When you read about the Personal Finance, people usually give stress about the asset allocation. Do you know why, because the Asset Allocation makes your portfolio so strong that it can tolerate any ups and downs in the market. Let's take a refresher, Asset Allocation means that your portfolio should be diversified enough and have the right amount of percentage according to your risk appetite.
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For example, if I take my example. I have a Asset Allocation of 50% Equity, 30% Debt, 10% Gold/Silver and 10% Crypto. In equity, I have 50% Large Cap, 30% Mid Cap and 20% Small Cap. Now it's inclined with my risk appetite, because since I am a conservative investor, even if the market falls I can use the money from the debt to pour in the equity. Also if the market is all time high now, I can pour some money from Equity to Debt. In this way the asset allocation would be as it is.
Now say if the market falls like anything, your portfolio will not fall like the same pace because you have the debt and Gold/Silver in your portfolio to give you cushions. Then you can use that money to do Averaging to get more equity units or can stay like that so that your portfolio will not go in deep red.
People usually say that they have 80% of their portolfio is in Real Estate, but the problem is it is the Illiquid type of asset. So having almost every investment in the form of illiquid asset is quite bad, because when you need the money you will not have that. And that's why you see people usually sell their real estate asset in lower price when they need the money. For them learning about the Asset Allocation is so very important.
Similarly if you have 100% in equity and in the Bull run it is giving good returns, it's good. But when the bear comes your portfolio can go down a lot and you will not have any cushion in the form of Debt or Gold/Silver. So overall if you see having a good Asset Allocation can make your portfolio looks great and can give you the peace of mind.
Getting the Aset Allocation right from the starting is not easy and that's why you have to first find our your goal be it Ling term or short term and then need to allocate money accordingly to make the asset allocation as per your needs.
