Term of the day: Asset allocation

Photo: iStock

Photo: iStock

When you take a pool of your money and invest it across different assets like gold, fixed deposits, equity and even real estate, the process is called asset allocation with a view to diversify your risk.

Most of you have an asset allocation, whether you know it or not. Even if you are just putting money in fixed deposits and buying some gold every month, you have an asset allocation. This may not be a conscious division of funds, but your asset allocation determines how much return you will earn on an aggregate basis.

The objective of having a thought-out asset allocation across assets is to build a portfolio that closely matches your future return expectation, while keeping in mind the risk or volatility that you can bear. Your strategic long-term asset allocation ideally should be linked to your goals.

Keep your asset allocation dynamic, but don’t alter your fianancial goals to fit the allocation just for higher returns.

 

 

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