ASSET ALLOCATION

Having understood the stock market phases and upon deciding the appropriate route to invest, it is now time to identify your surplus that can be invested in stock market.

Rise and fall is the only guaranteed feature of the stock market, only the timing is not known. It is the real character of stock market and should be viewed from this reality only. Panic selling is the real cause of our losses. This panic arises from our improper asset allocation. Therefore it is essential to invest only that portion of our money that is meant for real long term need after proper allocation for various short term needs.

For a young person there are many long term goals like children’s higher education, marriage and building his own retirement corpus. It is his responsibility to save for these goals in a disciplined manner in order to fulfill them responsibly. He should identify these goals at early stage, estimate the requirement of funds for them and then allocate appropriate amounts of savings to these goals in order to create required corpus for their satisfactory fulfillment.

Wealthy persons too should identify that portion of their wealth that upon investments, short term volatility of the stock market does not create panic for them. This will help them keep patience, the most needed virtue to earn long term wealth.

Detailed guide is however available in the book Right Attitude to High Altitude. Asset allocation is one of the most effective tools that prevent you from committing emotional financial mistakes. It prevents you from being panic and sell under liquidity compulsion.