FOOD FOR THOUGHT BEFORE STRATEGIC ASSET ALLOCATION
1. A young investor, confident about the future, thinks of property funded with loans as a good option.
a) What he may miss out are liquidity needs and divisibility.
b) If his asset allocation is skewed in favour of property, and he needs to fund a large expense, it does not let him liquidate a few rooms, doors and windows to fund it.
a) What he may miss out are liquidity needs and divisibility.
b) If his asset allocation is skewed in favour of property, and he needs to fund a large expense, it does not let him liquidate a few rooms, doors and windows to fund it.
2. A retired investor seeks the safety and steadiness of a bank deposit.
a) He may miss the risk of inflation completely.
b) A fixed return will become less valuable over time.
c) The allocation should include some investment in a growth asset, even if risky in the short run, to ensure protection against inflation.
a) He may miss the risk of inflation completely.
b) A fixed return will become less valuable over time.
c) The allocation should include some investment in a growth asset, even if risky in the short run, to ensure protection against inflation.
3. An entrepreneur reinvests all his money in his own business.
a) He exposes his family to the risk of concentration of assets in a single venture.
b) Any failure will impact his household.
c) He needs asset allocation to buffer his family from such risk.
a) He exposes his family to the risk of concentration of assets in a single venture.
b) Any failure will impact his household.
c) He needs asset allocation to buffer his family from such risk.
4. An investor who holds cash has allocated a sizeable portion in a liquid asset.
a) Cash provides minimal return.
b) Cash is a parking space before it is invested in a growth asset.
c) Too much cash can bring down the overall return of the entire corpus.
a) Cash provides minimal return.
b) Cash is a parking space before it is invested in a growth asset.
c) Too much cash can bring down the overall return of the entire corpus.
5. A retired person is investing in deposits and needs steady income.
a) He should ask if the returns are adequate.
b) Inflation will increase the need for income as years go by.
c) So, the allocation to deposits should not be 100%.
a) He should ask if the returns are adequate.
b) Inflation will increase the need for income as years go by.
c) So, the allocation to deposits should not be 100%.
6. Those who own the house they live in are content, even if the house comprises 70% of their assets.
a) They should be aware that it will earn no income as long as they live in it.
b) A few optimise its use to build businesses, rent out a portion, or seek home equity loans.
c) The majority is happy with the idea of an asset with appreciating value.
a) They should be aware that it will earn no income as long as they live in it.
b) A few optimise its use to build businesses, rent out a portion, or seek home equity loans.
c) The majority is happy with the idea of an asset with appreciating value.
7. An investor is considering equity as a good option since it will help the money grow.
a) He will need to do so for 10-15 years to gain from it.
b) As a retired investor he may not be willing to risk too much in a volatile asset like equity, so the allocation has to be limited to provide growth and contain risk.
c) An allocation that puts away 30-40% in equity, the rest in debt, and retains this proportion over 10-15 years, should work.
d) The retired investor can reallocate the accumulated corpus to deposits after 15 years to augment income.
e) If he sees himself working for another 5-10 years and, therefore, needing lesser income from his investments, he can consider a higher proportion in equity.
a) He will need to do so for 10-15 years to gain from it.
b) As a retired investor he may not be willing to risk too much in a volatile asset like equity, so the allocation has to be limited to provide growth and contain risk.
c) An allocation that puts away 30-40% in equity, the rest in debt, and retains this proportion over 10-15 years, should work.
d) The retired investor can reallocate the accumulated corpus to deposits after 15 years to augment income.
e) If he sees himself working for another 5-10 years and, therefore, needing lesser income from his investments, he can consider a higher proportion in equity.