Importance of asset allocation and factors that influence asset allocation? How to diversify investment portfolio?

Every asset class goes through its economic cycle of ups and downs. Hence, it is important to have a blended asset portfolio to earn optimum returns, irrespective of the performance of individual asset classes. In this article, we will understand how to do it with asset allocation.

Various asset classes such as gold, equity, debt, real estate, etc. take turns to outperform each other in different years. As an investor, you must be wondering which asset class will give the best returns in 2021 and subsequent years. Well, that is a futile exercise. Even the best investment experts can’t give the right answer year after year. The best solution to this is appropriate asset allocation. Asset allocation means diversifying your investment portfolio in multiple asset classes in varying proportions. The percentage exposure of every asset class in your portfolio will depend on your age, risk profile, investment time horizon, important life events (marriage, childbirth, home loan, etc.).  The purpose of asset allocation is to earn an optimum portfolio return irrespec...

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