WHAT IS ASSET ALLOCATION?

Dear investors,
     ASSET ALLOCATION is the most important investment decision an investor will make in their portfolio because it explains most of the risk and return.
     WHAT IS ASSET ALLOCATION?
     ASSET ALLOCATION  involves dividing an investment portfolio among different asset classes based on an investor's financial requirements. The right mix of asset classes in a portfolio provides an investor with the highest probability of meeting their need.

LET ME EXPLAIN.......
After the Battering the Stock Markets has recieved, investors are jittery and pegged down their return expectations from a Sky hugging 30% to a Safe return of 8%. As long as their principal is safe and the returns are secure, they are happy. No fancy returns, no volatility, investors has had enough.
     But is this good?. The Drastic changes in investors preferences will hurt the Investor's performance. But Investors, worldwide, tend to base decisions on the immediate past performance of their investments. They will be tempted to buy into Equity, when the markets move up and sell when the markets start going downhill and thus lose on both sides.
This is where ASSET ALLOCATION comes into picture. 

There is no single category of investments that performs consistently across time, be it Equity, Debt, commodities, real estate, gold. All are cyclical in nature and A True Investor's best bet would be to have sensible ASSET ALLOCATION.
     Having 20-30% investment in Debt would insulate you from Equity Crash and help mitigate the overall Portfolio losses.
      ASSET ALLOCATION in practical scenario will help you manage risks in a sensible way by avoiding over exposure to any one single tool of investment. True, with ASSET ALLOCATION the investor has to face the fact that some component of his portfolio will earn a lower return then the best performing compenent.
      Sensible ASSET ALLOCATION is a valuable guard against the misconception of steady and predictable returns from any single investment category.

  

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