Asset Allocation Helps Weather Market Storms

When braving extreme cold and snow, people wear layers of clothing, hat or cap, mittens and waterproof insulated boots. Notice how they use a variety of equipment to make sure the biting cold does not affect them. They keyword here is ‘variety’.

Abhimanyu Sharma Founder - Swarn Associates LLP

In the same way, financial investors should use asset allocation if they hope to have a fighting chance against bad weather in financial markets. By keeping their eggs in different baskets, asset allocation provides an all-weather solution to a common investor that is cost-effective, dynamic, and long-term in nature. In a simple way that has been shown to report proven results, asset allocation takes away the need for market timing in an environment that is globally volatile. Read on to know more.

Dial ‘Double A’

As financial markets evolve and become more complex, sticking to just one asset class is increasingly becoming risky. Historical data shows that while equities can go up by 80% in a year, they can also drop by 50% in one year. Fixed income or debt, which is expected to provide stable returns mostly, can throw up great returns once in a while just as much as when returns can drop to a trickle. We have all seen how gold has performed over the years; no one can place their finger on the precious metal which has its good years as well as bad years. So, a one-horse trick is not the way to create and maintain wealth. Asset allocation is the exercise to invest across various avenues such as cash, bonds, equities or gold (asset classes).