It may not be very complicated to determine your financial goal/s – a comfortable retirement, children’s higher education, a new house or a new car, but developing an appropriate asset allocation plan intended to achieve those goals can be. Using online tools like asset allocator can prove to be valuable to reduce volatility and enhance diversification.
While all investments involve risks, including a possible loss of principal, the risk gets proportionally mitigated when allocated prudently. Typically, the greater the potential of the investment, the more the risk involved. Investors should be comfortable with market fluctuations, especially over the short term. Equity investments fluctuate, due to general market conditions. Bond prices generally move inversely to their interest rates. What determines success in long-term investing has been asset allocation. Asset allocation is investing your money in different categories of assets – typically equity, debt and gold, so your investments are well diversified.
The goal of devising a suitable asset allocation plan is to develop a robust investment portfolio that will help you reach your financial objectives in tandem with the risk you find comfortable with. A well-diversified plan may be one of the most effective ways to realize your long-term goals over time.
How can asset allocation help you?
Diversifying your portfolio helps spread the investment risk across many different asset classes.
Opportunity to earn long term risk adjusted returns:
Diversifying your investment portfolio helps you improve your chances of participating in market gains and mitigate the impact of poorly performing asset classes on your overall portfolio returns.
Stay focused on your goals:
Diversifying your investments help reduce the urge to time the market and safeguard against market ups and downs.
Thus, asset allocation helps you in improving your chances to earn better long term risk adjusted returns.