Why Multi-Asset Approach Matters

When it comes to investing for the long term, the most popular and talked about asset class is equities. As a result, without understanding the inherent nature of equities, investors tend to go headlong and invest all their monies into equities.

- Bhavesh Garg

When the market is in an upswing, the decision may look like a smart one but when the tide turns around, the same decision of investing starts to look like a mistake. Worse is when investors in a bid to protect their capital decide to redeem their investments during the market correction phase. By doing so, they have converted their notional loss into a permanent loss. As a result, the investment experience tends to sour.

Asset Allocation

One of the ways to circumvent this situation lies in adhering to asset allocation. The practice of asset allocation entails distributing the investable surplus across multiple asset classes such that the overall portfolio remains largely immune to the developments in one particular asset class. The basic premise here is that no two asset classes will behave in the same manner at the same time. Historical performance data, as can be seen over the past decade, clearly shows that no one particular asset class is the winner every year. Hence, it is important to diversify one’s investment across multiple asset classes.

Role of Asset Classes