With inflation at more than 11 per cent, oil at $140 a barrel, weak global data, political uncertainty, rising interest rates and emerging signs of a slowdown in the economy, the Sensex has taken a major nose dive to levels around 14,000 and is expected to be under pressure for some more time. Investors justifiably are worried about future prospects.

In this scenario what should an investor do about hte Indian equity component of her/his portfolio? Should s/he just remain there, increase his investments, or scoot? What should be the percentage allocated?

In the earlier articles I emphasised appropriate asset allocation as the most important factor for impressive portfolio returns and harnessing the power of passive income.

Jeremy Seigel, one of the most renowned American professors and who was also my teacher at the Wharton School, wrote a highly acclaimed and deeply researched book Stocks for the Long Run. He analysed in detail the more than 200-year old history of the US stock market and markets of numerous other countries.

The conclusion was unmistakable, that stocks held for a reasonable time horizon produce much higher returns as compared to other asset classes. It is true that stocks move with lots of fluctuations and volatility but in the long run reflect the economic fundamentals.