Importance Of Asset Allocation

Risk profile and financial goals are some of the major aspects that would help you to define your asset allocation. This article defines the path towards the right kind of asset allocation to be able to create a profitable portfolio

The year 2022 has thrown up several surprises. The impact of all the developments in the year on the overall economy and hence personal finances of many people has been critical. Take, for instance, the stock market, which has been a tumultuous roller-coaster ride. In January 2022, the benchmark Nifty 50 was at an all-time high. By mid-June, the Nifty had witnessed sharp corrections of more than 10 per cent twice from its peak. The impact was severe, especially on those who needed to liquidate their investments for financial goals scheduled during the year. In fact, many investors were caught in a trap, confused about whether to hold on to their stocks and wait for the tide to turn or make a quick exit before the losses could pile up further.

This would make an investor think: what should I do differently so that I am not caught unaware like this. To be fair, there will always be an element of risk associated with investments. What, however, can be done is that the risk can be managed intelligently. Most people are confused when it comes to deciding where to invest their savings. Some of them put their money into equities in expectation of higher returns without giving a thought to the risks involved, while the risk-averse people simply opt to invest in fixed income instruments to derive stable returns. Some may prefer to buy gold and keep it for posterity as a family heirloom.