Asset Allocation

Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon.

Studies have shown that proper asset allocation is more important for long-term returns than specific investment choices or timing the market. But since guessing which asset category will do best at a certain time is very difficult, it makes sense to divide your investments among asset categories. Understanding this strategy is the key to successful investing.

Asset allocation decisions involve tradeoffs among 4 important variables:

• Objective:

  Retirement , education, buying a house, foreign trip

• Risk:

  Possibility of incurring loss or misfortune, depreciation, erosion of the investment value in specific asset classes

• Returns:

  Profit, appreciation, interest, dividends from specific asset classes

• Liquidity:

  Ease with which an asset can be turned into cash without price impact, time horizon over which one can invest

Asset allocation plans change with time

While an asset allocation plan eliminates a lot of day-to-day decisions involved in investing, it doesn't mean you should just "set it and forget it." Reviewing your portfolio regularly with your financial advisor to monitor and rebalance your asset allocation strategy can make sure you stay on track to meet your goals.

No matter what type of savings programme you choose, it's important to review your portfolio every 6-12 months to assess your progress. Your financial advisor can provide you with expert help in determining the best way to allocate your assets.