Asset Allocation: Building your own asset allocation model

Asset allocation is one of those fancy-sounding terms. We all keep hearing about it non-stop everywhere, but very few investors think about it, and even fewer have a sensible asset allocation that works for them. At its simplest, asset allocation is not putting all your eggs in the same basket. In other words, it’s about spreading your money across different asset classes like equity, debt, gold, and real estate. This naturally leads to the question: how do I figure out a good asset allocation. Asset allocation is as much a science as it is an art.

The objective of asset allocation is to help you reach your financial goals. Coming back to the question of how you figure out a good asset allocation, there’s no perfect asset allocation that’s objectively good for everyone. There are multiple approaches, and each has its own pros and cons. For example, a naive asset allocation that has equal allocation to different asset classes is a perfectly sensible strategy in the right context and for the right type of investor.

In this episode, we caught up with Ashutosh Bhargava, fund manager and head of research at Nippon India Mutual Fund. Ashutosh manages the Nippon India Balanced Advantage Fund, among other funds. Given the nature of the fund, he’s thought deeply about the concept of asset allocation and its various dimensions. In this conversation, we talk about:

1. His background and how he stumbled on asset allocation
2. Various approaches to asset allocation
3. Static asset allocation vs. dynamic asset allocation
4. Selecting the right parameters to guide asset allocation decisions and their trade-offs