Allocating Diverse Asset Classes Equally Doesn’t Guarantee Success

When it comes to investing, there are four major asset classes: Equity, Debt, Commodity and Real Estate. The often followed approach is to allocate equal proportions in each asset class. However, each asset class has its own pros and cons. To get a better understanding on how to go about allocation, it is important that we understand the pros and cons of each asset class well. Asset Classes: Pros & Cons Debt: This refers to investments which offer guaranteed returns. Here, an investor will receive the interest decided at the time of investment. People often are charmed by the prospect of “guaranteed returns”. What they overlook is the opportunity cost of such an investment over the long term. A practical approach here is to have enough debt investment to cover six months’ worth of household expense and any other short term expense that is foreseen. The benefit of...