Asset Allocation

Asset allocation is a diversification strategy. Proper asset allocation helps balance risk and reward by dividing money between different asset classes - cash (liquid fund), debt and equities.

  • Cash or liquid funds are closest to a bank account and aim to generate 6-7% with minimal ups and downs
  • Debt like a bank fixed deposit typically offers low-volatility and fixed returns between 8-12%
  • Equity or stock market over-long term has the potential to return 15% and upwards with higher ups and downs than debt or liquid funds

How does Wealthy’s asset allocation work?

Depending on an investor’s time horizon and risk tolerance, Wealthy suggests the right mix between liquid, debt and equity funds. For instance, if an investor is looking at a very short-term horizon with very little tolerance for risk then money is invested in a portfolio which is 100% liquid funds. Similarly if someone is investing for long-term with an aggressive outlook then the money is invested in a 100% equity portfolio.

Further, in all such portfolios money is further allocated to different asset classes. For instance, 100% equity portfolio is allocated in certain ratio between small cap, mid cap and large cap equities. Such allocation helps you earn optimal returns while also maintaining the level of risk you are comfortable with.

How can I take advantage of asset allocation?

Each Wealthy portfolio has been simulated using historical data of last 15 years to create the most optimal allocation model.

Typically, to take advantage of asset allocation, users create multiple portfolios to meet their various needs. For instance for long-term wealth creation, most popular portfolio is Long Term Aggressive (100% equity) portfolio. People who have near term goals such as buying a car or saving money for marriage or vacation typically invest in Medium Term Balanced (60% equity, 40% debt) portfolio.