Asset Allocation

So what’s asset allocation?

People generally feel uncomfortable discussing their personal investment portfolio with others. They fear that their investment portfolio will be discussed by one and all. Some feel that they are experts in the field of finance and they can manage their investments better than anyone else. Others want proper advice but don’t know where to go.

Today an individual has lots of options for investment in equity and debt. People can choose from a wide range of products but lack knowledge about the same. An improper asset allocation results in huge losses or minimal gains. Example, a risk averse person investing only in debt markets won’t earn as much as a risk taker from equity markets. On the other hand the aggressive investor who only or predominantly invests in equity markets will loose huge some of money when market crashes. A proper mix of both these asset classes (equity and debt) results in a balanced portfolio that provides great returns.

Hence asset allocation is nothing but proper allocation of investments in various asset classes with consideration of one’s risk profile, family dependants, liabilities, financial goals etc. A proper asset allocation strategy helps an individual in attaining a right mix of investment products that helps him to take minimal risk and generate maximum returns.

Insurance: One needs to understand the need of insurance in their portfolio. Medical insurance and a life cover are the two most important policies that one should have. Life cover needs to be realistic as per the age, dependants and financial goals to be achieved.

Equity: In equity one can opt for individual shares if they have knowledge or can opt the indirect way of investing through mutual funds. Real estate can be considered by those you want a personal possession and are confident enough to repay the EMI’s on time. Real estate provides a good investment option in the long term of almost 10 to 15 years.

Debt: Gold is assumed to be a good investment option during a bear market phase. One can invest in a mix of debt mutual funds, fixed deposits, PPF, NSC etc that comprise of the debt investments.

It is quite difficult is ascertain a perfect allocation. You can take advice from a financial planner, get a proper asset allocation done and then have a disciplined approach towards investing and you will surely achieve financial success.