Asset Allocation

Investments

Asset allocation is the strategy of dividing a portfolio among different asset classes -- equity, debt, gold, and cash -- based on your financial goals, risk tolerance, and time horizon. Research shows asset allocation determines over 90% of long-term portfolio performance.

In detail

A 25-year-old with 30 years to retirement can afford 80-90% equity for maximum growth. A 55-year-old approaching retirement should shift toward 30-50% equity for capital preservation.nnCommon India-specific models: Aggressive (equity 80%, debt 15%, gold 5%), Balanced (equity 60%, debt 30%, gold 10%), Conservative (equity 30%, debt 60%, gold 10%). Rebalance annually to maintain your target as markets move.

Formula

No single formula. Based on: - Time horizon (longer = more equity) - Risk tolerance (higher = more equity) - Goals (growth vs income vs preservation) Simple starting point: Equity % = 100 minus your age

Real-life example

🇮🇳 India example

Rahul, 28, IT professional, Rs 20L portfolio: Equity mutual funds Rs 14L (70%), PPF + debt funds Rs 4L (20%), Gold via SGB Rs 2L (10%). His parents at 60: debt 60%, equity 30%, gold 10% -- opposite allocation suited to their stage.

Frequently asked questions

How often should I rebalance my asset allocation? ▼

Review annually or when any asset class deviates more than 5-10% from your target. If equity has grown from 70% to 80% of your portfolio, sell some equity and add to debt -- this systematically enforces buy low, sell high behaviour.

Should gold be part of my asset allocation? ▼

5-10% allocation to gold provides a hedge against inflation, currency risk, and geopolitical events. Use SGB (Sovereign Gold Bonds) for investment-grade gold with additional 2.5% annual interest.