ASSET-CLASSESM14

Asset Allocation: The Master Strategy

Learn why dividing portfolio across stocks, bonds, and alternatives is the most critical decision, more than stock picking.

Learning Goals

  • Understand how asset allocation drives returns and risk.
  • Build an age-appropriate allocation.
  • Learn rebalancing discipline.

Core Concepts

Asset Allocation Decides 90%+ of Return Variability
Beginner

Your choice to be 80% equities or 40% equities matters far more than which specific stocks you pick.

Age-Based Allocation
Beginner

At 25, you can afford 100% stocks. At 55, a 60/40 stock/bond split is more appropriate. At 70, maybe 40/50/10 stocks/bonds/alternatives.

Rebalancing
Beginner

Once a year, sell what has grown too large and buy what has shrunk to restore target allocation.

Indian Market Context

Indian financial advisors use the 100-age rule: 100 minus your age = % in equities. (Too simplistic, but a start.)

Hands-On Calculators

Future Value Calculator
Future Value₹3,10,585

Gain: ₹2,10,585

Behavioral Insight

🧠 ACTION BIAS: Investors constantly tinker, missing that asset allocation and rebalancing are the key.

From History

Asset Allocation: The Master Strategy

A 70/30 portfolio rebalanced yearly beat all-stock or all-bond portfolios over decades.

Take the Quiz

Module Quiz
What percentage of return variability is explained by asset allocation?
You should rebalance your portfolio constantly to catch market swings.
A 50-year-old should ideally allocate approximately: