Financial Planning is the first step to having a secure life
Asset allocation is vital part of financial planning!
What Is Asset Allocation?
When you save money, you have the below options for investing –
- Real Estate
A proper asset allocation will help you with the right mix in each of the asset classes in a proportion that is commensurate to your risk profile.
Let’s understand these assets more!
- The sole purpose of Equities is to GENERATE wealth
- Ownership of business
- Amongst the most volatile asset classes + highly risky (hence, the returns also tend to be high)
- The only asset class that can compound in double digits
- The sole purpose of Debt is to PROTECT wealth
- This consists of Fixed Deposits, Pension products, Debt Mutual funds
- Here the money is lent in the form of debt
- The risk is lower here, so the return will be also lower
- Investment in real estate can serve as a hedge in bad times
- The investments in real estate can be in the form of – Physical Real Estate or Real Estate Investment Trust(REIT) which is a mutual fund for the real estate sector
- During uncertain times such as Geopolitical tensions, Disasters, or Pandemics people tend to sell risky assets to rush towards gold
- Ways to Invest in Gold – Physical Gold Gold Mutual funds Sovereign gold Bonds
How to decide the asset allocation?
A Young individual – Provided the person has very few liabilities and responsibilities. The person must be very aggressive on equities!
A middle-aged person – As responsibilities+Liabilities go up, A balanced portfolio with a mixture of equities+debt+real estate+gold!
An Old age person – With retirement around the corner. A lot of the allocation must be made to debt products to create a fixed flow of money
- Create a financial plan
- Create an asset allocation
- Asset allocation will vary with age
- Make sure u have all the products i.e Debt, Equity, Real Estate, and Gold
- Do a Risk profiling and then arrive at the optimal asset allocation
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