Ideal Asset Allocation

What is Ideal Asset Allocation?

Well, the Ideal Asset Allocation depends on several factors. An Ideal Asset allocation can be different for different individuals. Asset allocation means allocating your money between different asset classes such as stocks, bonds, gold, real estate....etc....

An Ideal Asset allocation depends on one's age, number of dependents, Risk appetite, current Income & Retirement Goals. According to Rule of Thumb, if you are younger and without having any liabilities or dependans than you should allocate more money towards risky asset classes which have potential to give you higher returns such as Equity.

Equity is risky and volatile in short to medium term but in the longer time horizon, Equity is the only Asset class which outperforms any other Asset class. If you are near your retirement and having children than you should invest more in Debt and less in Equity.

As a Rule of Thumb, 120 - Your Age = Equity Allocation & Rest should be in Debt Allocation.

So if you are 20 years today than according to this rule, you should invest 100% in equity & 0% in Debt because Time is by your side. And if you are 50 years today than you should invest 70% in Equity & 30% in Debt and other Asset classes (Gold & Real Estate).

However, the asset allocation changes according to one's risk appetite and Financial Intelligence. Say for Example, Take the Example of myself. Whenever, I receive my stipend of Rs.3000 every month, I Invest that Money in this Blog. I spend that money behind marketing, SEO Articles writing and many other things necessary to grow this Blog.

Now, I do this, because I feel more comfortable when I invest in my own Business, This Blog rather than investing in someone else's Business (Stocks & Mutual Funds). I feel more safe, secure & comfprtable when I invest in my own Business - This Blog. But I can't feel that level of safety and security when I invest in someone else's Business (Stocks).

The reason why I feel comfortable while Investing in this Blog is because I have a management control over this Asset/Business. And when you have management control over some Business/Asset, you feel more safe, secure and comfortable.

So Ideal Asset allocation can be different for different people. You have to find out your own Ideal Asset allocation...!!!!