PLANNING INVESTMENT IN THE YEAR 2010

Asset allocation works. Ask those who were 100% invested in equities in 2008. Their portfolios were shattered as the year ended. However, those with a proper allocation between stocks, bonds, gold, real estate, and cash (for emergency needs) were a better lot.

Now those who talk about asset allocation generally end the discussion at these various asset classes. However, equity investors would do well to go a step even further. They can further allocate their equity portion between large caps, mid caps and small caps. While large caps are the safest of the lot, mid and small caps while being risky can generate the best returns over a long run. So a proper blend of these different categories of stocks can help you generate good yet stable returns over a 5 to 10 year period.

Now as we move into 2010, investors in small cap stocks must be the happiest lot. This is on the back of about 125% returns of BSE-Smallcap during 2009. This is higher than the returns recorded by the BSE-Midcap (106%) and BSE-Sensex (80%).

So, where will you be investing in 2010?

Large caps? Mid caps? Or small caps?

Well, the answer is - it depends on your long-term needs and risk appetite. But purely as a matter of prudence, one looking to build a portfolio from a 10 to 15 years perspective can have a 60-70% allocation to large caps and 10-15% each to mid and small caps... and quality stocks in each of these categories.

Treat this allocation as just a guide and, we repeat, allocate your equity portion using your understanding of different kinds of companies across different levels of market cap.

SOURCE: EQUITYMASTER

Food prices are really pinching the average citizen out there and pinching big time! Today's chart of the day helps throw some light on one of the fundamental reasons behind the same. As shown, the area under grain harvest in major countries has come down steadily over the years on a per capita basis. This, even as the world population rising and per capita grain consumption going up. Even elementary economics would be enough to conclude that prices have but one way to go, up. If the world has any chance to feed its huge population and that too, without any riots, as higher food prices usually cause, the only solution would be to bring about a dramatic improvement in agricultural productivity and come down hard on wastage of any kind. Otherwise, be prepared for sustained increase in food price inflation.

Source: Earth Policy Institute