Asset allocation holds the key to navigating choppy markets

AFTER A SOLID run for the better part of the previous two years, equity markets have been on corrective mode from September 2024 onwards.

- PRITHVI DEEP

A combination of FPI selling, weak corporate results, trade tariff fears from the US and a slowing economic growth played were all at play.

On the other hand, gold prices have experienced a healthy upward move in the last few years, while fixed income returns have been steady.

At all times and more so during dynamic market and economic phases such the one we are experiencing now, managing portfolio volatility and generating risk-adjusted returns become critical to reach our financial goals.

In this regard, asset allocation - deploying money across equities, fixed income instruments and commodities (gold, etc.) - becomes the all-important process to be followed in our investment journey for us to achieve the above ends.

A study done by three finance experts as far back as in 1991 makes it clear that 91.5 per cent of a portfolio's performance is determined by asset allocation, with security selection, market timing etc. being less significant.

Allocation is the key

Various asset classes move according to their own individual market cycles. The outperformer keeps rotating over the years.