Shirish Patel CEO, Prudent Corporate Advisory Services
Asset Allocation, is the ongoing buzzword in almost every personal finance discussion; and that is for the right reasons. Still, there is plenty of confusion among investors on how to pragmatically approach, implement and maintain one’s asset allocation. The solution to this can best be done on a case-to-case basis taking into consideration all the facts and figures of one’s finance which includes one’s income, expense, assets, liabilities, protection plans (insurance) and financial goals. Through this article, I will be addressing some of the common scenarios which most of the individuals can relate to.
Know ‘Thyself’
Firstly the most important step when it comes to deciding on the right asset allocation is to know oneself. How do you perceive risk? How do you react to its occurrence? What relative scale do you follow to term a risk as a nightmare? The answers aids in understanding oneself better as far as risks go. This exercise is also known as risk profiling.
Most of the leading investment platforms today offer various types of risk profiling tools. Mostly this is done through a series of multiple-choice questions. Remember there is no right or wrong here and it varies from one individual to another. These questionnaires are carefully designed by leading risk experts in such a way that it does not feel intimidating, but it does the work. Though this is not a full proof strategy, it can be considered as a good starting point in deciding the right asset allocation mix.
One should be mindful of a few points when responding to risk-profiling questionnaire – spend time to understand every question. Go through the possible answers. Remember, this is not an examination paper which needs to be completed within a stipulated time frame.
This story is from the March 2020 edition of Outlook Money.
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This story is from the March 2020 edition of Outlook Money.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
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