Asset Allocation | Investing

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Asset Allocation primarily involves categorizing an investment option amongst various asset categories that is offered. It could be in the form of a stock, fund or a share and the option that you choose is thoroughly a self made decision that will decide the time you could go about tolerating the risk. Any major investment involves some amount of risk. It could be you come out thoroughly victorious, or it could be that you loose some amount of your investment or the complete amount. Hence prior to investing it is advisable get the complete market report on the asset you purchase or invest upon. Well if we overlook the negativities and focus on the positives then the reward for taking on risk is the potential for a greater investment return in the longer run. For short term investments it is advised that one tries cash investments.

By having an in-depth knowledge regarding the asset that the investor wishes to invest upon he becomes aware of the possible losses he could incur in case of a wrong initiation that he takes during the investment part. Incase you invest on three primary assets then it is obvious that the returns from all the three assets wouldn’t be the same. You might garner high returns from one investment and loose out from the other couple of them and vice-versa. So it is always advisable to invest in more then one asset at a time so that the chances of an overall loss are avoided. In addition, asset allocation is important because it has major impact on whether you will meet your financial goal. If you don't include enough risk in your portfolio, your investments may not earn a large enough return to meet your long time goal.

To choose and determine the asset you would want to invest in isn’t an easy option. So choosing three assets at a time is the entire more tough specially since it is a long term investment and you have to mix and handle them with emaculate maturity. It is here that two important factors creep up. A) Your time zone, i.e the amount of time you intend to keep the investment and B) The Risk Factor, i.e how far are you willing to go with your investment. The most common thing that takes place after you invest in assets is that you change them. This happens because once you near you investment goals you need to re-arrange your strategies for another investment plan. On the other hand a matured investor doesn’t change their investment strategies or their assets because over time some of your investments may become out of alignment with your investment goals. This is called Re-Balancing. It is all about bringing back your Assets in the original form just like the way you invested.

Mostly people would recommend to re-balance when the relative weight of an asset class fluctuates more than a certain percentage and is identified in advance. The Prime advantage that you get in this method is you have an idea as to when you should re-balance your assets and start all over with a new investment plan so that you again gain on in some profits.

About the Author

Fund Manager and Investment Planner Employed with Franklin Templeton India. To read more about Asset Allocation in detail click here.

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