Asset Allocation

Industry experts believe that 90 percent of the performance of a portfolio is linked to asset allocation. So only if you have allocated your assets in the right way depending on your risk appetite and goals would you be able to build a good mutual fund portfolio. Asset allocation acts like fuel towards your long-term investments and returns.

Allocating your assets is a simple process where you can spread your investments across various asset categories such as equity mutual funds, debt mutual funds and cash. The more you diversify across various assets the better you’d be able to cushion your capital against the markets when they fall. Allocating assets would depend on your age, lifestyle, goals and risk-taking appetite. Let’s say you are a young investor. Since you have time on your side, you should look to invest more than 70 percent of your capital in equity and leave the remaining 30 percent in debt. Also as you near your goal or retirement, you should gradually move your investments from equity to debt. This would ensure your capital is protected in case the markets are volatile at the time you decide to remove your money. It is advisable for young investors to put their capital in equity if they want big returns.

Sometimes the macros look weak and the stock market indices are seen at new highs, so it is important to spread across your investments in order to protect your capital from market risks. By allocating assets across various segments, you can minimise volatility and maximise profits. Allocating your assets helps you in simplifying both your long-term and short-term goals. It is advisable you should allocate your assets for short-term goals in investments which have fewer risks. Once you have allocated your assets across various sectors it is important you track it regularly. Here you can minimise volatility and maximise profits. Many well-known wealth managers believe asset allocation is important to the success of any financial plan. It is important you review it once a quarter and depending on how the market has performed if it moves up or down by 10 percent of the target then it is time you should rebalance your portfolio to ensure the risk is taken care of.