Old saying which most of us would have heard in some or different version.

Don’t keep all your eggs in same basket!

It is all about asset allocation, if the basket falls then you loose all the eggs. The same is with the assets, if you keep all your assets in one place like Stock market or Bank or Cash, and if something goes wrong then you loose everything.

We know it is important but many times we just go by our instinct or emotions or ignorance and do not use this holy principal of investing.

Lets find out if you are using asset allocation, by following questions –

1. What goal you are investing for ?

You are investing because you should invest or you know your goals and the time you have to achieve those goals?

And do you know if you current asset allocation will get you there ?

2. What will you do, if market falls by 30% tomorrow?

Do you have such experience from past investing?, if not then most probably you do not know.

But if the market falls 30%, will you sell all or part of the shares/ Mutual funds you own or you will buy more ?

If you are the one which will sell, check if you are over invested in the market which can erode your substantial assets in case of market falls and you sell.

And if you are the one which will buy, check if you have sufficient money sitting in cash and debt funds, which can help you buy when the market falls.

3. For how many months you can maintain current lifestyle with no income and no sale of assets ?

If the recession hits, you loose your monthly income and market falls tomorrow by 30%, what will you have to do to keep you family going as almost nothing had happened ?

Will you have to sell the investments at loss ? or you have 6 months equivalent money sitting in cash or bank to the keep the show going ?

4. When is the last time you had discussion with you advisor to figure how much you should invest in which category of assets ? or you thought about why you should invest in share and not Debt funds or keep it bank account ?

If you have discussed with your advisor, then do you know what should be your asset allocation ? and have you taken steps to align your investments accordingly ?

If you have not, then its all up in air, change in other factors like market, emergencies, distributor sales tactics etc. will decide the future of your investments (and your life!) and not you!!!

There can be many more such questions, but you can get the idea by above questions.

If the answer is “no” to most of the questions above and you are interested to know a bit more, please read following post in this series –

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What asset allocation you should have

What Asset allocation you should have ?