it challenging to stay the course with investments, especially when they involve our hard-earned money. Despite the simplicity of maintaining a steady investment approach, many investors struggle to adhere to it.
To address this, we introduced Genius. Genius provides optimal asset allocation recommendations each month, designed to minimize volatility and maximize returns based on market conditions.
Our experience over the last 19 months confirms that returns are more influenced by asset allocation than by individual funds or stocks. Asset allocation accounts for 90% of return variability and 100% of the absolute return level.
Asset Allocation and Returns:
If investors had used Genius's High Growth portfolios with monthly rebalancing over the past two years, they would have achieved 18.6% and 17.9% XIRR for mutual funds and stocks, respectively. In contrast, lump-sum investments in these portfolios yielded 12.3% and 12.4%. Notably, these returns were achieved with a median equity allocation of just 65.1%, meaning Genius’s equity allocation was lower than this 50% of the time. The highest allocation was 88.4% on April 1, 2022.
Despite Genius's multi-asset approach, it has delivered superior returns compared to pure equity investments for most investors. In fact, 84% of investors earned less than the returns provided by Genius.
Returns by Strategy:
| Strategy | Returns |
|---|---|
| Short-Term | 77% |
| Medium-Term | 81% |
| Long-Term | 85% |
Genius is Getting an Upgrade
As we approach the third year of Genius, we are making improvements to enhance its performance. Our goals are to reduce risk, minimize churn, and increase returns. The first major upgrade focuses on reducing churn, which has also resulted in improved returns.
Although not every asset allocation adjustment has been perfect, the frequency of incorrect moves is decreasing. The improved returns for the Genius High Growth portfolio are:
| High Growth Portfolio Returns | Before Improvement | After Improvement |
|---|---|---|
| SIP | 18.36% | 20.53% |
| Lumpsum | 11.61% | 12.65% |
We plan to continue refining Genius every few months or quarters, following extensive simulations aimed at reducing risk, minimizing churn, and enhancing returns.
If you have previously canceled or paused your SIPs, redeemed at inopportune times, or stopped using Genius, you can still set 2024 on the right path. Take advantage of our special offer to boost your investment returns with Genius.
Note: All data is for the two years ending December 2023. Genius returns are based on 22 months of actual returns and 2 months of back-tested returns. Investor returns that do not surpass NIFTY are specific to ET Money users. Genius returns are for those who rebalanced within 7 days of the due date. Data accuracy is on a best-effort basis. This is not investment advice, and decisions should not be made based solely on this information.
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