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Young Investor: Importance of Asset Allocation

November 7, 2008
The most crucial task that an individual has is to manage risk. For a young investor, the importance of asset allocation lurks in the depth of her/his mind and never gets to the forefront until s/he has realised that putting all eggs into one basket could be a dangerous situation to be in.

One of the most fundamental decisions faced by every investor is how to allocate a portfolio between debt and equity. Jeet, aged 24, was in one such dilemma when he came to meet me. About 80 per cent of his investments were concentrated in equities (stocks, mutual funds).

The interesting thing was that even his tax planning was divided disproportionately into Provident Fund, PF (company imposed) and the rest went straight into equity linked savings scheme, ELSS (which are basically tax saving mutual funds). He walked into my office quite worried after his portfolio has shrunk significantly in the recent stock market meltdown.

Text: Anil Rego. A CFA-PGDBA, Anil is the founder & CEO of Right Horizons, an end-to-end investment advisory and wealth management firm.

Illustrations: Dominic Xavier

Also see: 3 steps to solve your financial woes

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