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Explained: All about asset allocation and how it helps you reach money goals

Asset allocation is one of the most under-estimated tools for building long-term wealth, but is not understood well enough by most investors

November 23, 2021 / 10:50 AM IST
Representative Image (Source: ShutterStock)

Representative Image (Source: ShutterStock)

In the last few years, campaigns such as Mutual Fund Sahi Hai have done their bit in demystifying market investments. Additionally, significant technology-driven simplification has taken place the last few years, with paper-based transactions moving largely online, making access radically easier. Both these steps have led to a wave of young investors entering the markets, many of them through the mutual fund route.

While this is good news, there is also an overload of information that this digital explosion has swamped investors with. Increased competition has also led manufacturers (AMCs or asset management companies) into launching a variety of products in a bid to capture new niches.

And with markets now at all-time highs, one of the jargons that is on top of the pile is “Asset Allocation.” Every newsletter or interview, whether of your fund manager, your broker or your bank refers to this term and advises investors to heed market valuations and “stick to their asset allocation.”

An average customer may not be aware of what this term means or, worse, may have a wrong understanding of it.