Investment is a long-term journey which aids in fulfilment of various financial goals. Having said that, it is also equally important to have an overall positive investment experience. For this, there are certain investment basics which an investor needs to adhere to throughout the wealth creation journey to have a stress-free experience. One of the basic ingredients of investment is Asset Allocation.
What is Asset Allocation?
There are a plethora of asset classes to invest in - be it gold, real estate, debt or equity. And all these asset classes have their distinct market cycles, different valuation dynamics and thus returns. All have their own risks and risk-reward ratios as well. It could be that at a time when equity is doing well the other asset classes may not be performing well. Similarly, there are times when equity underperforms, other asset classes do better. In fact, it is difficult to pre-assume how the different asset classes perform at various points.
It is here that the investment strategy of Asset Allocation comes to the rescue of investors. As the name suggests, this investment strategy involves suitable allocation to different asset classes at the same time. In other words, you get exposure to all asset classes in varying proportions as per the economic scenarios and market valuations. It needs to be highlighted that markets are all about valuations and different asset classes exhibit distinct valuations. Hence, it is prudent to have exposure to different sets of asset classes to ensure the portfolio is well-balanced and one gets the optimum benefits of all assets.
One may note that risk management and diversification are the two most important factors to help investors get the desired results. The strategy of Asset Allocation, an established investment style which has historically proved its efficiency and success, brings to the fore the combined benefits of risk management through diversification across the asset class. It finds its strong analogy with the old saying of not putting all eggs in the same basket. A spread out of the eggs at different places helps you from all round disaster if the basket falls or breaks.
Benefits of Asset Allocation
a) Exposure to Multi Assets: Historical investment trends indicate that investors who followed asset allocation strategy have emerged wealthier during troublesome market situations. A flexible asset allocation process keeps the investment journey on track.
b) Diversification: Asset Allocation strategy helps diversify your money across the asset classes and thus keeps a check on undue risks resulting from asset concentration.
c) Risk Mitigation: An ideal portfolio focuses more on risk mitigation and maximising returns. This is exactly what an asset allocation strategy does as it reduces risk by suitably diversifying it across the assets.
d) Volatility under check: Volatility is not easy to digest by most investors. Asset Allocation keeps volatility under check due to its diversification strategy across the assets.
e) Optimum Returns: As a result of all the above-mentioned benefits, the returns thus generated are optimum in nature.
To conclude, Asset Allocation is an evergreen investment strategy which remains effective irrespective of the market scenarios. It is like an all season investment process which every investor should consider as an effective solution for achieving financial goals. The best way to benefit through this strategy is by investing through mutual funds in the category of multi-asset schemes, balanced advantage fund, dynamic asset allocation schemes and asset allocator funds.
IMM Services stands as a premier boutique investment firm, distinguished by a team of consummate banking professionals. Our refined expertise and bespoke approach enable us to craft sophisticated financial strategies, meticulously tailored to meet the distinctive needs of our discerning clientele.
