New Delhi. Asset allocation is very important in the world of investment. It is the process of dividing your capital into different asset classes like equity, gold, bonds, and FDs. Proper asset allocation not only reduces the risk but also increases the chances of better returns. Asset allocation depends on factors like the investor's age, financial goals, and risk-taking ability. Despite asset allocation being so important, many investors ignore it.

There cannot be a single formula for asset allocation for every investor. For example, a high-risk investor can invest 70% of his money in equity, 20% in FD, and 10% in gold. Whereas, a person who likes low-risk can keep this ratio at 40:40:20 or 70:20:10.

Why is asset allocation important?
Many investors ignore it and invest their entire capital in a single asset class. Some invest all their money in equity after seeing the boom in the stock market, while some invest all their earnings in gold. But when there is fluctuation in one asset, other assets maintain stability.

Benefits of Asset Allocation

• Risk reduction: Investing money in different asset classes reduces the impact of market volatility.
• Potential for better returns: When one asset underperforms, another asset can balance it out.
• Long-term stability: With the right strategy, an investor can easily achieve his financial goals.

Asset Allocation Strategies
Strategic Asset Allocation: This is an “invest and forget” strategy. In this, the investment ratio remains fixed for a long time.
Tactical Asset Allocation: In this, the investment ratio is changed from time to time, which is effective for the short term.
Dynamic Asset Allocation: In this, the investment is changed rapidly according to the market movement. This is an aggressive strategy.

Review is important
Financial advisors say that asset allocation should be reviewed at least twice a year. If there is more than 10% fluctuation in any asset class, then the portfolio should be rebalanced. Correct asset allocation not only helps you achieve your financial goals but also protects you from market volatility.