The Importance Of Asset Allocation
Stock markets can be choppy, and volatility increases when times are uncertain (like now).
This can cause investors stress - but if you’ve allocated assets wisely, you can sail through.
The Long & Short Of It
Stocks will bring returns in the long-term, but short-term swings are hard.
However, if you’ve spread your investments over different asset classes, you won’t have to worry too much.
Fixed Deposit / Recurring Deposit
You should have an easy-to-access emergency fund, invested in a liquid instrument like a fixed or recurring deposit or a liquid fund.
Fixed Income / Debt Funds
A good thumb rule is to invest an amount that will see you through 2-3 years of no earning.
These are mainly for objectives that you intend to meet in the next 3-4 years.
Therefore, equity investments should be higher when you are younger and during high-earning years, tapering as you grow older.
Equities are primarily designed to grow your wealth for the long term.
As always, gold mutual funds and ETFs are a better way to invest, instead of purchasing physical gold.
Gold should ideally be kept to less than 10% of your overall corpus.
Why Pay Attention To Asset Allocation?
Occasional underperformance / hiccups in one asset class (like equity) shouldn’t adversely affect your life and ability to meet your financial and savings goals.
Balance Is Key
Instead of looking at it from a numbers perspective (like 60-40 or 30-70 over equity and FDs), consider balancing asset classes based on your savings, age and end goals.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.