{"id":13204,"date":"2022-07-12T17:53:14","date_gmt":"2022-07-12T12:23:14","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=13204"},"modified":"2022-07-14T16:05:57","modified_gmt":"2022-07-14T10:35:57","slug":"understanding-asset-allocation","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/","title":{"rendered":"Understanding Asset Allocation"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_40 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" area-label=\"ez-toc-toggle-icon-1\"><label for=\"item-69e54c6a57e04\" aria-label=\"Table of Content\"><span style=\"display: flex;align-items: center;width: 35px;height: 30px;justify-content: center;direction:ltr;\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/label><input  type=\"checkbox\" id=\"item-69e54c6a57e04\"><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#Why_is_asset_allocation_important\" title=\"Why is asset allocation important?\">Why is asset allocation important?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#Types_of_asset_allocation\" title=\"Types of asset allocation\">Types of asset allocation<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#Life_Cycle_Fund_Asset_Allocation\" title=\"Life Cycle Fund Asset Allocation\">Life Cycle Fund Asset Allocation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#Tactical_Asset_Allocation\" title=\"Tactical Asset Allocation\">Tactical Asset Allocation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#Insured_Asset_Allocation\" title=\"Insured Asset Allocation\">Insured Asset Allocation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#Dynamic_Asset_Allocation\" title=\"Dynamic Asset Allocation\">Dynamic Asset Allocation<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#What_is_rebalancing\" title=\"What is rebalancing?\">What is rebalancing?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#FAQs\" title=\"FAQs\">FAQs<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#Q1_Give_an_example_of_asset_allocation\" title=\"Q1. Give an example of asset allocation.\">Q1. Give an example of asset allocation.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#Q2_How_often_should_I_rebalance_my_portfolio\" title=\"Q2. How often should I rebalance my portfolio?\">Q2. How often should I rebalance my portfolio?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#Q3_How_much_should_I_allocate_to_each_asset\" title=\"Q3. How much should I allocate to each asset?\">Q3. How much should I allocate to each asset?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/#Interested_in_how_we_think_about_the_markets\" title=\"Interested in how we think about the markets?\">Interested in how we think about the markets?<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p>&nbsp;<\/p>\n<p><iframe loading=\"lazy\" title=\"YouTube video player\" src=\"https:\/\/www.youtube.com\/embed\/FbfnUtmqEVQ\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">One of the most fundamental principles of sound investing that experts speak about quite often is &#8220;Never keep all your eggs in one basket.&#8221; Following this basic tenet of investing will set you on the path to understanding <\/span>asset allocation <span style=\"font-weight: 400;\">and <a href=\"https:\/\/kuvera.in\/blog\/what-is-diversification-in-investing\/\">diversification<\/a>.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">In simple terms, <\/span>asset allocation<span style=\"font-weight: 400;\"> is the act of dividing one&#8217;s savings among the various types of assets. The three main asset classes are <a href=\"https:\/\/kuvera.in\/explore\/stocks\/c\/all\">stocks<\/a>, bonds, and cash and cash-like assets. Other lucrative assets you can add to your portfolio to diversify income include precious metals, real estate, collectibles, <a href=\"https:\/\/kuvera.in\/explore\/crypto\/c\/all\/others\">cryptocurrency<\/a>, etc.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/kuvera.in\/explore\/fixed-deposit\/c\/all\"><img loading=\"lazy\" class=\"size-large wp-image-13417 aligncenter\" src=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-1024x334.jpg\" sizes=\"(max-width: 640px) 100vw, 640px\" srcset=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-1024x334.jpg 1024w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-300x98.jpg 300w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022-768x250.jpg 768w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/07\/FD-Banner_14-July-2022.jpg 1080w\" alt=\"Online Fixed Deposits on Kuvera\" width=\"640\" height=\"209\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Why_is_asset_allocation_important\"><\/span>Why is asset allocation important?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Proper asset allocation maximizes your returns in relation to your risk tolerance. Different asset classes behave differently. For example, when equities are rising, gold investments may fall, and vice versa.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">As a result, it makes sense to diversify investments across asset classes. This is done so that the other well-performing asset classes balance the underperformance of one asset class.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Putting all your money into one asset class or mutual fund scheme may not be prudent. The returns tend to be higher if your investment is spread across asset classes.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>Asset allocation <span style=\"font-weight: 400;\">also works as a strategy that allows for macroeconomic movements that extend beyond an investor&#8217;s control. Proper allocation gives the investor a hedge against currency fluctuations and significant geopolitical shifts.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Types_of_asset_allocation\"><\/span>Types of asset allocation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Here are the <\/span>types of asset allocation<span style=\"font-weight: 400;\"> you need to know:\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h4><span class=\"ez-toc-section\" id=\"Life_Cycle_Fund_Asset_Allocation\"><\/span>Life Cycle Fund Asset Allocation<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Under this strategy, the asset allocation is done on the basis of an investor&#8217;s return on investment (ROI) based on factors such as the investor&#8217;s age, investment goals, and risk profile. However, since these factors vary from person to person, no standardization is involved in identifying the ideal asset allocation.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h4><span class=\"ez-toc-section\" id=\"Tactical_Asset_Allocation\"><\/span>Tactical Asset Allocation<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">This plan addresses potential long-term problems resulting from a <\/span>strategic asset allocation<span style=\"font-weight: 400;\"> plan. The strategy was developed in order to maximize results on short-term investment strategies. The investment portfolio gains a market-timing element that enables investors to invest when economic conditions are more favorable for a particular asset class.