Plan your Investment

Plan your work and work your plan. In seven words, this sums up one of the best ways to be successful in life. And as investing is one of the important parts of our working life, this strategy can be extended here too. And as all good things in the investing world come in nice small packages, so does this plan. In investing jargon it is called asset allocation. This complex sounding terminology is all about having a plan. It is also about how to continuously manage this plan.

When an investor is young and with few liabilities, risk taking ability is at its highest. As one approaches middle age, liabilities tend to increase. Your risk-taking ability diminishes. Children's education, insurance and owning a home take precedence. Consequently, equity allocation should be less. After retirement, the lack of a salary severely curtails the ability to regularly invest. However, lumpsums received from provident funds and other sources have to be deployed to generate a steady income. Risk-taking ability is minimal at this stage. Preservation of principal is usually a pressing concern. Equity funds can be used to give a boost to overall returns. As returns from fixed income instruments have fallen over the past few years, the only way to boost returns is to veer towards equities. But this brings with it a whole new world of risks. In such a scenario, it is essential to understand one's ability to take risk.

And much of this flows from examining the existing financial status, earning potential and financial goals. An asset allocation programme factors in these requirements, thereby providing a personalised investment strategy. It is the most crucial step, which must be taken before contemplating any investment.