{"id":22,"date":"2015-09-30T04:25:14","date_gmt":"2015-09-30T04:25:14","guid":{"rendered":"https:\/\/kuverablog.wordpress.com\/?p=22"},"modified":"2019-06-10T09:32:38","modified_gmt":"2019-06-10T09:32:38","slug":"005-dial-a-for-asset-allocation","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/005-dial-a-for-asset-allocation\/","title":{"rendered":"Dial A for 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-69e8873bd2719\" 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-69e8873bd2719\"><\/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-4'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/005-dial-a-for-asset-allocation\/#Different_assets_have_different_return_profiles\" title=\"Different assets have different return profiles.\">Different assets have different return profiles.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/005-dial-a-for-asset-allocation\/#Risk_Reward_Liquidity_of_various_assets\" title=\"Risk: Reward: Liquidity of various assets &#8211;\">Risk: Reward: Liquidity of various assets &#8211;<\/a><\/li><\/ul><\/nav><\/div>\n<p><em>Now that we all agree that our portfolio should have <a href=\"\/004-dial-d-for-diversification\/\" target=\"_blank\" rel=\"noopener noreferrer\">cash, bonds, stocks and real estate<\/a>, how much of each should one own? That is asset allocation and it depends on fundamentally two things \u2013 your investment horizon and your ability to take risks. As a rule of thumb, longer investment horizons and higher risk taking ability mean you should invest more in equity mutual funds and real estate.<\/em><\/p>\n<p>We all practice asset allocation, even if we don\u2019t call it by that name. If all your money is lying in your checking account then your asset allocation is 100% cash. If you have 20% in fixed deposit then your asset allocation is 20% savings, and 80% cash. If you also own a house which is fully paid for and roughly worth 20% of your net worth then your assets are allocated 20% in savings, 20% in real estate, and 60% in cash. The choices we make on what to buy and where to keep our money invested is called asset allocation.<\/p>\n<p><img loading=\"lazy\" class=\"alignnone wp-image-720 aligncenter\" src=\"https:\/\/blog.kuvera.in\/wp-content\/uploads\/2015\/09\/Screen-Shot-2017-05-06-at-9.59.50-AM-300x154.png\" alt=\"\" width=\"580\" height=\"298\" srcset=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2015\/09\/Screen-Shot-2017-05-06-at-9.59.50-AM-300x154.png 300w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2015\/09\/Screen-Shot-2017-05-06-at-9.59.50-AM.png 429w\" sizes=\"(max-width: 580px) 100vw, 580px\" \/><\/p>\n<h4><span class=\"ez-toc-section\" id=\"Different_assets_have_different_return_profiles\"><\/span>Different assets have different return profiles.<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>Cash is the safest asset, but it yields nothing. Fixed deposit is equally safe but not as easily accessible as cash and gives you a higher rate of return. Stock market through mutual funds are as accessible as fixed deposit but carry short term risk of capital loss, but have higher long term rate of return than fixed deposits. Real estate has long term returns similar to stocks but requires a lot more effort to buy and sell. On the plus side, you can live in the house you bought, which is not possible with other financial assets (cash, savings or stocks).<\/p>\n<blockquote>\n<h4><span class=\"ez-toc-section\" id=\"Risk_Reward_Liquidity_of_various_assets\"><\/span>Risk: Reward: Liquidity of various assets &#8211;<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>Risk: Cash &lt; Fixed Deposit &lt; Mutual Funds = Real Estate<br \/>\nReward: Cash &lt; Fixed Deposit &lt; Mutual Funds = Real Estate<br \/>\nLiquidity: Cash &gt; Fixed Deposit = Mutual Funds &gt; Real Estate<\/p><\/blockquote>\n<p>Ideally you should work with a fee-only financial adviser, like <a href=\"https:\/\/kuvera.in\/\" target=\"_blank\" rel=\"noopener noreferrer\">us<\/a>, to figure out your specific long term financial needs (buying a house or car, kids education, parental support, retirement etc) and risk appetite to tailor the asset allocation for your stage of life. In case you want to do it on your own, here are <strong>four simple rules of thumb<\/strong> to follow when it comes to Asset Allocation<\/p>\n<ol>\n<li>Have six month to one year of expenses in cash or easily accessible fixed deposits to pay for unexpected contingencies (loss of job etc)<\/li>\n<li>Of the surplus income, invest (110 \u2013 Age (in Years)) in equity Mutual Funds and remainder in bond Mutual Funds. For example if you are 40 years old, buy 70% in equity mutual funds and 30% in bond mutual funds. Choose low cost index mutual funds.<\/li>\n<li>Re-balance your portfolio to (110- Age)% in equity mutual funds and rest in bond mutual funds every 2-3 years.<\/li>\n<li>Buy a residence to live in once you have the requisite investment amount.<\/li>\n<\/ol>\n<p>The above does not take into account your risk appetite or your goals, both of which will materially affect your exact asset allocation. Nevertheless it is a simplistic time tested asset allocation framework and not a bad starting point.<\/p>\n<p>Visit <a href=\"http:\/\/www.kuvera.in\/\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">www.kuvera.in<\/a> to invest in &#8220;Direct Plans&#8221; of Mutual Funds and save BIG on commissions!!!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Now that we all agree that our portfolio should have cash, bonds, stocks and real estate, how much of each should one own? That is asset allocation and it depends on fundamentally two things \u2013 your investment horizon and your ability to take risks. As a rule of thumb, longer investment horizons and higher risk [&#8230;]<\/p>\n<p><a class=\"btn btn-secondary understrap-read-more-link\" href=\"https:\/\/kuvera.in\/blog\/005-dial-a-for-asset-allocation\/\">Read More&#8230;<\/a><\/p>\n","protected":false},"author":2,"featured_media":720,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[91],"tags":[3,9,11,19],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Dial A for Asset Allocation. - Kuvera<\/title>\n<meta name=\"description\" content=\"Longer investment horizons and higher risk taking ability mean you should invest more in equity mutual funds and real estate.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/kuvera.in\/blog\/005-dial-a-for-asset-allocation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Dial A for Asset Allocation. - 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