<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h4><span class=\"ez-toc-section\" id=\"Insured_Asset_Allocation\"><\/span>Insured Asset Allocation<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">This strategy is ideal for investors who have a low-risk tolerance. It entails establishing a baseline value below which the portfolio shouldn&#8217;t deviate. Investors must take the necessary precautions to avoid the risk if it declines by investing in risk-free assets like treasury bills, etc. For instance, senior citizens who need to maintain a basic standard of living may find this strategy better suited to their investment objectives.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>\n<h4><span class=\"ez-toc-section\" id=\"Dynamic_Asset_Allocation\"><\/span><a href=\"https:\/\/kuvera.in\/explore\/mf\/c\/all\/hybrid\/dynamic-asset-allocation-or-balanced-advantage\"><span style=\"color: #000000;\">Dynamic Asset Allocation<\/span><\/a><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">One of the most well-liked investment approaches, this allows an investor to continuously modify the asset mix in response to market highs and lows as well as economic gains and losses. With this approach, you invest in assets that exhibit indicators of sustained market gains and vice versa. For instance, young working professionals with a higher risk-taking appetite may find this strategy better suited to their investment objectives.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_is_rebalancing\"><\/span>What is rebalancing?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Rebalancing is the process by which investors return their portfolio to its initial mix of asset allocation. Rebalancing is required because not all grow at an equal pace over a period of time. This may cause your holdings to diverge from your investment objectives. By rebalancing, you mitigate the possibility of being overweight in any asset category in your portfolio and also ensure that it is at a comfortable level of risk.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">When done correctly, <\/span>asset allocation<span style=\"font-weight: 400;\"> protects your money while also maximizing its growth potential, regardless of which asset class is outperforming in the markets. <a href=\"https:\/\/kuvera.in\/\">Kuvera<\/a> is here to help you on your <\/span>asset allocation <span style=\"font-weight: 400;\">journey. We at Kuvera make unbiased choices to bring out the best results. Why delay your next big gain? Try Kuvera now!<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"FAQs\"><\/span>FAQs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<h4><\/h4>\n<h4><span class=\"ez-toc-section\" id=\"Q1_Give_an_example_of_asset_allocation\"><\/span>Q1. Give an example of asset allocation.<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<p><strong>Investor profile:<\/strong><span style=\"font-weight: 400;\"> 25 years old, 40 years to retirement, high-risk tolerance<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">This investor hopes to increase their retirement savings over the next 40 years. The investor wants a well-diversified portfolio with high returns. Since the investor is young, he also has a high risk appetite. An ideal retirement <a href=\"https:\/\/kuvera.in\/blog\/ask-us-anything-3\/\">investment portfolio<\/a> should have the following asset allocation:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">80% stocks<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">40% large-cap stocks<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">30% mid-cap stocks<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">30% small-cap stocks<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">15% bonds<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">5% cash<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Q2_How_often_should_I_rebalance_my_portfolio\"><\/span>Q2. How often should I rebalance my portfolio?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Some fund managers recommend regularly rebalancing, at least every six or twelve months. Others suggest rebalancing when your investments in a specific asset class increase or decrease by a certain amount. In either case, rebalancing works best when performed regularly.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Q3_How_much_should_I_allocate_to_each_asset\"><\/span>Q3. How much should I allocate to each asset?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The allocation division will depend on the following aspects:\u00a0<\/span><\/p>\n<ul>\n<li><strong>Age<\/strong> <b>&#8211;\u00a0 <\/b>Are you a young person with a high-risk appetite or an older person who prefers to park money in safe investments?<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li><strong>Time Horizon &#8211;<\/strong> For how long do you intend to stay invested?<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li><b>Risk tolerance &#8211; <\/b>Can you bear seeing your investments fall in value at times, knowing that you&#8217;ll most likely earn a higher return in the long run?<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Interested_in_how_we_think_about_the_markets\"><\/span>Interested in how we think about the markets?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>Read more: <a href=\"https:\/\/kuvera.in\/blog\/category\/zen-and-the-art-of-investing\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Zen And The Art Of Investing<\/strong><\/a><\/p>\n<p>Watch\/hear on YouTube:<\/p>\n<p>&nbsp;<\/p>\n<p><iframe loading=\"lazy\" title=\"EPF, PPF and VPF | Tax Saving Investments for Guaranteed Returns\" width=\"640\" height=\"360\" src=\"https:\/\/www.youtube.com\/embed\/dbxbBR7it10?list=PLDSzQdT9nLmBFD2p94O5p2pZ4vEUR-Thz\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen><\/iframe><\/p>\n<p>&nbsp;<\/p>\n<p>Start investing through a platform that brings goal planning and investing to your fingertips. Visit <a href=\"https:\/\/app.kuvera.in\/\">Kuvera.in<\/a> to discover <a href=\"https:\/\/kuvera.in\/blog\/direct-plans-better\/\">Direct Plans<\/a> and <a href=\"https:\/\/app.kuvera.in\/explore\/fixed-deposit\/c\/all\">Fixed Deposits<\/a> and <a href=\"https:\/\/kuvera.in\/user\/login\">start investing today.<\/a><\/p>\n<p>#MutualFundSahiHai #KuveraSabseSahiHai!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>&nbsp; &nbsp; One of the most fundamental principles of sound investing that experts speak about quite often is &#8220;Never keep all your eggs in one basket.&#8221; Following this basic tenet of investing will set you on the path to understanding asset allocation and diversification.\u00a0 &nbsp; In simple terms, asset allocation is the act of dividing [&#8230;]<\/p>\n<p><a class=\"btn btn-secondary understrap-read-more-link\" href=\"https:\/\/kuvera.in\/blog\/understanding-asset-allocation\/\">Read More&#8230;<\/a><\/p>\n","protected":false},"author":11,"featured_media":13205,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[99,593],"tags":[3,746,994],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Understanding Asset Allocation - Kuvera<\/title>\n<meta name=\"description\" content=\"A asset allocation maximizes your returns in relation to your risk tolerance. 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