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Make the most of your annual bonus

Appraisals mark the start of the new financial year and by now you are looking forward to that massive bonus credited to your account. Family and friends may be knocking for treats and gifts, but there is a lot more you can achieve with your bonus than just that. A better than usual amount in your bank account often culminates in impulsive purchases like the new hatchback oran expensive holiday. Add to this you’re share-market savvy friend or advisor, who is luring you with a bouquet of multibaggers.

The annual bonus is a double-edged sword. It sure makes you happy but also brings in the dilemma of ‘what to do with it’? It’s a tough decision but one thing is for sure, you ought to plan this investment.

Tackling the temptation of Equities

What looks like increasingly the Trump Vs Hillary showdown this November might quite impact your bonus, if equities is the way you are looking. Here’s something that could help you get an idea on this asset class.

donald trump-investing in a US election year

Based on data retrieved from the last 6 elections and the current returns from investment in equity (Using the BSE Sensex to denote Equity investments) made 6 months prior to the election period i.e investments made in May.

So for example, an investment made in May 2012 (coinciding with the period you received your bonus for financial year 2011-12) returns 12% by November that year, 22% by the following December (Dec 2013, a holding period of ~1.5 year) and nearly 50% by December 2015. Historically, election years have proven fairly volatile for equities as an asset class.

Considering the last 5 elections, average returns on Equity have been -17%. Contrast the same with Gold, which has returned an average of 1.2% in these years. Evidently, there is an interest amongst investors in the run up to elections veering towards safe-haven assets. Equity Investments need time to show growth. The probability of returns improves significantly as the holding period increases.

Of course, this can’t be taken as gospel truth and the markets have and will continue to test the adage ‘History repeats itself’. The elections are just another element to the host of dynamics that influence the markets and thereby return rates.

Stick to assets that have worked well for you

Stocks may have worked brilliantly for your friend but you, on the other hand, have only burnt your fingers with this asset. There are a whole lot of assets, bonds, bank FDs, precious metals, and real estate wanting your attention. Moreover, there are divergent ways of investing – if equity is still the call, opt for an SIP.

Explore other options

Equities have and will remain darlings of experts, advisors, newspapers and news channels, thanks to the glamour around it, however, volatility has increased with each passing year. Don’t be hasty. It is all right for your money to sit in your bank while you explore sound avenues. Fixed income options are wide and could be an ideal platform to multiply your bonus.

Spread the investments

Invest your bonus towards a goal – your child’s education, retirement, a family trip and accordingly allocate your investments. Diversifying the funds is the key to success in the long run. Going by the table above, if you are planning a trip in December this year, putting your bonus into equities may not be the wisest things to do (if the market performance in the past 6 election years is anything to go by).

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