Have you ever noticed why investment market terms are always so technical that they confuse you more than making things easier? Well, we can assure you one thing, no matter how tough or mechanical the names may sound, most of the investment options are pure logic. The names are just to confuse us so we always look for the expert supports. There are many technical terms and descriptions that are used to cover a rather simple matter. Asset allocation is one of those terms that can confuse many investors but is a simple thing. The simplified truth is that asset allocation is the process of distributing our investment in many investment products in a way that returns us best income possible. Yes! It is that simple.
1. Clearing out the idea
Let’s put the idea in examples to make it clearer. Say you have money to invest. You want both safety and high return value from your investment and you know that the balance is almost impossible to maintain from any one investment instrument. You divide your money and invest in both high return stocks and fixed income plans. While stocks will give you high value returns, fixed income plan will provide safety for your capital. Most experts prefer to invest half the amount in equity funds and the rest in debt instruments or money market products.
2. Individual Goals
We all have different goals and different risk resistance. A single profile can never be fulfilling for every investors. Asset allocation, or in simple terms investment distribution, depends on what our expected return is and how much risk we are ready to take.
If you are among those who prefer low risk then you must go for real estate or gold investments for high returns and then fixed income plans for the safety. If you are willing to take risks for good return value then you can buy stocks or invest in high return mutual funds for the return value and then invest in short term debt products or money market instruments which offer safety plus good returns. Your asset allocation always depends on how much you are willing to give in.