Personal finance experts frequently use the term ‘asset allocation.’ Simply put, it means ‘don’t put all your eggs in one basket,’ or in other words, diversifying investments across various asset classes such as property, gold, direct stocks, mutual funds, bank and postal deposits, government securities, and treasury bills, among others.
This diversification can be further categorized into specific assets like residential property, commercial property, 24K gold, ornamental gold, large-cap stocks, mid-cap stocks, and more. The attached picture illustrates how these assets have performed over the last 10 years.
While equities tend to outperform all other asset classes over the long term, the leading asset in terms of returns changes from year to year. This highlights the importance of maintaining a diversified portfolio instead of concentrating solely on equities.
The degree of diversification will vary based on individual factors such as age, risk tolerance, financial goals, years of service, expected lifespan, and income level.
Lastly, the S&P 500, as referenced here, represents the top 500 stocks in the U.S. market.
