First of all try to understand what is an asset? An asset is the money that you have or anything that can be converted into hard cash is called asset provided it is yours. But for our understanding on investment, asset allocation means allocating your cash into various types of investments in order to get better returns with diversified risk over different investments. Let’s talk about asset allocation now.
Asset allocation is done keeping in view many different factors such as:
Your goals: short term or long term
Your amount of savings
Your risk bearing capacity
Your current debts
Your income
And there are many other factors that vary from individuals to individuals and can be only defined if I have full information about you. Anyways, some points to be considered before asset allocation are as follows:
1. Risk bearing capacity – remember this golden rule “the more the risk the more the return”. But be sure that you are not moving too fast and ahead. I mean if you are of 18 to 25 you would have long term goals as well as more time so you can go for more risk to get better returns. Likewise if you have two children and of course a beautiful wife you should think more on safety rather than just high returns. Hope you understood the situation. Moving on to next.2. Time value – in stricter words, start as soon as possible otherwise you will blame yourself later for that. I started at the age of eighteen and you can even start at earlier if you have support. Time makes a great difference. With the proper use of time you can do the magic of compounding and can have two-three times more wealth than you would have in future.
Finally, I would like add that act as soon as possible wisely using your common sense to eat all the perks of planned investments.