Assets and Asset Allocation

In increasing order of possibility of loss of principal:

Income yielding assets:

  1. Cash in Bank Account.

  2. Fixed Deposit.

  3. Liquid funds.

  4. Money-back policies.

  5. Annuities

  6. Government and state bonds.

  7. Good quality Corporate FDs.

  8. High yield Corporate FDs.

Growth and Income yielding assets:

  1. Debt oriented hybrid funds.

  2. Equity oriented hybrid funds.

Growth assets:

  1. Blue-chip stocks and stock funds.

  2. Dividend yield stocks.

  3. Real Estate

  4. Mid and small cap stocks and funds.

  5. Penny stocks.

  6. Put / Call options. Futures. (There is too much complexity in deciding which is riskier).

Other points to consider:

  • Gold – I cannot place it anywhere in this because I don’t know.

  • Options and Futures can be in individual stocks, indices, forex, commodities, or any thing else. I have placed them in the order which I perceive to be the right order. Please correct me, if there is any discrepancy.

  • Leverage by taking debt does not change the characteristics of the underlying assets. Leverage just magnifies the gain or loss. This is particularly relevant in case of debt-funded real estate.

Asset Allocation

How much one has put in the above mentioned categories is called Asset Allocation. This is the most important parameter of your portfolio (portfolio is the entire collection of your assets).

The asset allocation is what primarily decides the performance, variability (or volatility), expected gains and losses, etc. If you do this right, you have done the majority of the work.

Last updated