Importance of Asset Allocation and Goal Based Financial Planning

What is Asset Allocation?

At the point when you invest in one investment option or asset class, the risk you take is very high. In this way, to reduce the risk you need to diversify your investments by investing your money in various investment options and asset classes like real estate, gold, mutual funds, equities, and fixed deposits. This is what Asset Allocation is all about.

In this way, Asset allocation is an investment strategy that means to create the balance between risk and reward by allotting a portfolio's assets as per an individual's financial goals, risk bearing capacity, and investment horizon. The three primary asset classes - equities, fixed-income, and cash and equivalents - have various levels of risk and return, so each will act differently in the long period.

Why Asset Allocation is Important?

To understand the importance of allocating your investments across different asset classes, how about we take an example of one asset class, real estate.

The real estate sector saw a blast between the years 2010 and 2013, and individuals were  assuming for 10-20% returns in a brief period. However, had you invested during that period, your returns today would have been in the scope of nearly (-20%). That is on the grounds that the home rates have fallen by that amount rate in the last 6-7 years. At times, individuals even lost their whole money since certain developers failed and went bankrupt.

This example shows that nobody in this world can forecast which asset class or investment choice will do well later on and which will not. Therefore to moderate the risk, you should diversify your portfolio and invest your funds in various asset classes.

There is something else which is similarly just about as important as Asset Allocation in your financial life, that is Financial Planning. The significance of personal financial planning in India can't be ignored. It isn't just about expanding your savings and reducing your costs. Financial planning is much more than that. This includes achieving your future goals such as wealth creation, retirement planning, saving tax and so on. Thus, it is more appropriate to call it Goal Based Financial Planning.

Goal based financial planning

Goal based financial planning is a technique which can assist you for achieving various goals across various stages of life. There are some regular life-stage goals of most investors for example purchasing a house, children's higher studies and marriage, retirement planning and leaving an estate for your family. Apart from these goals, a few people may have different goals as per their individual needs and desires for example planning for a foreign vacation, purchasing/building a vacation home, saving a corpus to begin a business, collecting for early retirement and so on. Goal based planning is the way toward characterizing various goals, evaluating these goals keeping in mind the inflation and having an investment strategy to meet these goals.

Numerous investors believe that saving money will guarantee financial security and success in achieving goals. But, saving money isn't sufficient. We all have numerous goals in life. To accomplish your long term financial goals, you need to grow your money by investing it. Your money will grow more by investing for long term – this is known as power of compounding. Financial planning will help you predict how you need to save your funds for various goals, where to invest your savings and for how long to invest.

Well, there is a Fintech startup that can help you in both, Asset allocation and Goal based financial planning, named GlideInvest.

What is GlideInvest?

GlideInvest is a wealth management platform that helps people become financially independent through all stages of life. This fintech startup is well-funded by Motilal Oswal Group. The founder and CEO of the startup is Pratik Oswal who currently heads Motilal Oswal AMC's passive funds business, along with GlideInvest.

This wealth management platform empowers people to achieve life goals with gaining life-long knowledge about personal finance and investing and is committed to provide accessible and affordable financial solutions.