These days it's hard to find people like Maya.

The stock markets are down by almost 30% from their peaks and Maya's portfolio is still up by 40%. How did that happen? How was her portfolio insulated from this unforgiving crash?

Well. . . her portfolio was actually up by 45% before the crash and it is in now 40% up. She too suffered a loss but only to the extent of 11% and that too from the profits. Her capital is absolutely safe.

Maya is a software engineer in her mid-thirties and works with an MNC in Hyderabad. She prefers to invest in the equity markets. Of course she has created her own home and hence there is no looking back now she feels.

How did she manage this feat, given that most people have lost heavily in the recent carnage? To start with she had some very simple principles of investment.

Her primary objective was to get all the basic necessities viz., insurance, retirement planning, children's funding etc in order and then look at building wealth aggressively. Now the irony is that most investors do it the other way around.

They think that they will be able build wealth fast; many a times overnight and in the process deploy large resources to achieve this at the cost of leaving basic necessities open to risk. If things go wrong and they do go wrong one is left with little or nothing.

One is pushed back for years sometimes and it can take a long time to recuperate old mistakes and losses. Everyone can and should build wealth but there is a sequence and if you try to break that sequence there is a very large possibility that everything becomes completely chaotic.

Here is a glimpse of her portfolio strategy.

Maya knows that she wants to invest as much as possible into equity as that will bring home the maximum returns. She wants to do this safely and hence has decided to follow the principle of dynamic asset allocation.

Now by this process she will not be able to generate the huge 80% to 100% returns in a year as we saw in the last couple of years but she will get near about 1/3rd to half of those returns in good times and in bad times she will lose 1/3rd or lesser than what the broad markets will lose.

She started to invest about 4 years back and decided that she would broadly take risk with 50% of her money by investing into equity markets and the other 50% would be in safe, highly liquid & very low risk instruments that will provide the cushion to the volatility face by her 50% in equity assets.

Hence, she has a 50-50 strategy for equity and non-equity investments. Now the important thing to note here is that this exposure to equity did not happen in one shot. The 50% to equity was deployed slowly and steadily in a controlled manner. It happened bit by bit, by taking small steps.

As a result over time volatility was greatly reduced. There are just 2 things that need critical attention viz., the proportion of split, i.e. 50-50 and the proportion of controlled exposure. Please note that both these parameters are not like a rule of thumb, they differ from one individual to another depending on one's financial circumstances.

Going further Maya's overall portfolio is not shielded from the gyrations of the stock market but now the gyrations only happen in the profit. Over time the value of portfolio has far exceeded that of the invested capital.

Here is proof that such simple strategies can also be so effective. As a today she has practically outperformed all the sophisticated portfolio managers, bank's wealth management departments, great brokers and flamboyant agents who have access to so much more information, work with so many complex models and have unlimited resources.

Simple strategies always work!

Kartik Jhaveri, an expert at financial planning, is a Certified Financial Planner and a Chartered Wealth Manager. He may be reached at kartik.jhaveri@transcend-india.com

Disclaimer: The contents of the above articles are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decision.

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