Asset Allocation is a strategically approach towards investments. As we know that it’s very difficult to a single asset class performed all the time. So we were taken call as per our asset allocation followed by the risk-profile. But what is mixed of asset we taken that will be another issue.
As above we mention that; for a single asset class is very difficult to perform all the time, similarly as a single asset allocation model also not suitable for particular individuals in life-long planning game. Where our majority of consumers have put his investments on rumors basis not rationally and also without define his goals before investing. It’s mean that, there by default goal is his/her retirement or unless until they have made charity of the all finances. In this type of scenario; how can we depend on a particular asset allocation model? Which is very long to longer period of time?
As per Asset Allocation perception it’s divided into two broad category, like Active (Tactical) and Passive (Strategic).
If you think passive than must know the characteristics of this asset allocation model. In passive asset allocation nothing to be change over a life-time and it’s generate return over a very long period of time. Your SIP investment is an ideal example of passive or strategic asset allocation model.
If you are an aggressive equity investor and your appetite towards risk is high, than an active or tactical asset allocation is most suitable for you. Active or tactical investors were ready to take loss of capital up to 90%.
End of the theory analysis; let’s looked practically………………….
Let’s consider to our life: In our entire life-cycle we carry different role, liabilities & burden time to time. Like in our schooling time we wears short school uniform & t-shirts and worry about our pocket-money and on spending side we always think about comics & video games, where in our teens we wear designer jeans & t-shirts and on spending side we looked at latest mobile phone & gadgets.
Take a looked; how our spending habits, hobbies and life-style were keep changing, so why not our asset allocation, because it’s a changing world. It’s very painful for an individual to stick to a particular investment strategy. Because that’s may be creating difficulties in his future life’s.
As we already described in our last blogs about long-term, retirement horror & smart withdrawal that how inflation effected our post retirement life. Where our spending rate is 23% and our risk free returns & risk adjusted assumption are below the number.
If you are stuck to a passive investment strategy, which is generating a return of 17% CAGR approx, and how will you survive in post retirement! Thus, as on 2012 our health-care inflation is rising @ 15-20% approx and if we were accumulated 1 crore for retirement. Simply if we spend @ 20% then our entire corpus will be ended with in 5 to 6 years.
So what’s next!
We had already uploaded an individual illustration on both active & passive strategy. Which is define that, a passive investment strategy were generating a 17% CAGR as on date & an active investment strategy were generated higher CAGR. If someone had built a portfolio, mixed of both than! The particular individual may cover at least to spending numbers. If a passive asset allocation strategy were generating a XX rate of return than in other side an active asset allocation strategy must generate XXX or XXXX rate of return over a period of time.
For example if your 60% portfolio adopted by passive investment strategy and 40% of portfolio will adopted by active investment strategy. Thus, over a period of time your passive investment strategy will generate @XX rate of return, at the similar period your active strategy must accumulate @XXX or XXXX rate of return. Which is gives extra value to your portfolio.
Thus no one had seen his future. If inflation will be softened, we see continues a million dollar rally in equity or debt or our country will gone to developing from developed rank. No one had predicted the future. But one thing we done is that! BE PREPARED.
But it’s also true that “prevention is better than cure”.
Feel Bureau Investments 