The Art Of Asset Allocation

Mutual Fund Distributor

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Someswara Rao Polamarasetty

When making investment decisions, most individuals focus on growing their capital. Only when they see a large market fall do they come to terms with the risk involved. For most investors, timing the market is very difficult. Markets also tempt you to do the opposite of what one should ideally be doing. At market highs, the news flows will be very positive. One also gets comfort from past returns being good. So, one ends up buying more when the market is high. On the other hand, the time when the buying opportunity is best will also be the time when news flow will be extremely negative and one will not feel like buying.

Due to this behavioral limitation, not too many have gained from market growth. For example, in a little over 40 years since its inception, the Sensex has moved up a staggering 430 times! Does the portfolio of an investor reflect such gains? The answer most likely is a ‘No’. The other aspect is managing risk prudently when dealing with riskier asset classes such as equities. This leads to a question: how can a risk-averse investor take advantage of the growth potential of equities? The best way of doing this is to practice asset allocation.