Investing for the long-haul may take various shapes and forms. The tried and tested traditional methods of asset allocation by portfolio managers seeks to strike an equilibrium, utilizing the three paths of wealth accumulation, which are stocks, cash, and bonds. Getting the right mix of these three while taking into consideration your own risk aversion is the first step to developing a proper wealth plan.
Are you looking to develop your own financial plan?
The table below shows the main paths of asset allocation depending on the investor type. You can use it as a guide to allocate your savings to build wealth.
| Type of Investor | Stocks | Bonds | Cash |
| Conservative | 20% | 55% | 25% |
| Moderately Conservative | 40% | 50% | 10% |
| Moderate | 60% | 35% | 10% |
| Moderately Aggressive | 70% | 25% | 5% |
| Aggressive | 80% | 15% | 5% |
Source: Merrill Edge Asset Allocation Models
How the 3 Paths Work
In simple terms, stocks are basically company shares and give returns in terms of dividends, share price growth and outrunning inflation.While bonds, on the other hand, are fixed income for the duration of investment, usually low risk and is best for retirement savings. Cash is the most common and the most easily accessible and hence, it is best for your emergency funds.
What Else Should You Consider
- Take on minimum 10 -15% savings of which you should move through the three asset classes and ensure you strike the right balance.
- As you develop your wealth plan, try to integrate strategies that seek to preserve the wealth you have accumulated over the years as you grow older. This is basically, moving from a more aggressive approach to a more conservative approach.
- Consider investing more in any assets that outrun inflation i.e. equity, real estate and bonds.
- Stocks/ Equity does not limit you to only invest the NSE, opt to start your own company or take stock in start-ups you may be familiar with.
Final Thoughts
“In everything, the middle course is best: All things in excess bring trouble to men” – Titus Maccius Plautus, a Roman comic playwright. If you enjoyed this post, I would be very grateful if you’d help it spread by emailing it to a friend or sharing it on Twitter or Facebook. Thank You.
Happy Investing!
Meanwhile, You can click on the following links to read more on building wealth:
- 5 Habitudes of Successful Wealth Builders
- Save Money in 10 Practical Ways
- Leverage: The Key to Amassing Wealth
- How to Make Millions in Stocks
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.