How should you plan your asset allocation?

I'm an overseas Indian and have been investing in mutual funds under the growth category for almost 2 years. My portfolio has now grown to around ₹1 crore, and I plan to continue investing for another 8 years, aiming for early retirement at 45. Should I start considering asset allocation now? Also, should I count bank fixed deposits under my NRE accounts as part of my debt allocation?

You should start considering asset allocation after you've built a substantial amount, such as five years' worth of savings. Early on, you don't have much to lose, so focus on growing your wealth. Once you've accumulated a meaningful corpus, then it's time to think about asset allocation to protect your wealth.

The advantage of asset allocation is that it allows you to course-correct and gives you control. If the market dips, you'll have a plan to invest instead of regretting being fully invested in equity without a strategy. Essentially, asset allocation provides a logical framework for action.

Suggested read: Real, practical asset allocation

Having said that, if you have sufficient time in hand, you may continue with even a 100% equity portfolio, if you are comfortable with it. As your retirement goal approaches, it's wise to gradually reduce your risk by shifting a portion of your investments into debt instruments. As for your FDs, they should definitely be factored into your overall debt allocation.

Conclusion

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Also read: 'How do I decide my asset allocation?'

This article was originally published on October 04, 2024.