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Asset Allocation Approach

Did you know almost all financial and wealth advisors are aware of the Asset Allocation approach to managing portfolios?

However this principle has always taken a back seat with unwarranted surplus allocations to riskier asset classes with a disregard to your personal risk appetite – a recipe for disaster later on

Did you know that this is one of the simplest strategies to implement on any portfolio and will always act in your best interest at given point of time?

One of the most basic and fundamental of all strategies, there is not a single investor who does not know about Asset Allocation. Implementation of its principles is a daunting task for any investor with a reasonable sized portfolio, since it requires constant monitoring and requires a complete unbiased approach. Works best without judgment or prejudice.

Our system delivers this to you and you can ascertain how frequently you want to rebalance your portfolio to your desired ideal allocation. That is the frequency when you would be trading, buying certain investments, and selling others, to re-establish the preset allocation.

Basic ground work

The first step is to create asset groups differentiated according to the inherent risks involved. The number of different groups and complexity of this process would depend on the variety of asset classes that the investor has had exposure in. For a basic investor having a considerably concentrated portfolio, the various groups could be as follows:




Debt All the sovereign instruments, fixed income securities, and cash and liquid investments would ideally form a part of the Debt pool. This will also include PF, EPF, VPF, POSS, KVPs, NSCs, FDs, CDs, Corporate Bonds, etc.
 
Equity All direct equity holdings, diversified, thematic, index and capitalisation based mutual funds, equity component of insurance investments, and ESOPs form a part of this component.
 
Gold Though this component is seldom viewed as an investment vehicle, but due to the recent times with gold hitting an all time high some time back, a lot of investors have started to consider their ad-hoc gold purchases as investments and not as consumption. All gold ETFs however form a part of this component.
 
Real Estate As a rule of thumb all real estate investments excluding the present owned residence is considered under this component as investments.
 

For advanced investors, there are several other components which also form a part of their asset groups. Though not exhaustive they can be as follows:

 
Private Equity /
Art /

Alternate assets
This particular investment vehicle has recently opened up to retail investors. Earlier this used to form a part of only Ultra HNI portfolios. All similar high-risk high-return instruments form a part of this component.
 

Commodities

This has also gained importance in the light of several investor friendly commodity oriented funds now being available to the regular investor. All direct and indirect exposures to commodities will form a part of this component.
 

Offshore Assets

This component includes all the foreign exposure in various global mutual funds available in India today. This also includes direct holdings in assets abroad. For further classification these can again be sub-classified as debt, equity, real estate, private equity and commodities.
 
Defining Allocations

The next step is to define allocations under the broad categories as applicable for the investor. In case the investor finds that he/she does not have a particular asset group in his/her portfolio then the inclusion of such an asset group for all future investments can be explored.

In order to arrive at the optimum allocation applicable to you, please click here.

Maintaining Asset Allocation

The final and continuing step is to maintain the pre-defined allocation. As various asset groups are expected to perform differently under different economic conditions, the allocations are liable to change. The objective would be to reduce allocation in the asset class which has performed the best (thereby selling at higher levels) and increase allocation in the other asset classes (thereby buying at lower or stagnated levels). However there are asset classes which do not allow easy exits and the flexibility to remove profits or add incremental investments later. In these cases any new investments being planned can offset the necessary actions to be taken. The other approach for these types of rigid assets is to have a range of allocation rather than a fixed ratio of allocation.

Private Client Services

As our Private Client, we can personally assist you in arriving at and maintaining your scheduled Asset Allocation plan. We will also meet at a pre-designated frequency to compare our progress and to trim any deviation, if any, from our designated asset allocation.

To schedule an in-person meeting or a private conference send us a mail at privateclients@repairyourinvestments.com . This service may be made available free of any charge.

If you have a thought you wish to share with us on improving our services, having an individual level association with us, or just to share best practices, drop a line to personalservices@repairyourinvestments.com.



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