My views on Asset Allocation
I believe there are two types of asset allocation – 1) Tactical asset allocation and 2) strategic asset allocation
Tactical asset allocation is used to diversify outside of equity asset class to manage volatility in returns while investor is on her long term journey. Each person is unique and has different tolerance to volatility. Investor usually get to know about her ‘accurate’ risk profile only in bear market
Strategic allocation is goal based. If financial goal is less than 3 year away then it doesn’t make much sense to invest in equity. Also, as one approaches closer to a goal which was attached to equity investment, one would like move away from equity to debt.
Personally for me, i am focussing more and more to improve my tolerance to volatility and thereby i dont have any tactical asset allocation. ( i know someone who saw 2008 must be nodding her head reading this but as I keep saying ‘Dil hai ki manta nahi’ ). I have 100% allocation to equity. I am hoping that risk tolerance will improve every passing cycle ( if I somehow survive ) and thereby improving allocation towards smallcaps
Strategic asset allocation is non negotiable. I will have to move some part to debt as I reach closer to any of the financial goal
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