We all know putting all eggs in one basket could be dangerous if the basket goes bust. Similarly, keeping all your savings and investments in one class of assets could be either risky or would not give a reasonable mix of returns.

There are several classes of assets available for an individual to park their savings.  Some are risky, some are safe, some are reasonably safe, and some are somewhat risky. Some are liquid, some are illiquid, and some are anything in between. Some are of short-term maturity, some are of long-term maturity, and some are in between,

	Instruments	Tenure	Risk	Return
1	Post Office Deposits SchemesPPF	1 to 5 Years15 years	NilNil	LowLow
2	Bank Fixed Deposits (PSUs)	1 to 5 or more years	Nil	Low
3	Bank Fixed Deposits (Non-PSUs)	1 to 5 years	Medium	Low
4	Company Fixed Deposits	1 to 5 or more years	High	Medium
5	Govt Bonds	1 to 20 years	Nil	Low
6	Private Company Bonds	1 to 5 or more years	Medium	Medium
7	Mutual Funds – Debt	Any time liquid-able	Low	Low
8	Mutual Funds – Balanced	Any time liquid-able	Medium	Medium
9	Mutual Funds – Equity	Any time liquid-able	High	high
10	Life Insurance – ULIPs	5 years or more	Low	Low
11	Equity Shares	Any time liquid-able	High	High
12	Chit Funds		High	Medium
13	Real Estate	Liquidity is not easy	Medium	High
14	Gold	Any time liquid-able	Low	Low
15	There are many other instruments. Know and evaluate based on these aspects of risk, return, and liquidity.

“The difference between success and failure is not which stock you buy or which piece of real estate you buy, it’s asset allocation.” Tony Robbins

There are several schemes under each class of assets.  Therefore, suitable asset allocation is an important aspect of personal finance management. Imbalanced asset allocation can not only affect your return on investment but it could also hamper the liquidity when it’s needed.

For optimum asset allocation, investment in a range of safe asset classes is necessary.

There are primarily three things to consider while allocating assets.

Risk vs Return

The number one aspect is the risk attached to the asset class. Risk is of two types, one market-related risk and another is a scam-related risk.

Equity shares are risky but it’s a market-related risk. However MLM schemes and Chit Funds are prone to scam-related risk.

The famous Sharda Chit Fund, Rose Valley Chit Fund, and Pan Card Club scams are well-known examples. Avoid this asset class altogether. These are unregulated schemes and subject to high risk.

On the other hand, equity shares of good and leading companies though by nature are risky but have the potential to offer the highest return in the long term. Unless you are totally risk-averse, you should consider equity shares as an asset class for investment.

Short term vs Long term

This is another vital aspect. Life stage events in our life require money. For a young couple, it starts with children’s education, children’s higher education, own/parents healthcare, children’s marriage, own retirement.

Depending upon the stage of life, you are in, you need to plan the timing of your investment maturity. This planning would avoid any premature withdrawal of investments. Usually, premature and unplanned termination of investment has a cost. You can avoid that and buy peace of mind through adequate time planning.

Liquid vs illiquid

This is another aspect vital for asset allocation. There are many illiquid rich people. They are asset-rich but cash-poor. Do not get into this trap. It is always advisable to keep some assets in cash/bank balance, and assets like fixed deposits / mutual funds which can be liquidated in case of an emergency.

Life insurance (term plan) and health insurance both are expenses but are important expenses. You will not earn any return on it but they are useful in the event of any untoward incident in life. These are the risk management aspects of financial planning.

“An asset allocation plan is based on your personal circumstances, goals, time-horizon, and need and willingness to take the risk.”  Michael LeBoeuf

Allocate your assets according to your appetite and your specific requirements. As our life is dynamic and subject to mang surprises and unplanned events, asset allocation is not a one-time job, it’s a dynamic thing to match the changing requirements of our lives.

Financial planning has become very complicated as the products under each asset class and companies offering such products have multiplied manifold. Unless you are financially savvy, you will need expert advice.

But to keep it simple you need to keep 5 things in mind.

1. Diversified asset allocation is necessary
2. Divide between risk and return
3. Divide between short-term and long-term
4. Divide between easy-to-liquid and less liquid
5. Insurance (life and health) is mandatory

“The most important key to successful investing can be summed up in just two words-asset allocations.” Michael LeBoeuf