6 Tips For a Free Lunch In Investing – Asset Allocation

We often hear experts talk about asset allocation and the rebalancing of portfolios. We will now find out why this is almost like a free lunch in investing! And it is time to do so as we are beginning a new financial year and the markets are taking a sharp turn.

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If you are switching from regular or indirect mutual funds to Direct Plans, it is a good time to spring-clean your portfolio and set it upright. Don’t just switch to the same fund’s direct plan. Take a hard look at the portfolio.

Here are :

6 Tips For A Free Lunch in Investing :

1. Asset Allocation Helps Reduce Risk
2. Rebalancing Guards Your Portfolio Against Shocks
3. Periodic Rebalancing Guides You to Your Goals
4. Rebalancing Enforces Discipline
5. Make Sure You Rebalance Yearly Once
6. Take Professional Help

1. Asset Allocation Helps Reduce Risk

Asset allocation is nothing but the application of a lesson learned way back in school, ”Do not put all your eggs in one basket”. In other words, it means that we should not invest our entire money in only one asset or asset class. Our investment should be spread across the 4 different financial assets, namely Equity, Long Term Debt, Short term Debt, and Gold.

This helps us in balancing our risks and rewards and achieve our investment goals, as each of these assets serves a particular investment objective. Equity helps in growth, Long Term Debt provides stability, Short Term Debt takes care of Liquidity and Gold works portfolio insurance

Asset allocation is similar to having a balanced diet. One needs to eat different types of food and in some pre-determined proportion. Asset allocation is about investing our money across the different asset classes in some specific proportion. For example, Mr. A might allocate his funds across the 4 asset classes as under Equity 45%, Long term Debt 30%, Short Term Debt 15%, and Gold 10%.

2. Rebalancing Guards Your Portfolio Against Shocks

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