Why you should not over-complicate your portfolio asset allocation
By Uma Shashikant
It is not easy to convince an investor that asset allocation is the best way to build long-term wealth. A dear friend seriously wanted to know. It is really tough to tell her that she should not seek out products, but take a more holistic view. It is much easier for many like her to simply sign on to investment products and be done with it.
There is simply no time to worry about these things, and as long as the product seems good, it should be fine. Whenever she calls, it is about investing some spare money. Sometimes, she provides me with a list of names given by her advisor, and asks me to vet them for her. She is actually not interested in any conversation beyond this. Why should it matter?
There are no investors, at least none that I know of, who have all their money in a single product. Even those that buy property have some balance in the bank, their Provident Fund (PF), tax-saving funds and insurance policies, and some gold in the locker.
Yes, that is asset allocation for you. Except that it is not to any specific design, but mostly build by default. How much you hold where, will affect your financial lives the most—in terms of risk, return and all else that you car ..
It is not easy to convince an investor that asset allocation is the best way to build long-term wealth. A dear friend seriously wanted to know. It is really tough to tell her that she should not seek out products, but take a more holistic view. It is much easier for many like her to simply sign on to investment products and be done with it.
There is simply no time to worry about these things, and as long as the product seems good, it should be fine. Whenever she calls, it is about investing some spare money. Sometimes, she provides me with a list of names given by her advisor, and asks me to vet them for her. She is actually not interested in any conversation beyond this. Why should it matter?
There are no investors, at least none that I know of, who have all their money in a single product. Even those that buy property have some balance in the bank, their Provident Fund (PF), tax-saving funds and insurance policies, and some gold in the locker.
Yes, that is asset allocation for you. Except that it is not to any specific design, but mostly build by default. How much you hold where, will affect your financial lives the most—in terms of risk, return and all else that you car ..
The assets that we hold should ideally match our needs, and we should know what we intend to do with them. This is the gist of the financial planning framework. Since all money is not earned and consumed today, and since tomorrow might hold needs that require funding, and since some of these needs would be much larger than our small monthly incomes, we all need financial planning. This activity can get as elaborate as you wish, or as simple as the allocation between assets that earn an income and assets that grow in value over time. Why is this distinction important?
Assets that provide an income stream are meant to serve immediate and short-term needs. They will typically feature a low and steady return, mostly matching inflation rates, and preserve the invested capital.
Assets that provide an income stream are meant to serve immediate and short-term needs. They will typically feature a low and steady return, mostly matching inflation rates, and preserve the invested capital.
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