Investment Principle : Asset Allocation

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ASSET ALLOCATION : Investing Principles

Now that we have seen some tips on Loans , there is an important principle which is the cornerstone of good investing.

It is Asset Allocation.

What is Asset Allocation ?

  • Diversifying your money among different types of investment vehicles, as stocks, bonds and money market instruments.
  • Establishing a well-diversified portfolio allows you to avoid the risks associated with putting all your eggs in one basket and also enhances returns.
  • Besides defining your objectives, you also need to take into consideration the amount of risk you are willing to take or can tolerate and what your cash flow requirements are.
  • Asset allocation is based on the principle that different assets perform differently in different market and economic conditions. Hence at some point, one with outperform the other.

Asset diversification has been described as “the only free lunch you will find in the investment game”

The objective is that the portfolio overall should give a good return above inflation atleast.

Typically, your portfolio which should be a well balanced portfolio which is invested in bonds, equities, cash and fixed income.

If you were to look at the pie diagram, you would find lots of your own allocation disbursed like that. Real estate and gold should be excluded.

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It is important to do a periodic review to see that your portfolio is well balanced and if there is a change in the allocation, the portfolio has to be rebalanced to achieve the goal it is meant for. 

So, check if your portfolio is adequately balanced and is able to meet the objectives or goals which you have set out to achieve. 

Till then…..happy balancing……

 

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