The spread of Covid-19 in early 2020 led to a sharp correction and then a rapid rise in the equity markets globally. However, every time there is a new variant of the virus, the jitters are felt in the equity market. For instance, the news of the spread of the Omicron variant of Covid-19 fuelled an almost 1000 point correction in the Nifty-50 index towards the end of November 2021.
This volatility can be scary for investors who joined the investments space in the last couple of years. While the equity market has witnessed a dream-run over the past 18 months, it is crucial for all investors, especially newer ones, to learn the importance of asset allocation right up-front.
Asset Allocation – The Basics
As the name suggests, asset allocation is nothing but defining and breaking down the investments into smaller buckets across different asset categories. Asset categories here refer to equity, debt, gold, or real estate.
The idea is to not invest all of your money in a single asset class. For instance, when the equity market is going strong, the natural urge to invest all or a large chunk of money in equity can be overpowering. On the other hand, in the case of a bear market, you might contemplate selling everything you hold in equities out of fear.
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