Asset Allocation

As the word suggests, it means distributing your money across various investment avenues or assets so that the poor performance of any one investment does not jeopardize the entire investment plan. As logical as that sounds, it is one of the most difficult nuts to crack in creating a well-balanced portfolio. Asset Allocation is the biproduct of one's risk profile.

One must include a variety of assets in one’s portfolio, since each asset has its own cycle of ups and downs and therefore, the upside of one cycle compensates for the downside of the other cycle and its corresponding asset class. For ex., if equities are on the upside, gold and real estate are normally lower on the performance radar and vice versa. This is dependent on a variety of reasons of business cycles, inflation, interest rates, oil prices and political situations. There are some factors that are within our control and some outside of it.

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