Smart investing: A Guide To Optimal Asset Allocation
Asset allocation is an investment strategy of not risking all your money in one investment. In other words, investors spread the risk by dividing their portfolios among asset categories such as equities, bonds, sovereign gold bonds, mutual funds etc. This is done because different assets perform differently under various market conditions. Asset allocation allows you to mitigate the effect of poor performance of one class and, thereby, protecting the overall financial health of your portfolio.
However, you must understand that asset allocation is highly personalised and dynamic. There is no single formula or method to determine optimal asset allocation. It varies from individual to individual. That means individual factors such as age, current life stage, risk tolerance, financial goals and market conditions come into play when making decisions regarding asset allocation. This also implies that asset allocation is not a one-time strategy. It needs to be reviewed and aligned with changing financial goals, risk tolerance and other factors.