Right mix of asset allocation is vital to long-term financial success. Timing the market in any specific asset class whether Equity or Real estate or Debt for maximum return is very difficult and may prove to be disastrous thus it makes sense to divide your investments among various asset categories. Execution of this strategy holds the key to overall success.
Some of the main factor which affects our Investment decision are
Realistic Financial Goal
It is very important to set realistic achievable financial goal. Based on our goal we tend to approach any situation. It is better we try to examine pros and cons of any financial instruments. Setting up realistic goal ensures half battle won.
Risk Appetite
It is being said that return is linked to risk. High risk will result in to high return and if it fails to work in our favor may backfire us seriously. It is better we value our Principal money/ Seed Capital and set moderate risk appetite. This approach will ensure success though it may take little more time.
Time horizon
Financial instruments performance always tend to measure success over period of Time span. It is very important that investment in any asset class should be fruitful over period of time. Opportunity cost of money also should be taken in to account while setting time goal.
Age of Investor
Age can be inversely linked to aggressiveness in any body’s asst allocation. A young investor can take more aggressive and risky asset allocation such as Equity investment but it is prudent for aged people to have more allocation in fixed income instruments and only 10-15% in volatile and risky asset classes. The idea is to one can able to recover the lost ground if time is on his/her side as one grows older it is desirable to more stable and continuous return.
Power of Compounding
Another simple yet very powerful aspect of asset allocation is to study the impact of Compounding. It can create wonder over period of large span of time i.e. some of the world famous investment managers investment secret is that they were able to compound their return for decades and created enormous wealth.
It is quite encouraging that now people in India are realizing the value of systematic and professional approach towards their investments and professionals are engaged into in order to manage their money.
(Author can be reached at : sumeet_raithatha@yahoo.co.in )
