Advising

What is asset allocation?

Asset allocation is essentially an investment strategy to stabilize risks and returns by choosing investment instruments according to your financial goals, risk tolerance and time horizon. Asset classes have different levels of risk and return variability. Each asset class may perform differently over time. Successful asset allocation requires finding the proper mix of assets to balance reward with an acceptable level of risk.

Why is asset allocation critical for various life stage planning?

Asset allocation is critical for long-term investing and various life stage planning as it can help absorb the impact of market fluctuations and balance your tolerance for risk.

• Absorb the impact of market fluctuations — Proper Asset Allocation can help ride out the ups and downs of long-term market performance. No single asset class will outperform another consistently and no single asset allocation strategy may be right for everyone. Some investments may be up while others may be down, helping to minimize the overall potential impact of market decline and enable you to reach your retirement goals smoothly.

• Balance your risk tolerance — High yield assets typically experience high volatility. These assets must be balanced by investments with lower rates of return to protect against large scale decline in value.

How do I go about my asset allocation?

Aarav Associates can help you balance your appetite for risk with your timeframes and various life stage goals. This requires assessing, adjusting and tracking your investments regularly.

• Assess your portfolio — Aarav Associates  follows a scientific process which  helps you to assess your portfolio allocation regularly, to make sure it matches your risk tolerance, time horizon and various life stage goals and needs.
• Adjust your allocation — Aarav Associates  reviews your overall portfolio regularly to adjust your asset allocation mix and re-align it to your various life stages goals based on your risk tolerance and investment horizon.
• Track your investments — Aarav Associates  helps you to revisit your asset allocation regularly to make sure your investments are aligned with your various life stage goals, since your investment timeframes and risk tolerance may change over time.

Asset Allocation Model

Once the Investor Profiling is arrived at, the next step is to create broad-based investment strategies to suit the investor risk tolerance and his / her investment horizon. At Arhaum Enterprises(Indian Wealth Management), we have developed a comprehensive yet simple asset allocation model. The asset allocation model is based on risk tolerance levels and asset class level constraints recommended by Arhaum Enterprises(Indian Wealth Management) or nominated channel partner. The model combines the risk tolerance appetite of clients along with their investment horizon and also considers the impact of the investor’s economic environment on his investments.

Asset Allocation is done in two stages:

• Strategic
• Tactical

Strategic Asset Allocation

This is the base model for asset allocation and consists of five investment strategies that can help the client commence his wealth accumulation program. The five strategies are:

• Conservative,
• Moderate Conservative,
• Moderate,
• Moderate Aggressive and
• Aggressive

And are derived from the client’s risk tolerance & investment horizon.

Tactical Asset Allocation

Asset Allocation needs to respond to changes in the investor’s economic environment. Therefore, even though, the allocation does not change drastically because the client’s risk tolerance may not change, the asset allocation will have to be regularly “rebalanced”.

The Tactical Asset allocation Model will be a result of variations in underlying factors such as – inflation, IIP, money supply, growth as % of GDP, etc. The tactical asset allocation model is reviewed on a quarterly basis or as per the development of macro-economic factors in the Global economy.