10 Things to Consider During Asset Allocation

If you are between 20 and 30 years, you can allocate a significant portion of your portfolio to relatively risky assets, such as equities and equity mutual funds, which has the potential to generate higher returns in the long term. As you grow older, it is wise to have a more balanced allocation of both debt and equity mutual funds.

Your income decides the amount you can invest. Therefore, any rise in your earnings will probably lead to a corresponding rise in the amount you invest, and vice versa. Whether you are salaried or have a business, proper asset allocation is a must. Try to invest consistently, taking help of tools like a mutual fund SIP.

To maintain financial stability, it is essential that you spend within your means and cut down on unnecessary expenses. Impulsive spending can disrupt your asset allocation.

The amount you allocate to a particular asset is determined by how close you are to your financial goals. If the goal seems too distant, allocating to riskier assets such as equity mutual funds can generate higher returns and help you reach the financial goal quicker. 

Your asset allocation also depends heavily on how much risk you can handle. While your risk appetite may be larger for some assets, you may want to take a more conservative approach to others.

Having high liabilities can force you to be more conservative even if you have a high risk appetite.

Smart allocation is the key to a well-diversified portfolio. For instance, if your portfolio has more exposure to real estate, then you may want to consider equity asset allocation for higher growth, or perhaps debt mutual funds, depending on your risk appetite.

Your time horizons affects your risk tolerance and can change your asset allocation. For longer time horizons, investing via facilities like SIP can be fruitful.

Your risk appetite will change over time. For example, an increase in salary may increase your risk appetite, while impending retirement could decrease it. You can revise your asset allocation to suit your evolving risk appetite and maximise your returns at each stage of your life.

These funds can help investors adjust their allocation based on the highs and lows of the market. It’s important to maintain a dynamic asset allocation strategy in order to minimise downside risks and give your investments room to grow in favourable market scenarios.