Asset Allocation

Economic environments and markets are dynamic. Predictions about markets can go wrong.
With a prudent asset allocation, the investor does not end up in the unfortunate situation of
having all the investments in an asset class that performs poorly.

‘Don’t put all your egg in one basket’ 

~ 

~Warren Buffett 

It equally applies to investments. Asset allocation may not give the investor the best return available in the market, but the investor will not also get the worst returns or see his capital getting wiped off


During the recessionary situation in 2007-09, equity markets in many countries fared poorly, but gold prices went up. Thus, an investor who had invested in both gold and equity, earned better returns than an investor who invested in only equities. Investment in only gold would have given even better returns, but it is not possible to consistently identify the single asset class that will offer the best returns over the investment horizon. Hence, there is a need to distribute an investor’s portfolio between different asset classes. Such distribution between asset classes is asset allocation.



Risk and return in various asset classes (equity, debt, gold etc.) are driven by different factors.