Skip to main content

Posts

Showing posts from April, 2013

Why asset allocation is important

Everyone understands investing the money is really important. If not, understand that investing is expected to give more returns than inflation. On the other hand, saving money would give depreciating returns compared to inflation. Primarily, investing everything in one asset class (debt, equity, gold, real estate,  liquid funds, cash etc.,) is a bad idea. Based on your current age, the asset allocation should be done. Most of them are over-exposed in real estate. The rule of thumb is to reduce the exposure on risky investments (equity, mutual funds, ULIP etc.,) and increase the exposure on safe investments (PPF, PF, debt, gold etc.,) as your age increases. Also, the amount in each asset class should be less than 70% ideally. There needs to be some emergency cash always available for unforeseen emergency need. This would be typically around six months of your expenses. The primary reason for asset allocation is to diversify and thereby reduce the risk of losing the entire investmen