Correct asset allocation not only reduces the risk on your money but also helps in delivering high returns. At the same time, it also gives you protection against risk in an environment of uncertainty.
Simple formula to get high returns
Uncertainty remains in the stock market at the moment, the same pressure is being seen in the economies around the world. However, if you look at all the investment options, you will see that the returns of all investment options are not in one direction. In this situation some assets are showing loss and some are showing profit. Investment The investment advisors always recommend diversifying the portfolio due to the different movements of the options in different positions. They say that never invest your entire investment in any one asset. According to him, investors should invest their money from equity to gold according to their risk appetite.
However, the question arises that on what basis an investor should invest his money in all these assets so that his risk is minimum while getting maximum return. Axis Bank has answered this question through one of its blogs. In which the bank has given information about assets, asset allocation and investment formula. You also read and understand how to invest your money properly.
what is asset allocation
Asset allocation means that how much of your investment amount is invested in a particular asset like equity, gold, debt, property and how much is the cash balance which you can use at the time of need or invest in a particular asset can increase. The ultimate goal of asset allocation is to minimize the investment risk on your money and maximize returns.
What are the characteristics of different assets
According to Axis Bank, each asset has its own risks and returns. Like equities can get very high growth and dividend income, and can be cashed out quickly. However, the risk is also very high in this. You can invest in it through stocks and MFs. On the other hand, gold and debt are safer investment options, although they do not earn as fast as equities and early cashing of investments in debt can affect the returns. Investment in these assets can be done through stocks, FDs, mutual funds, ETFs etc.
What is the investment formula
According to Axis Bank, asset allocation is based on your risk appetite and risk appetite simply means for how long you can leave this investment so that you do not face any problem even during small ups and downs . In other words what is your goal regarding investment time. You can do asset allocation based on the formula given below.
1 to 3 years
If you think that this amount may be required in one to three years, such as marriage, children’s education, or any major expenditure, then it is better to keep 95 percent of the amount in debt and invest 5 percent in gold Stay away from equity. Because sometimes it takes years for stocks to recover after a sharp fall, even if that recovery race will make up for your entire loss in the long run. But you don’t have that much time.
3 to 5 years
If you think that you will not need money before 3 years, but after that you may have to withdraw money, then keep 40 percent of your money in equity, 50 percent in debt and 10 percent in gold.
5 to 8 years
For the time frame of 5 to 8 years, it would be better to increase your investment in equity and invest 55 percent in equity. Invest 30% in debt and 15% in gold
more than 8 years
If you can leave your money to grow in the market for more than 8 years then you should take more risk. In fact, it is normal to get very high returns in the market in the long term even in the midst of sharp fluctuations. The Sensex has risen almost three times in the last 10 years. Along with this, keep the share of gold fixed at 15 percent for more than 8 years and invest the remaining amount in debt.