Basic premise of Asset Allocation
A fundamental case for
asset allocation is that different asset classes offer returns that aren't perfectly correlated, hence diversification reduces the overall risk in terms of the variability of returns. Statistics show that more than 90% of the returns of the portfolio depends on the asset allocation, while individual selection of securities only plays a miniscule role. Prepare a financial plan; and invest prudently by aligning your surpluses with your risk/return profile, key financial goals and complementary
asset allocation options.
Basic premise of Asset Allocation
A fundamental case for
asset allocation is that different asset classes offer returns that aren't perfectly correlated hence diversification reduces the overall risk in terms of the variability of returns. Statistics show that more than 90% of the returns of the portfolio depends on the asset allocation, while individual selection of securities only plays a miniscule role. Prepare a financial plan; and invest prudently by aligning your surpluses with your risk/return profile, key financial goals and complementary
asset allocation options.
Approach to Asset Allocation
The key to a successful approach to diversification is to research investment avenues and add only the ones that are negatively correlated. It is also important to rebalance assets on a time-to-time basis to ensure that the portfolio is adequately diversified.
Identifying Asset cycles
asset allocation is not a just a one-time effort; apart from aligning it to ones financial goals, risk appetite, age etc., there is another parameter - being in the right place at the right time. Heres a quick look at how various asset classes have fared and how certain asset classes have done better than the others at various points in time.
Asset Allocation is pertinent to optimize your returns and stay well within the preferred risk profile. Regular monitoring will help manage risk in alignment with financial goals and create wealth in the medium-long term. Diversification is an effective way of making your money work hard for you!
Tips for Asset Allocation
Start your asset allocation with tax planning and remember not to put all your eggs into one basket
Align your investments such that they are well-balanced and negatively correlated
Plan your investments across Short, Medium and Long term
If markets have run up sharply, be cautious, even if you can afford to take risk
Use derisked investment styles like Systematic Investments
