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Team selection matters
Published On , 17 Apr 2019 By TT Connect
Cricket can help you understand one of the most important concepts of investing in one of the simplest manner possible – Asset Allocation. The success of a cricket team depends on how its players perform. Likewise, the success of an investment portfolio depends on the performance of its constituent asset classes. Thus, selection matters– in cricket as well as investing. A team cannot take the risk of depending on a single player for victory, so neither should you depend on a single asset class for meeting your Goals. And, this is where asset allocation helps.
Selecting the right mixes – Goal-based investing
Players are selected based on their past performance, fi tness and the pitch. Likewise, your asset classes must be selected based on factors such as your age, Goals, fi nancial state, risk appetite and investment horizon.
Tip: Don’t follow the herd while choosing your mix of assets. For say, you may have the same Goals but can differ on age, risk appetite, and so on.
Build your team – Asset allocation
While it may sound complex, asset allocation is just like building a perfect cricket team. You need batsmen to score runs, you need bowlers and fi elders to take wickets. Likewise, you need different Funds in your portfolio with a different purpose. These could be to build wealth, to save Tax or realise fi nancial Goals like buying a bigger home or child’s education. Asset allocation is the process of dividing your investment amount among different asset classes.
Tip: Get the right mix of assets. Too much Debt can affect your returns, too much Equity can risk your capital.
Take note of the changing game – Situational investing
Just as a team adjusts its strategy as the game progresses, you must re-examine your investment strategies to check if they still match your fi nancial situation. For example, as you age, you must consider moving your money from Equity Funds to Debt Funds.
Tip: You can transfer your money from one scheme to another of the same Fund House with the help of Systematic Transfer Plans (STPs).
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